Issue
Can a same sex partner be considered to be a dependant of a deceased member under subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the purposes of subsection 27AAA(4) of the ITAA 1936?
Decision
Yes. A same sex partner is considered to be a dependant of a deceased member under subsection 27A(1) of the ITAA 1936 for the purposes of subsection 27AAA(4) of the ITAA 1936.
Facts
The taxpayer was a partner of the deceased member who was of the same sex.
The taxpayer and the deceased member lived together.
The taxpayer did not derive any income.
The deceased member financially supported the taxpayer.
Reasons for Decision
Paragraph (ba) of the definition of 'eligible termination payment' in subsection 27A(1) of the ITAA 1936 provides, in part, that an ETP includes any payment made to the taxpayer from a superannuation fund by reason that another person was a member of the fund, where: '(i) the payment is made after the death of the other person; (ii) the payment is made to the taxpayer otherwise than as trustee of the estate of the other person;....'
A death benefit ETP is further defined under subsection 27A(1) of the ITAA 1936 as an ETP that is a death benefit within the meaning of section 27AAA of the ITAA 1936. This section defines the types of payments that are treated as death benefit ETPs and also provides concessional treatment for death benefits paid in relation to dependants.
In the circumstances of this case, a paragraph (ba) ETP constitutes an Item 2 death benefit pursuant to subsection 27AAA(2) of the ITAA 1936. Consequently, subsection 27AAA(4) of the ITAA 1936 applies to treat the benefit concessionally where the death benefit is paid to a taxpayer who was the dependant of the deceased person at the time of the deceased person's death or at the time of the payment of the death benefit.
The term 'dependant' is defined in subsection 27A(1) ITAA 1936 as follows: ''dependant' in relation to a person- (a) in subparagraph (3)(a)(ii), subsections (5), (5C) and (7) and paragraph (12)(a) includes- (i) another person who is or was the spouse of the person; and (ii) any child of the person; and (b) in any other case, includes- (i) another person who is or was a spouse of the person; and (ii) any child of the person, being a child who has not attained the age of 18 years.'
The relevant definition for this death benefit payment is paragraph (b) above. It should be noted that this definition is inclusive, not exclusive. This means that the term will be interpreted according to the normal meaning of the word, but that a spouse or a child of the deceased under 18 years of age will always be considered a dependant.
On the question of who is a dependant, paragraph 41 of Taxation Ruling IT 2168 states that a person who does not fall within the specific inclusions of the definition, will only be a dependant, if he or she was actually dependent upon the deceased taxpayer for maintenance and support.
According to The Macquarie Dictionary, one meaning of the term 'dependant' is - 'a person to whom one contributes all or a major amount of necessary financial support.'
In the CCH Macquarie Concise Dictionary of Modern Law a 'dependant' is defined as being - 'a person substantially maintained or supported financially by another.'
In both dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial. In determining whether a person is a dependant it is necessary to establish the actual level of financial support that was provided to that person by the deceased. This is because dependence is assessed on the basis of the actual fact of dependence or reliance on the earnings of another for support. This is a question of fact (Aafies v. Kearney 8 ALR 455, Barwick CJ at 456).
In Case [2000] AATA 8, 43 ATR 1273, Fayle SM in considering the definition of 'dependant' in relation to section 27AAA ITAA 1936 stated: 'The ITAA 1936 is primarily concerned with commercial and financial matters"...An Act relating to the imposition assessment and collection of tax upon incomes". As such, a question of dependency should be construed within that context. The relevant question in this sense, is whether the applicants were financially dependent on their son at the relevant time.'
Where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. So a 'financial dependant' is considered to be a person to whom another person contributes all or a major amount of necessary financial support. If the level of financial support is insignificant or minor, then the person cannot be regarded as a dependant.
In Kauri Timber Co . (Tas) Pty Ltd v. Reeman [1973] 128 CLR 177 at 180, Gibbs J (as he then was) in speaking of previous cases on the issue of dependency stated that: 'The principle underlying these authorities is the actual fact of dependence or reliance on the earnings of another for support that is the test.'
Handing down the decision in Malek v. Federal Commissioner of Taxation 42 ATR 1203, 99 ATC 2294 (Malek's case), Senior Member Pascoe of the Administrative Appeals Tribunal (AAT) further clarified the meaning of the word 'dependant', stating: 'In my view, the relevant financial support is that required to maintain the person's normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard.'
In Malek's case, the evidence supplied by the taxpayer was able to demonstrate that the financial support received from her deceased son had been significant. The son had accepted responsibility for mortgage repayments, maintenance and other expenses of the unit in which the taxpayer lived.
Taking into account all of the above, it is considered that financial dependence occurs where a person is wholly or substantially maintained financially by another person. The test to be applied is: if the financial support received by a person were withdrawn would the person be able to meet his daily needs.
The point to be considered is whether the facts show that the beneficiary 'depended or relied on' the earnings of the deceased for his day to day sustenance.
In this case we have accepted as fact that the taxpayer was reliant only on the deceased member for his day to day sustenance as the taxpayer did not derive an income. Therefore, the taxpayer is considered to be a dependant of the deceased member under subsection 27A(1) of the ITAA 1936 for the purposes of subsection 27AAA(4) of the ITAA 1936. 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.