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Edited version of private advice
Authorisation Number: 1051801853008
Date of advice: 28 May 2021
Is the Beneficiary a death benefit dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?
This ruling applies for the following periods:
Income year ended 30 June 20XX
Income year ending 30 June 20XX
The scheme commenced on:
1 July 2020
Relevant facts and circumstances
The Beneficiary was the parent of the Deceased.
The Deceased died on XX Month 20XX.
The Deceased did not have a spouse nor any children of their own.
Prior to the Deceased's death, the Deceased had lived in the same home as the Beneficiary. The Beneficiary had a 50% ownership in this home.
The primary reason why the Deceased had lived together with the Beneficiary their whole life was because the Beneficiary suffered from a severe and debilitating form of XXXXXX which required the Deceased to providing them with care and support to assist with their daily activities. Another reason was because of their cultural traditions and norms in which children to live at home and commit to a shared life with their parents unless they marry.
The Beneficiary received a death benefit payment from one of the Deceased's superannuation funds on which tax was withheld.
The Deceased did not make a death benefit nomination to their superannuation funds.
The Deceased had not created or executed a will.
The Deceased and the Beneficiary provided financial support to each other.
The Beneficiary provided domestic support for the Deceased in the form of cooking, cleaning, washing and buying groceries.
The Deceased provided personal care and domestic support for the Beneficiary due to their parent's work commitments and the Beneficiary's severe XXXXXX. The Deceased undertook domestic and non-domestic tasks such as painting, mowing the lawn, handyman tasks and other odd jobs around the home, and assisting the Beneficiary with daily activities such as vacuuming and personal care.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 302-60
Income Tax Assessment Act 1997 section 302-145
Income Tax Assessment Act 1997 section 302-195
Income Tax Assessment Act 1997 section 302-200
Income Tax Assessment Regulations 1997 Regulation 302-200.01
Income Tax Assessment Regulations 1997 Regulation 302-200.02
Reasons for decision
Meaning of death benefits dependant
Subsection 302-195(1) of the ITAA 1997 defines death benefits dependant of a person who has died as:
(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 just before he or she died.
*To find the definition of the asterisked terms, see the Dictionary, starting at section 995-1
As the Beneficiary is the parent of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an 'interdependency relationship' with the Deceased, or that they were a 'dependant' of the Deceased just before the Deceased died.
What is an interdependency relationship?
Subsection 302-200(1) of the ITAA 1997 states that two persons (whether or not related by family) have an interdependency relationship if:
(a) they have a close personal relationship; and
(b) they live together; and
(c) one or each of them provides the other with financial support; and
(d) one or each of them provides the other with domestic support and personal care.
Subsection 302-200(3) of the ITAA 1997 provides that matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under that section may be specified in the regulations.
To that effect, regulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) states that in considering subparagraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are all the relevant circumstances of the relationship between the persons, including (in this case):
(a) the duration of the relationship; and
(b) the degree of mutual commitment to a shared life; and
(c) the reputation and public aspects of the relationship; and
(d) the degree of emotional support; and
(e) the extent to which the relationship is one of mere convenience; and
(f) any evidence suggesting that the parties intend the relationship to be permanent; and
(g) the existence of a statutory declaration signed by one 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.
Regulation 302-200.02 of the ITAR 1997 sets out the circumstances in which two persons have, or do not have, an interdependency relationship under section 302-200 of the ITAA 1997 and provides that interdependency relationship exists where:
• two persons satisfy the requirements of paragraphs 302-200(1)(a) to (c) and one, or each of them, provides the other with support and care of a type and quality normally provided in a close personal relationship rather than by a friend or flatmate (for example, significant care provided for the other person when they are unwell or suffering emotionally).
• two persons have a close personal relationship and they do not satisfy the other requirements set out in subsection 30-200(1) of the ITAA 1997 because they are temporarily living apart, for example, one of the persons is temporary working overseas, or two persons have a close personal relationship and they do not satisfy the other requirements set out in subsection 30-200(1) of the ITAA 1997 because either or both of them suffer from a disability.
Two persons do not, however, have an interdependency relationship if domestic support and personal care is provided by one person to the other under an employment contract or contract for services or on behalf of another person or organisation such as a charitable organisation (subregulation 302-200.01(5) of the ITAR 1997.
Explanatory Statement to the Income Tax Amendment Regulations 2005 (No 7) which introduced regulations that specified matters that are, or are not, to be taken into account in determining whether two people have an interdependency relationship for the purposes of former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936) - the immediate predecessor of section 302-200 of the ITAA 1997 - states:
It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings.
Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.
Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.
Did the Beneficiary have a close personal relationship with the Deceased?
A close personal relationship, as specified in paragraph 302-200(1)(a) of the ITAA 1997, would not normally exist between parents and their children. This is because there would not be a mutual commitment to a shared life as an adult child's relationship with their parents would be expected to change significantly over time as the child moves out of home and seeks independence.
However, where unusual and exceptional circumstances exist, a relationship between a parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.
In this situation, the Beneficiary is the parent of the Deceased. Taking into consideration that the Deceased had lived with the Beneficiary their whole life, their living arrangements are considered to be one of necessity rather than one of convenience. As a result, we consider that a close family relationship existed prior to, and at the time of the Deceased's death.
Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.
Did the Beneficiary live with the Deceased?
The term 'live' is not defined in the ITAA 1997 or the Regulations. According to the Macquarie Dictionary, the term 'live' means to dwell or reside. The term 'reside' is defined as the action of dwelling in a particular place permanently or for a considerable time.
According to the facts of this case, the Deceased and the Beneficiary both lived at the same address at the time of the Deceased's passing and the Deceased had no intention to move out of the family home in the near future.
Hence, in this case, paragraph 302-200(1)(b) of the ITAA 1997 is satisfied as the Deceased and the Beneficiary lived together at the time of the Deceased's death.
Did the Deceased provide the Beneficiary with financial support (or vice versa)?
Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.
According to the facts presented, the Deceased and the Beneficiary provided each other with financial support.
In this case, as the Beneficiary and the Deceased provided each other with financial support, paragraph 302-200(1)(c) of the ITAA 1997 is satisfied.
Did the Deceased provide the Beneficiary with domestic support and personal care (or vice versa)?
Subregulation 301-200.02(1) of the Regulations provides that for the purposes of paragraph 302-200(1)(d) of the ITAA 1997, the support and care provided must be of a type and quality normally provided in a close personal relationship.
It has been established that the Deceased and the Beneficiary were in a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997.
As per the facts of this case, the Deceased not only provided the Beneficiary with a type and quality of domestic support and personal care normally expected in a close personal relationship, but also at a level well beyond that of a typical relationship between a parent and an adult child.
Based on the level of domestic support and personal care provided by the Deceased to the Beneficiary, we consider that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied.
As the conditions stipulated by subsection 301-200(1) of the ITAA 1997 have been satisfied, the Commissioner considers that there was an interdependency relationship and therefore the Beneficiary is a death benefits dependant in accordance with paragraph 302-195(1)(c) of the ITAA 1997.
Taxation of the lump sum death benefits paid to dependants
Section 302-60 of the ITAA 1997 provides that a superannuation lump sum you receive because of the death of a person of whom you are a 'death benefits dependant' is not assessable income and is not exempt income.
In this case, as the Beneficiary is a death benefits dependant of the Deceased in accordance with paragraph 302-195(1)(c) of the ITAA 1997, the superannuation lump sums paid to the Beneficiary by the Deceased's superannuation funds are regarded as non-assessable income, non-exempt income under section 302-60 of the ITAA 1997.