The will of the deceased left the net assets of his estate equally to his three children, one of whom was the beneficiary.

On the date of death, the beneficiary lived with the deceased’s former spouse and an elder sibling, and, according to documents presented to the court, was in regular contact with the deceased.

The deceased had a binding child support agreement with the beneficiary's other parent which expired when the beneficiary turned 18. After its expiry, the deceased continued to pay the beneficiary a monthly stipend, as well as paying for the beneficiary's expenses for extracurricular school activities.

The court heard the deceased had also planned to pay the beneficiary's university fees which were included under his private health insurance plan and paid for out-of-pocket medical expenses. The beneficiary had low levels of taxable income in the period up to the date of death.

The ATO ruled that the beneficiary was not a dependent of the deceased person just before he died, stating that paragraph 302-195(1)(d) of the Income Tax Assessment Act 1997 is not satisfied and therefore, the beneficiary is not a death benefit dependant of the deceased.

The Commissioner stated in the ruling even though the beneficiary was living with their other parent and sibling at the date of death there is no evidence, or suggestion, of their having any liability to contribute towards the major expenses of the household, such as the mortgage, or rates.

“The beneficiary's second parent had taxable income for the 2021 and 2022 financial years and it is considered that they had the means to provide substantial financial support to the beneficiary who was also working part-time in recent years, and so earned income to contribute towards their regular ongoing personal expenses,” the ruling stated.

“While there is some evidence to supporting the fact that the beneficiary received a reasonable degree of financial support from the deceased, it is not considered that financial dependency has been proved. For financial dependency to be established, there must be more than the mere giving of money - there must be a relationship where one party relies on the other for what is required for their ordinary living.”

Under subsection 995-1(1) of the ITAA 1997, the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997 which defines a death benefits dependant as the deceased person's spouse or former spouse, the deceased person's child, aged less than 18, any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died, or any other person who was a dependant of the deceased person just before he or she died.

“As the beneficiary is the adult child of the deceased, paragraphs 302 195(1)(a) and (b) of the ITAA 1997 do not apply,” the ruling stated.

“As the beneficiary and the deceased did not live together, as is required by paragraph 302-200(1)(b) of the ITAA 1997 (and there is no information to suggest that the reason they did not live together is that either or both of them suffer from a physical, intellectual or psychiatric disability, as required by paragraph 302-200(2)(c) of the ITAA 1997), the requirements of paragraph 302-195(c) of the ITAA 1997 (interdependency relationship) cannot be satisfied. Therefore, it is necessary to consider paragraph 302-195(1)(d) of the ITAA 1997 – a 'dependant' of the deceased person just before he or she died.”

The ruling continued there are a number of case law decisions that specify what is required to establish financial dependency, with the definition of dependency addressed and interpreted in the High Court case of Kauri Timber Co (Tasmania) Pty Ltd v. Reeman (1973) 47 ALIR 184. The judge in this case said, “the principle underlying these authorities is that it is the actual fact of dependence or reliance on the earnings of another for support that is the test.”

Additionally, this was also reflected in Edwards v Postsuper Pty Ltd [2007] FCAFC 83 where the full court of the Federal Court agreed with the Tribunal that while the deceased provided many gifts to his family, it did not consider that would make the appellants and their family financially dependent on the deceased.