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Edited version of private advice
Authorisation Number: 1051875696668
Date of advice: 29 July 2021
Subject: Death benefit interdependency
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), by virtue of being in an interdependency relationship with the Deceased?
Are the superannuation lumps received by the Beneficiary or the administrators of the deceased estate in relation to death benefits to which the Beneficiary becomes entitled as a beneficiary of the Deceased tax-free?
Subject: Death Benefit interdependency.
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.
• The Deceased died in the 20XX year.
• The Beneficiary was the parent of the Deceased.
• The Deceased suffered from major depressive disorder, anxiety disorder and post-traumatic stress disorder.
• The Deceased lived with both of their parents prior to their death. The Beneficiary is one of the parents of the Deceased, being parent 1.
• The Deceased worked in a business operated by parent 2 in a specified period.
• Towards the end of their employment, the Deceased became unwell and was unable to continue working.
• The Deceased subsequently received sickness benefits and at the time of their death was in receipt of a disability support pension.
• The parents of the Deceased provided them with ongoing domestic financial support and personal care by:
o Allowing the deceased to reside in the family home (for which the Deceased paid board of $X a fortnight);
o Purchasing and maintaining various domestic items for the home for use of the Deceased;
o Purchasing and maintaining a motor vehicle for the exclusive use of the Deceased;
o Paying health insurance premiums for the Deceased;
o Paying various personal and medical expenses of the Deceased; and
o Providing a credit card for the exclusive use of the Deceased and repaying amounts charged to the card.
• The parents of the Deceased attended to majority of domestic duties with occasional assistance from the Deceased.
• The parents of the Deceased provided the Deceased with substantial medical care and support but due to the worsening medical and mental conditions it was agreed, in early 20XX that they would need to live with their parents for the rest of their life.
• The Deceased was single and had no children.
• The Deceased lived with their parents permanently for number of years prior to their death.
• Various medical certificates were provided by the Beneficiary showing that the Deceased had medical and mental conditions during the relevant period.
• Various Centrelink medical reports were provided by the Beneficiary certifying the Deceased's ongoing medical problems that resulted in the Deceased receiving a disability support pension.
• The Beneficiary confirmed that the unit in which the Deceased temporarily resided whilst working in parent 2's business was owned by the Beneficiary.
• Various documentary evidence was provided by the Beneficiary showing that the Deceased resided with the Beneficiary at the same property location for number of years prior to their death.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 302-60
Income Tax Assessment Act 1997 section 302-195
Income Tax Assessment Act 1997 subsection 302-195(1)
Income Tax Assessment Act 1997 paragraph 302-195(1)(c)
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 Regulations 1997 Regulation 302-200.01.
1. An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the beneficiary just before the Deceased died. Therefore, the Beneficiary is a death benefits dependent of the Deceased as defined in section 302-195 of the ITAA 1997.
2. Section 302-60 of the ITAA 1997 states that lump sum death benefits to dependant are tax free as:
A superannuation lump sum that you receive because of the death of a person of whom you are death benefits dependent is not assessable income and is not exempt income.
3. 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.
4. As paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case, we need to establish whether the Beneficiary was in an 'interdependency relationship' with the Deceased, or whether the Beneficiary was a 'dependant' of the Deceased just before the Deceased died.
5. 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.
6. Subsection 302-200(3) of the ITAA 1997 provides that the matters and circumstances which are to be considered in determining whether an interdependency relationship exists between two persons under that section may be specified in the regulations.
7. To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 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):
• the duration of the relationship; and
• the degree of mutual commitment to a shared life; and
• the degree of emotional support; and
• the extent to which the relationship is one of mere convenience.
8. The facts provided indicate that the Beneficiary and the Deceased had an interdependency relationship in that:
• they had a close personal relationship;
• they lived together;
• the Beneficiary provided the Deceased with financial support; and
• the Beneficiary provided the Deceased with domestic and emotional support as well as personal care.
Close personal relationship
9. 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'.
10. This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and also in regulation 302-200.02 of the ITAR 1997.
11. 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 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. flat mates), 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.
12. The Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) further states:
'Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.'
Hence, 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. However, where unusual and exceptional circumstances exist, a relationship between a parent and adult child may be treated as an interdependency relationship.
13. The provided evidence shows that a close family relationship existed prior to, and at the time of the Deceased's death. The Beneficiary lived with the Deceased in the family home prior to their death and due to the severity of the Deceased's medical and mental conditions, you provided the Deceased with substantial domestic, medical and mental support.
14. The Deceased suffered severe illness from 20XX that escalated in 20XX. At that time the Deceased and the Beneficiary reached a mutual agreement that due to the severity of the Deceased illness, the Deceased will live with the Beneficiary for the rest of their life.
15. It is considered that due to the family circumstances and the Deceased's ongoing illness, the relationship between the Deceased and the Beneficiary was above and beyond what would be expected for a parent and adult child relationship. Overall, the relationship between the Beneficiary and the Deceased is of the type envisioned by the legislation.
16. Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.
17. The provided evidence show that the Deceased lived with the Beneficiary at their residence on and off since 20XX and permanently from the beginning of the 20XX year.
18. 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.
19. The facts show that the Beneficiary provided the Deceased with substantial domestic and medical care due to their medical condition. The Deceased paid the Beneficiary board of $X per fortnight for living with the Beneficiary in the family home.
20. The Beneficiary provided evidence supporting that the Deceased worked for parent 2 until they became unwell and received sickness benefits and then disability support pension that was paid to them until their death.
21. The Deceased provided the Beneficiary with some financial support by paying board prior to their death.
22. It is not necessary to look at the level of financial support provided as we are satisfied that it existed.
23. 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
24. Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attention to the household shopping, cleaning, laundry and like services.
25. The facts presented in this case show the Beneficiary provided domestic support and personal care to the Deceased on an ongoing basis due to their mental and medical condition. This consisted of undertaking household shopping, cooking, cleaning and general maintenance of the family home. The Beneficiary also provided the Deceased with counselling and emotional support to manage the Deceased's illness and visited the Deceased when in hospital. The beneficiary further assisted the Deceased with medical appointments, emergencies, dealing with Centrelink, banking and superannuation matters.
26. Therefore, based on the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied.
27. Based on the above, the Beneficiary met all the requirements of an interdependency relationship for the purposes of section 300-200 of the ITAA 1997. Therefore, the Beneficiary was a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.