CATCHWORDS

Income tax – Eligible termination payment – Parents beneficiary of son’s estate – Whether parents dependent on son at time of death or when ETP made – Meaning of dependant – Income Tax Assessment Act 1936, sec 27A, 27AAA(4)

Commissioner for Superannuation v Scott (1987) 71 ALR 408

REASONS FOR DECISION

1.                 Both applicants requested that this matter be heard in private.  The Tribunal is satisfied that by reason of the sensitive nature of the evidence that the identity of the applicants be confidential.  Therefore, pursuant to s35 of the Administrative Appeals Tribunal Act 1975 the Tribunal directs that the matter be heard in private and that the disclosure of the identity of the applicants be restricted.

2.                 The applicant’s son died in a motor vehicle accident on 26 July 1993.  The proceeds of his superannuation fund were paid equally to his parents (“the applicants”) during the year of income ended 30 June 1995.  The Deputy Commissioner of Taxation (“the respondent”) assessed the applicants on their respective share of the proceeds of the superannuation fund on the basis that it was an eligible termination payment (“ETP”)[1] and not exempt because neither applicant was dependant on the deceased at the time of his death or at the time of the payment of the death benefit.  The applicants have objected to that decision which is the matter for review by this Tribunal.

3.                 The applicants attended the hearing in the company of their daughter  who assisted.  All three gave evidence.  Mr Irwin McAleese, an officer of the Australian Taxation Office, represented the respondent.  Documents filed with the Tribunal pursuant to s37 of the Administrative Appeals Tribunal Act 1975 were in evidence.  The applicants also provided a prepared statement of evidence (Exhibit A1) and three relevant income tax returns (Exhibits A2, A3 and A4).

4.                 The issue is whether either or both of the applicants were “dependant”, as that term is defined in s27A (1), either at the time of the deceased’s death or at the time of payment of the death benefit.  If so, since the amounts paid are not “excessive” then they would be excluded from assessment as an ETP by operation of s27AAA (4).

5.                 It was not in dispute that the respective amount received by each applicant from the proceeds of the deceased’s superannuation policy was an ETP[2].

The Evidence

6.                 The applicants and their son and daughter were a close family.  They helped each other when able and the need arose.  The applicant’s (“husband” and ”wife”) and their daughter and her husband purchased a 7-day continental delicatessen shop in 1989.  At the time the husband was active in his cabinet-making business and the wife conducted a linen shop business. It was therefore agreed that their son would assist in the delicatessen although both applicant’s worked there once their other daily duties had finished and on week-ends.  The delicatessen was very much a family affair.  However, when the husband retired from his cabinet-making business he began full-time work in the delicatessen, replacing his son who had been paid about $250 per week.  Nevertheless, the applicants continued to lend financial support to their son who was unemployed.

7.                 When the son was married, his father spent considerable time and effort refurbishing his home unit owned by their son, where the young couple lived.  When first married their son was studying part-time and working in the family business as mentioned.  The applicant’s assisted with his mortgage repayments. However, the marriage did not last and their son moved back home leaving the unit vacant whilst he decided whether to sell.  He then began full-time work with a bread manufacturer as a delivery driver whilst continuing to study part-time.  He also assisted with the family business by relieving his parents at weekends. 

8.                 The applicants said that they relied on the family assistance in the business, which was not doing very well and it could not afford to pay the wages otherwise necessary.  Both their son and daughter worked in the business, without remuneration.  The applicants maintained that without that help the business would not have survived and to that extent they were dependent on both children.  Indeed, their evidence was that after their son’s tragic death they were not able to carry on the business profitably and it was sold in 1995.

9.                 The income tax return for the husband for the year ended 30 June 1994 (Ex. A2) shows his assessable income to comprise $27,342 from his cabinet making job and only $485 from other sources.  For the year ended 30 June 1995, the year in question, his earnings from the cabinet-making job was $30,199 and income from other sources (excluding the ETP in question) to be only $483 (T3).  It would appear that the wife did not file an income tax return for the 1993/94 year as her earnings were below the threshold and for the 1994/95 year her assessable income was the ETP in question only (T3).  In the 1992/93 year each applicant returned $1,284 assessable income from the delicatessen business partnership (Ex. A3 & A4).  Whilst that was the only assessable income of the wife, the husband also derived $6,494 from his cabinet-making job (A3).

Submissions

10.             The applicants contend that they were dependent on their son prior to his death.  This dependency arose because their son had provided valuable assistance to their business for no reward, without which the business would not have survived. In support they pointed to the fact that the trustees of the superannuation fund had paid the proceeds to them on the grounds that they were satisfied that the applicant’s were dependants of their deceased son.

11.             Mr McAleese, for the respondent, submitted that the evidence shows that the applicants did not depend on their son for financial assistance at any relevant time, neither at the time of his untimely death nor at the time when the superannuation payment was made.  He further submitted that the respondent is not bound by any decision of the trustees of the superannuation fund, which would be made in accordance with the relevant trust deed.

The Discussion and Reasons

12.             The definition of “dependant” for the present purposes is found in s27A(1) of the Income Tax Assessment Act 1936 (“the Act”):

“dependant” in relation to a person:

(a)                     …

(b)                    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.

13.             Clearly, the applicants must therefore satisfy the ordinary meaning of the word “dependant” to qualify.  The Macquarie Dictionary defines “dependant” as:

“1. one who depends on or looks to another for support, favour etc. 2. a person to whom one contributes all or a major amount of necessary financial support.

14.             The Act is primarily concerned with commercial and financial matters “… An Act relating to the imposition, assessment and collection of tax upon incomes”[3].  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.  In Commissioner for Superannuation v Scott (1987) 71 ALR 408 the Full Federal Court (Fisher, Spender and Pincus JJ) took the view that dependence may refer to reliance on another for support, not only in fact but also in need (414).

15.             In the present case there is no suggestion that the applicants were in any sense financially dependent on the deceased.  Indeed, the evidence is that for almost all of his life the deceased relied in varying degrees upon the generosity of the applicants for his financial support.  The Tribunal understands that the dependence asserted by the applicants is one of physical support helping out with the running and management of the family business.

16.             However, the evidence does not support a conclusion that either applicant relied to any significant extent on the profits of the family delicatessen business for their financial survival.  In the years immediately preceding the death of their son and the years following up to the time of the payment by the trustees of the superannuation fund, the applicants’ financial support came primarily and principally from the husband’s employment as a cabinet maker.  The son’s participation in the physical running of the family delicatessen business was customary for that family and was not a factor which, of itself, contributed to the financial support of the applicants.

Decision

17.             For the reasons and pursuant to s43 (1)(a) of the Administrative Appeals Tribunal Act 1975, the objection decisions under review are affirmed.

Date/s of Hearing                        7 December 1999

Date of Decision                         January 2000

Counsel for the Applicant           In person

Solicitor for Applicant                

Counsel for the Respondent      Mr I McAleese

Solicitor for the Respondent      Australian Taxation Office