Edited version of private advice

Authorisation Number: 1051744010145

Date of advice: 31 August 2020

Ruling

Subject: Superannuation death benefits

Question

Is the Beneficiary a death benefits dependant as defined in section 302-195 of the Income Tax Assessment Act 1997 of the Deceased?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

The Beneficiary is a parent of the Deceased.

The Deceased passed away in 2018-19 year.

At the end of 2016, the Deceased sold his main residence and moved in with the Beneficiary to care for her. Deceased's intention was to remain with the Beneficiary to care for her until she was to pass away.

At the time of his death, the Deceased lived with the Beneficiary who had been widowed for many years.

The Beneficiary had suffered from several major health issues.

The Deceased provided the Beneficiary with ongoing domestic and personal support, including grocery and other shopping, household chores such as cooking, gardening and cleaning.

The Deceased also assisted the Beneficiary financially and paid off the Beneficiary's reverse mortgage which had been growing due to compounding interest. He paid bills either outright or sometimes he would share. This included for food, electricity, rates, prescriptions for medication, general repairs to the house such as with plumbers.

The Deceased was not married and did not have children either.

At the time of his death, the Deceased was in a relationship with a lady but did not live with her.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Subsection 302-200(1)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(b)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(c)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(d)

Income Tax Assessment Act 1997 Subsection 302-200(2)

Income Tax Assessment Act 1997 Subsection 302-200(3)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the Beneficiary, as all of the requirements which are set out in the relevant legislation have been satisfied in this case.

Therefore, the Beneficiary is a dependant of the Deceased within the definition of death benefits dependant.

Detailed reasoning

Death Benefits Dependant in relation to the Superannuation Death Benefit

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits that are made after 30 June 2007. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

Where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income.

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997. Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

A death benefits dependant, of a person who has died, is:

a)    the deceased person's spouse or former spouse; or

b)    the deceased person's child, aged less than 18; or

c)    any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

d)    any other person who was a dependant of the deceased person just before he or she died.

As the Beneficiary is a parent of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

You have contended that the Beneficiary was in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 states:

a)    Two persons (whether or not related by family) have an interdependency relationship under this section if:

b)    they have a close personal relationship; and

c)    they live together; and

d)    one or each of them provides the other with financial support; and

e)    one or each of them provides the other with domestic support and personal care.

Paragraph 302-200(3)(a) of the ITAA 1997 states that the regulations may specify the matters that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the matters to be taken into account as follows:

(a)  all of the circumstances of the relationship between the persons, including (where relevant):

(i)          the duration of the relationship; and

(ii)         whether or not a sexual relationship exists; and

(iii)       the ownership, use and acquisition of property; and

(iv)       the degree of mutual commitment to a shared life; and

(v)        the care and support of children; and

(vi)       the reputation and public aspects of the relationship; and

(vii)      the degree of emotional support; and

(viii)     the extent to which the relationship is one of mere convenience; and

(ix)       any evidence suggesting that the parties intend the relationship to be permanent; and

(b)  the existence of a statutory declaration signed by 1 of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was, in an interdependency relationship with the other person.

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two persons have, or do not have an interdependency relationship under section 302-200 of the ITAA 1997. These are specified in regulation 302-200.02 of the ITAR 1997.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively subsection 302-200(2) of the ITAA 1997, or one of the tests in regulation 302-200.02 of the ITAR 1997 must be satisfied for a person to be in an interdependency relationship with another person. It is proposed to deal with each condition in turn.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997. It states that two persons (whether or not related by family) must have a 'close personal relationship'.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR 1997.

A detailed explanation of subsection 302-200(1) of the ITAA 1997 is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 which inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). In discussing the meaning of close personal relationship the SEM states:

2.12 A close personal relationship will be one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties.

2.13 Indicators of a close personal relationship may include:

·         the duration of the relationship;

·         the degree of mutual commitment to a shared life;

·         the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged).

2.14 The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist.

2.15 It is not intended that people who share accommodation for convenience (e.g. flatmates), or people who provide care as part of an employment relationship or on behalf of a charity should fall within the definition of close personal relationship.

In the Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the Income Tax Regulations 1936, it stated that:

Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

As stated above, the intention of the law is that a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents would be expected to change significantly over time. It would be expected that the adult child would eventually move out and secure independence from their parents.

In this case, the Beneficiary is the parent of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death.

Due to the Beneficiary's ongoing health problems, the Deceased lived with the Beneficiary from late 2016 until his death and provided her with emotional, financial and domestic support. It was the Deceased's intention to stay with the Beneficiary to care for her until she was to pass away.

In respect of emotional support, it is accepted that the Deceased provided a significant degree of support to the Beneficiary, who has been widowed for many years, throughout the course of her illness by keeping her company.

It is clear that a loving and supportive relationship existed between the Beneficiary and the Deceased. Due to the Beneficiary's ongoing illness and resulting incapacitation, the relationship between the Deceased and the Beneficiary was above and beyond what would be expected for a parent and child. It is considered that overall the relationship between them is of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that two persons live together.

Prior to and at the time of the Deceased's death, the Deceased and the Beneficiary were living together in the Beneficiary's home. The Deceased had moved into the Beneficiary's home in late 2016 in order to provide a higher level of care.

Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance.

Financial Support

The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, and states that one or each of these two persons provides the other with financial support.

Financial support under paragraph 302-200(1)(c) is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

As the Beneficiary relied on a government pension, the Deceased continued to support her financially, by paying for her medications, groceries, utilities and other personal expenses. The Deceased paid off the Beneficiary's reverse mortgage for $143,786 in June 2017.

It is clear that the Deceased provided the Beneficiary with financial support during the last years of the Deceased's life. Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this instance.

Domestic support and personal care

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, and states that one or each of these two persons provides the other with domestic support and personal care. In discussing the meaning of domestic support and personal care, paragraph 2.16 of the SEM states:

Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attending to the household shopping, cleaning, laundry and like services. Personal care services may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

From the facts presented, the Deceased clearly provided domestic support to the Beneficiary on an ongoing basis. The Deceased provided the Beneficiary with significant assistance, including grocery and other shopping, household chores such as cooking, gardening and cleaning.

Therefore on the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

Conclusion

As all of the requirements in subsection 302-200(1) of the ITAA 1997 have been satisfied in this case, it is considered that the Deceased and the Beneficiary were in an interdependency relationship in the period prior to, and at the time of, the Deceased's death.

As the Beneficiary was considered to be in an interdependency relationship with the Deceased, the Beneficiary is a death benefits dependant as defined under section 302-195 of the ITAA 1997.