Edited version of private advice

Authorisation Number: 1051909642770

Date of advice: 19 October 2021

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the beneficiary a death benefits dependant of the deceased person according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being in an interdependency relationship with the deceased under section 302-200 of the ITAA 1997?

Answer

No

This ruling applies for the following period:

Income year ending 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

You are the adult child of the Deceased.

The Deceased died in Month 20XX.

As a nominated beneficiary you received a death benefit payment from the Deceased's superannuation fund. The Fund withheld tax from the lump sum death benefit.

You were entitled to X% of the lump sum death benefit. Your sibling received the other X%.

In 20XX the Deceased was re-diagnosed with XXXX.

You were not financially dependent on the Deceased.

You paid for expenses relating to the Deceased's illness that included pharmacy expenses, car parking fees and fuel for hospital care/medical appointments.

You cared for the Deceased by:

•                    providing personal care and assistance, including, taking time off work to take them to and from XXXX appointments, XXXX and XXXX

•                    providing emotional support

You would regularly travel to XXXX to support the Deceased when they were having treatment.

You lived with the Deceased for X weeks prior to their death.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 regulation 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 regulation 302-200.02

Reasons for decision

An interdependency relationship as defined under section 302-200 of the ITAA 1997 did not exist between you and the Deceased, as all of the requirements set out in the legislation have not been satisfied in this case.

Therefore, you are not a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

Superannuation death benefits

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 you are the adult child 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.

You were not financially dependent on the Deceased person and therefore, paragraph 302-195(d) is not applicable.

To meet the definition of a death benefits dependant, you must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

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.

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 (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account as follows:

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

•                    the duration of the relationship

•                    the ownership, use and acquisition of property; and

•                    the degree of mutual commitment to a shared life

•                    the degree of emotional support

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

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two people have, or do not have an interdependency relationship.

Regulation 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

Subregulation 302-200.02(2) of the ITAR 2021 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.

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 2021 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 2021.

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.

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.

•                    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.

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

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

•                    You provided significant care and support to the Deceased throughout their illness.

•                    You provided the Deceased with intensive and ongoing emotional support.

•                    This level of care exceeded the care and comfort that would usually be provided by an adult child to a parent.

Therefore, a close personal relationship existed between you and the Deceased 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, you and the Deceased lived together for the period of X weeks prior to her death.

In the context of paragraph 302-200(1)(b), the time the Deceased lived with you does not support a degree of permanency of living arrangements.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not 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, you were financially independent of the Deceased.

You paid for minor expenses relating to pharmacy and hospital/medical appointments. Based on the information provided the Deceased was not financially dependent on you.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has not 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 Deceased lived with you in the weeks prior to her death, however, there is insufficient information that either of you provided ongoing domestic support over a period of time. It is acknowledged that you provided the Deceased with significant emotional support during the course of her illness.

Therefore, the requirement in paragraph 302-200(1)(d) has been not been fully 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 not been satisfied, you and the Deceased were not in an interdependency relationship in the period just before the Deceased's death.

As you were not in an interdependency relationship with the Deceased, you are not a death benefits dependant as defined under section 302-195 of the ITAA 1997.