In a recent Private Binding Ruling (1052451473448), the commissioner said despite being subsidised by parent before their death, the beneficiary is not a death benefits dependant of the deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997).
The facts of the ruling state the beneficiary is the adult child of the deceased and received a death benefit payment from the deceased’s superannuation fund in the order of hundreds of thousands of dollars. The fund withheld tax in the amount of tens of thousands of dollars from the death benefit payment.
A private ruling was applied for, contending that the beneficiary was financially dependent on the deceased. To support their application, the beneficiary provided bank statements and credit card statements for the deceased as well as an ATO prefill summary confirming the beneficiary received assessable income from wages, salaries and Youth Allowance.
The beneficiary also provided a PAYG summary of the superannuation lump sum from the fund for a death benefit payment and confirmation of their enrolment in a university undergraduate academic program.
The beneficiary was living with the deceased at the date of death.
The ruling stated that for a relationship of dependency to be established there must be more than the mere giving of money. Rather there must be a relationship where one party relied on the other for what is required for their ordinary living.
It continued that in this case, provided ATO-prefill information and systems confirm that the beneficiary was in receipt of wages and salaries and Youth Allowance.
Bank account and credit card statements provided show that the deceased paid for essentials such as food and family health insurance, utilities including electricity, gas and water, internet, rates and household maintenance, as well as some medical and transport costs.
Furthermore, the documentation also showed that the deceased’s bank statements show some further financial support provided to the beneficiary, such as cash transfers for the reimbursement of groceries.
The evidence showed that during one income year, the beneficiary and deceased’s bank statements show that the beneficiary’s Youth Allowance was transferred to the deceased’s NAB account, generally on a fortnightly basis shortly after the money was first deposited to the beneficiary’s account.
Cash transfers were also made to the beneficiary by the deceased on a weekly-to-fortnightly basis and generally contain a notation, including computer, mcc part payment, refund for postage, and other items.
“While it is accepted that the deceased provided financial support to the beneficiary, it is not accepted that the level of support constituted financial dependency, particularly when it is clear that the money did not travel in one direction only,” the ruling stated.
“While the deceased provided financial support to the beneficiary, it is clear that the beneficiary provided a level of support (though less) to the deceased, including frequently reimbursing the deceased for expenses initially paid by the deceased.”
It continued that the beneficiary had sufficient income from employment and a government allowance to support themselves financially and was not financially dependent on the deceased to pay for their ordinary living expenses.
“Based on the evidence provided, the commissioner is not satisfied that the beneficiary was substantially reliant on regular and continuous financial support from the deceased for their ordinary living expenses,” it stated.
“As a result, paragraph 302-195(1)(d) of the ITAA is not satisfied, and the beneficiary is not a death benefits dependant of the deceased.”
It does feel like overreach by the tax office, especially the provision of housing accommodation. This stuff is yet to be fully tested, and I haven’t seen all the transactions in this case but the basic living needs including accommodation are likely to be a net debit for the recipient I would reasonably expect. Further, money going both ways leads to a possible conclusion of interdependency.
Unless they have a high lifestyle above basic needs or were saving money (I’m assuming neither would be true) then the beneficiary was clearly depending on the deceased for daily living.
My thoughts are the ATO is leaning on this really heavily to keep the Pandora’s box firmly shut. Once a legitimate one of these hits the courts I think the ATO might have some concerns other than Bendel😂😂