Superannuation, retirement & employment termination: Eligible termination payment (ETP): ETP death benefit dependant

Is a taxpayer in receipt of the Youth Allowance at the time of the death of a parent, a dependant of the parent for the purpose of section 27AAA of the Income Tax Assessment Act 1936 (ITAA 1936)?

The taxpayer is a dependant of the parent for the purpose of section 27AAA of the ITAA 1936.

The taxpayer receives a death benefit eligible termination payment (ETP) from the parent's superannuation fund after the parent's death. The taxpayer is over 18 years old at the time, was living at home with the parent until the parent's death and receiving the Youth Allowance payments from Centrelink.

Concessional tax treatment is available under section 27AAA of the ITAA 1936 when death benefit ETPs are paid to dependants. The term 'dependant' is defined in subsection 27A(1) of the ITAA 1936. Paragraph 27A(1)(b) of the ITAA 1936 states that a dependant of a person includes a child of the person under the age of 18 years. Since this is an inclusive definition, the term is interpreted according to its normal meaning with the proviso that a child of the person under the age of 18 years is by definition a dependant of the person.

Dictionary definitions of 'dependant' make reference to substantial financial support. That dependency involves substantial financial support or maintenance is supported by passages in the Explanatory Memorandum to the Income Tax Assessment Amendment Bill (No.3) 1984.

The determination of financial dependency is a question of fact. The Youth Allowance payments the taxpayer received were calculated at a lower 'at home' rate as opposed to the higher 'independent' rate. This indicates that the taxpayer was substantially financially dependent. A comparison of the level of financial support provided by the taxpayer's parent with that provided by the Youth Allowance payments also indicates that the taxpayer was financially dependent. 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payments made before 1 July 2007 as subection 27A(1) and section 27AAA of the Income Tax Assessment Act 1936 have been repealed by the Superannuation Legislation Amendment (Simplification) Act 2007 .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.