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Edited version of private advice

Authorisation Number: 1051909154679

Date of advice: 9 December 2021

Ruling

Subject: Superannuation death benefit - interdependency relationship

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

The Beneficiary is the parent of the Deceased.

The Deceased was born in Month 19XX on died in the month 20XX i.e. age around XX years.

The Beneficiary applied for a private ruling.

In the month 20XX, the Deceased was diagnosed with a terminal illness. During late 20XX the Deceased's condition worsened and, in the month, 20XX the deceased was admitted to the Hospital for intensive treatment.

The Beneficiary was not financially dependent on the Deceased as the Beneficiary received income.

The Deceased was not financially dependent on the Beneficiary as the Deceased received income.

Until late 20XX the Deceased was living independently but as the health condition of the Deceased worsened, they were admitted to the Hospital in the month 20XX. The Deceased was in the hospital for just over a week for further testing and treatment, after which the Deceased moved into the house of the Beneficiary and lived there until the date Deceased passed away.

The Beneficiary cared for the Deceased by providing daily care and support when the deceased moved in with Beneficiary after an intensive treatment at the Hospital where the deceased was admitted for about a week

•         Deceased lived at the Beneficiary's house rent free for four months just before the deceased died

•         Beneficiary was available as a full-time carer for four months just before the deceased died by providing personal care and assistance, including, taking them to medical appointments

•         Beneficiary provided emotional support, i.e. comfort, consoling when needed.

The Deceased also provided:

•         financial support, including contribution to the cost of utility bills and groceries

•         domestic support, including attending to household shopping online.

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 (1997 Act) Regulations 2021 (ITAR 2021) 302-200.01

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

Reasons for decision

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

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

Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is assessable income, taxed under section 302-145 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.

The Beneficiary was 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, the Beneficiary 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.

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 (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 (in this case)

•         the duration of the relationship

•         the degree of mutual commitment to a shared life

•         the care and support of children

•         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.

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.

Subregulations 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

•         they have a close personal relationship; and

•         they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

­   they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

­   one (or both) of them suffers from a disability.

Subregulation 302-200.02(5) of the ITAR 2021 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 2021 must be satisfied for a person to be in an interdependency relationship with another person.

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 relevant facts to consider in this case are:

•         The Beneficiary provided significant care and support to the Deceased throughout their illness. They provided each other with intensive and ongoing emotional, domestic and financial support for the final few months. Further details of their care arrangements are provided below, under Financial Support and Domestic Support and Care.

•         The Beneficiary and the Deceased lived together since the Deceased's condition deteriorated or worsened and upon leaving the Hospital to get care and support. The Deceased continued to be significantly dependent on the Beneficiary for ongoing care and support, for the remainder of the Deceased's life.

•         However, while the Deceased and Beneficiary had a close relationship, they did not have a mutual commitment to a shared life. The Deceased was living independently with the Beneficiary's help before becoming too sick to live alone. They also lived independently before becoming sick. This indicates they lived together because of circumstances and it was only for the last few months of the Deceased's life that they lived together since 20xx.

Therefore, a close personal relationship as defined in the legislation did not exist between the Beneficiary and the Deceased and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not 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.

The Deceased lived most of their life independently and at a different address. When the Deceased was diagnosed with terminal disease, they continued to live independently but the Beneficiary assisted them on a weekly basis but more often daily basis to assist with dealing with illness including regular visits to the doctors, specialists and hospital.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together. However, the Deceased only moved into the Beneficiary's house upon leaving the hospital to get daily care and support. Prior to this arrangement the Deceased was living separately and independently. As such, the Deceased moving in with the Beneficiary was more of an incidental only.

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, the Beneficiary had sufficient income to support themselves financially and was not financially dependent on the Deceased to pay for their living expenses i.e., rent, bills, food, clothing, medical expenses, utilities, motor vehicle expenses and provide them with accommodation, meals or cash for living expenses.

However, the Beneficiary provided rent free accommodation to the Deceased and the Beneficiary paid for household expenses. Even though they weren't financially dependent on each other, in the last months of the Deceased's life, they did provide financial support to each other.

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 assistance with domestic chores and personal care, including taking to medical appointments, doing their shopping, preparing meals and medication.

In addition, the Beneficiary provided the Deceased with significant emotional support and comfort.

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 have not been satisfied, the Deceased and Beneficiary were not in an interdependency relationship in the period just before the Deceased's death.

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