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Is a beneficiary over 18 years of age considered to be a 'dependant' of the deceased for the purposes of section 27AAA of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes, in this case the taxpayer was considered to be a dependant for the purposes of section 27AAA of the ITAA 1936.

In this case the taxpayer (a child of the deceased) was paid a death benefit eligible termination payment (ETP) on the death of the parent. The taxpayer was over 18 years of age at the time of death and when the death benefit ETP was received. The taxpayer had given up work to care for the terminally ill parent and received no financial support from anyone, other than the parent, during that time.

If a death benefit ETP is made directly to a taxpayer who is a dependant of the deceased, either at the time of the deceased person's death, or at the time of payment of the death benefit, the Commissioner may reduce the amount that would otherwise be an ETP, so that it does not exceed the notional excessive amount (if any) that applies to the death benefit. The payment will be tax free if it is less than, or equal to, the deceased person's Reasonable Benefits Limit.

Under section 27AAA of the ITAA 1936, a 'dependant' as defined includes the spouse or former spouse (including a defacto spouse) of a person, any child of the person under the age of 18 years, and any other person who is dependent on the deceased person.

The definition of dependant in section 27A(1) of the ITAA 1936 does not stipulate the nature or degree of dependence, but it is generally accepted that this refers to financial dependence and it is a condition that must exist in relation to the taxpayer either at the time of death of the deceased, or at the time the payment is made.

The taxpayer was financially dependant on the deceased taxpayer at both the time of death and at the time the payment was made (Explanatory Memorandum for Income Tax Amendment Bill (No. 3) 1984, and Explanatory Memorandum for Taxation Laws Amendment Bill (No. 5) 1987). Note: the above analysis will only apply for payments made before 1 July 2007 as subection 27A(1) and section 27AAA of the Income Tax Assessment Act 1936 have been repealed by the Superannuation Legislation Amendment (Simplification) Act 2007 . The views in the ATO ID on who is a 'dependant' are relevant to decisions involving section 302-195 of the Income Tax Assessment Act 1997 in the 2007-2008 income year and later income years.