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Edited version of private advice

Authorisation Number: 1051940556537

Date of advice: 28 January 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Does the Beneficiary satisfy the meaning of a 'death benefits dependant' as defined in subsection 302-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is the superannuation lump sum death benefit received by the Beneficiary excluded from assessable income under section 302-60 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.            The Deceased passed away on XX Month 20XX.

2.            The Beneficiaries are the parents of the Deceased.

3.            The deceased became ill in Month 20XX, prior to this they were living at home with the Beneficiary and worked as a xxxxxxx.

4.            Due to the deceased illness and inability to work and pay board and contributions towards the household. The Beneficiary took over the payments for the deceased personal bills.

5.            In Month 20XX the deceased was diagnosed with xxxx xxxxxx, they never returned to work and had used up all their leave balances by then.

6.            The Beneficiary paid for all the Deceased medical treatment, including travel and accommodation, they also had to use their own leave entitlements, as the deceased underwent rounds treatment. A lot of which was in xxxxxx.

7.            Death Certificate confirming the Deceased lived at the same address as the Beneficiary.

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

Summary

An interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) existed between the Deceased and the Beneficiary, as all of the requirements set out in the legislation have been satisfied in this case.

Therefore, the Beneficiary is a death benefit dependant of the Deceased as defined under section 302-195 of the ITAA 1997.

Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is not assessable income and is not exempt income, as per section 302-60 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. 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.

A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as:

A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream, as defined in section 307-70 of the ITAA 1997.

The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 of the ITAA 1997.

Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.

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

The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

However, as you requested an assessment of an interdependency relationship, we considered paragraph 302-195(1)(c) of the ITAA 1997 for this ruling.

Interdependency relationship

Under subsection 302-200(1) of the ITAA 1997, an interdependency relationship is defined as:

Two persons (whether or not related by family) have an interdependency relationship under this section 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(2) of the ITAA 1997 states:

In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:

a)            they have a close personal relationship; and

b)            they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

c)            the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.

To assist in determining whether two people have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 provides that the regulations may specify the matters that are or are not to be taken into account.

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

·                    the duration of the relationship

·                    whether or not a sexual relationship exists

·                    the ownership, use and acquisition of property

·                    the degree of mutual commitment to a shared life

·                    the care and support of children

·                    the reputation and public aspects of the relationship

·                    the degree of emotional support

·                    the extent to which the relationship is one of mere convenience

·                    any evidence that the parties intend the relationship to be permanent; and

·                    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 with the other person.

Subregulation 302-200.02(2) of the ITAR 1997 provides that an interdependency relationship exists between two people where:

a)            they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997; and

b)            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 mere friend or flatmate, for example one person provides significant care for the other person when they are unwell or suffering emotionally.

Subregulation 302-200.02(5) of the ITAR 1997 states that two persons do not have an interdependency relationship if one of them provides domestic support and personal care to the other:

a)            under an employment contract or a contract for services; or

b)            on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

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. We deal with each condition in turn, to establish if an interdependency relationship existed.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that the 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 states:

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.

·                    As previously mentioned, 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),

·                    The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist, and

·                    People who share accommodation for convenience (such as flatmates) or people who provide care as part of an employment relationship or on behalf of a charity are not intended to fall within the definition of a close personal relationship.

The Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) stated that:

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

While this statement does not preclude a child from being in an interdependency relationship with a parent, it suggests that interdependency only exists where the relationship goes beyond the usual relationship between an adult child and a parent.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between a parent and an adult child because there would not be a mutual commitment to a shared life between the two. In addition, the relationship between parents and their adult children 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 an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1).

The relationship between the Beneficiary and the Deceased was over and above a normal family relationship between a parent and an adult child.

The matters that indicate the Deceased and the Beneficiary had a close personal relationship before the Deceased's death are:

·                    Due to the Deceased's medical conditions the Beneficiary cared for the Deceased and provided them with financial support from the start of the deceased's illness in 20XX, continuing after their diagnosis up until their death in 20XX. The Beneficiary paid for the Deceased's personal, living and medical costs. The Beneficiary also provided accommodation for the Deceased to live in.

Therefore, a close personal relationship existed between the Deceased and the Beneficiary and 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 interdependent persons (whether or not related by family) live together.

The term 'live' is not defined in the ITAA 1997 or accompanying 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. In the context of paragraph 302-200(1)(b), the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

Prior to the Deceased's death, they have lived at the same address as the Beneficiary all their life.

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

Financial support

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

Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

From the facts presented, the Beneficiary provided financial support for the Deceased personal, living and medical costs and took the Deceased to the hospital/doctor's appointments. The Deceased relied on the Beneficiary financial support due to their medical condition they were unable to work since Month 20XX.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied.

Domestic support and personal care

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, which 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 Beneficiary provided the Deceased with significant support and assistance that included food, accommodation, personal care, taking over all their personal bills and taking the Deceased to medical appointments.

Therefore, the requirement in paragraph 302-200(1)(d) has been satisfied.

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 and subregulation 302-200.02(2) of the ITAR 1997 have been satisfied, the Deceased and Beneficiary were in an interdependency relationship in the period before the Deceased's death.

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