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Edited version of private advice
Authorisation Number: 1051835322989
Date of advice: 14 May 2021
Subject: Superannuation death benefit - de-facto spouse
Is the Beneficiary a 'death benefits dependant' of the Deceased in accordance with Section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Will the portion of the superannuation death benefit that has been paid to the Estate of the deceased and which will be ultimately be distributed to the Beneficiary, be a tax-free payment in accordance with Section 302-10 of the Income Tax Assessment Act 1997?
This ruling applies for the following period:
Income year ending 30 June 20XX.
The scheme commences on:
1 July 20XX.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
1. The Deceased died without a will (intestate) in Month 20XX.
2. The Beneficiary was the de-facto spouse of the Deceased.
3. As the Deceased died without a will - under the laws of intestacy in State X, the full amount of the superannuation death benefit lump sum was passed to siblings of the Deceased.
4. At the time of death, the de-facto spouse and the Deceased lived together.
5. The de-facto spouse was a financial dependant of the Deceased.
6. The Deceased's siblings and the de-facto spouse entered into a Deed which determined a percentage of the superannuation death benefit would actually pass to the Deceased's de-facto spouse.
7. The Beneficiary was older than 18 years when the Deceased passed away.
8. The siblings of the Deceased have been granted Letters of Administration by the Supreme Court of South Australia to administer the affairs of the Estate of the Deceased.
9. You applied for a private ruling.
10. You provided a X-page affidavit as evidence that a de-facto relationship existed between the Beneficiary and the Deceased. The affidavit included, in detail:
• The Beneficiary's life and relationship prior to the passing,
• The financial support the Deceased provided his de-facto spouse (the Beneficiary),
• The domestic care and personal care the Beneficiary and the Deceased provided each other,
• The interdependence of the relationship,
• Supporting evidence in support of the above.
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
These reasons for decision accompany the Notice of private ruling for Deceased Estate.
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
A de-facto relationship including a relationship of financial dependency, defined under sub section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), existed between the deceased and the beneficiary.
Therefore, in accordance with section 302-60 of the ITAA 1997, the amount received by the beneficiary from the Trustee/s of the Deceased Estate is not assessable income. That is, the Benefit is tax-free.
Subsection 302-195(1) of the ITAA 1997 defines a '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 definitions of asterisked terms, see the Dictionary, starting at 995-1.
To conclude that the Beneficiary is a 'death benefits dependant' of the Deceased, it must be established that the Beneficiary was a 'dependant' of the Deceased just before the Deceased died.
Relevantly, ATO Interpretative Decision 2014/22 Income Tax: death benefits dependant- adult child caring for a terminally ill parent (ATOID 2014/22) considered the scope of paragraph 302-195(1)(d), stating:
The definition of death benefits dependant in paragraph 302-195(1)(d) does not stipulate the nature or degree of dependency, but it is generally accepted that this refers to financial dependence and it is a condition that must exist in relation to the taxpayer at the time of the deceased's death.
In the case of Malek (as Trustee for the Estate of Antoine Malek) v Federal Commissioner of Taxation 99 ATC 2294 (Malek) Senior Member Pascoe considered the standard of dependence which must exist, stating at paragraph 10:
In my view, the relevant financial support is that required to maintain a 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.
The Beneficiary was reliant on the Deceased for basic necessities such as food and shelter as well as the regular continuous contributions of money to maintain the standard of living to which they were accustomed.
Consequently, as the Beneficiary was a financial dependant of the Deceased, it is considered the Beneficiary is a 'death benefits dependant' of the Deceased for the purposes of section 302-195 of the ITAA 1997.
Death benefits paid to the trustee of a deceased estate
Subsection 302-10(2) of the ITAA 1997 states that:
To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the * superannuation death benefit:
(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
It is considered that the Beneficiary is a 'death benefits dependant' of the Deceased. Thus, the Benefit paid to the Trustee of the Deceased's Estate is treated as if it had been paid to a 'death benefits dependant' of the Deceased.
Once the payment is made from the Estate to the relevant beneficiary, it will not need to be included as assessable income in that beneficiary's tax return as the payment represents a distribution of the Estate
Lump sum death benefits to dependants
Section 302-60 of the ITAA 1997 states that:
A *superannuation lump sum that 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.
As such, the payment of the Benefit to the Trustee of the Deceased's estate will be not assessable income and is not exempt income. That is, the Benefit will be tax-free.
In accordance with section 302-60 of the ITAA 1997, the amount received by the beneficiary from the Trustee/s of the Deceased Estate is not assessable income. That is, the Benefit is tax-free.