Edited version of private advice

Authorisation Number: 1051934182714

Date of advice: 17 February 2022

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

Yes.

Question 2

Are the superannuation lump sum death benefits to be paid to the Beneficiary during the 20XX-XX income year 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

The Beneficiary is the adult child of the Deceased.

The Deceased died on XX December 20XX.

The Beneficiary was over 18 years old when the Deceased died.

You provided Statutory Declaration from The Beneficiary, Beneficiary's father and The Executor of the Estate of the Deceased including the information/facts listed below.

Information provided on the Statutory Declaration by The Beneficiary

•         The Deceased passed away on XX December 20XX

•         The Deceased and Beneficiary's father were separated in around 20XX

•         The Deceased was a chronic alcoholic with various underlying medical conditions including anxiety, depression, and liver disease and as such needed care support.

•         Beneficiary lived with her father and siblings until XX Month 20XX but stayed with the Deceased most weekends as she was concerned about the health and wellbeing of the Deceased

•         Beneficiary moved into the Deceased's house after getting her driver's licence

•         Beneficiary had the intention to live with the Deceased permanently to provide care and support. Beneficiary did not move into the Deceased's house for convenience or for shelter but intended to share life generally with the Deceased

•         Beneficiary continues to live in the same house with her partner and looking at receiving the house as inheritance from the Deceased

•         Relationship: Beneficiary was very close with the Deceased, they had great relationship and did almost everything together

•         Emotional support: as the Deceased was suffering from alcoholism, anxiety and depression, Beneficiary provided emotional support by spending time with the Deceased to give company and sometimes sleep together in Deceased's bed

•         Personal support: Beneficiary often help the Deceased to bed, assist with getting dressed, brushing her hair and help pack bags when the Deceased had to go into the hospital

•         Beneficiary called an ambulance on several occasions for the Deceased, including the last trip to the hospital

•         Domestic support:

a)    Beneficiary drove the Deceased for medical appointments and other attendances the Deceased need to attend to

b)    Beneficiary helped feed and look after the Deceased's dogs (still do it currently)

c)    Help buy groceries and do housework

•         Financial support:

d)    Beneficiary, when they could afford it, buy the groceries, and not seek reimbursement

e)    The Deceased paid the rates, electricity, and utility bills on behalf of the Beneficiary

f)     The Deceased did not charge the Beneficiary rent or boarding fee whilst living together

The Deceased was not financially dependent on the Beneficiary as the Deceased person received sufficient income from employment and profits from investments.

Information provided on the Statutory Declaration by The Beneficiary's father and Ex-husband of the Deceased

•         The Beneficiary and her siblings lived full time with the Father after his separation with the Deceased in 20XX, as the Deceased couldn't be relied on to get the Beneficiary to school

•         Beneficiary's Father dropped the Beneficiary to the Deceased's place on most weekends and most school-holidays

•         The Beneficiary's school was approximately XX kms away

•         The Beneficiary would have to ring the ambulance for the Deceased on several occasions while staying together during her age of 14-17 years. The Beneficiary sometimes had to clean up vomit and blood from the Deceased, as well as look after the Deceased's dogs and general cleaning duties

•         When the Deceased needed to go to hospital, the Beneficiary looked after the house and dogs

•         The Beneficiary got her driving licence in Month 20XX. The Beneficiary then moved into the Deceased's house permanently to help look after her while still going to school. This is when the Beneficiary moved her clothes and personal belongings that weren't already there as she has always had her own bedroom at the Deceased's house

•         The Beneficiary's room at the Father's house was renovated after she moved out and it became a guest bedroom

•         The Beneficiary was the Deceased's dependant and carer. Whilst they lived together the Deceased supported the Beneficiary

•         Beneficiary's Father mentioned that a child should not have to go through this, but the Beneficiary insisted she be there as she was worried about the health of her mother, the Deceased

•         Beneficiary's Father mentioned that unfortunately he does not have any evidence of her living with the Deceased as the Beneficiary did not have any bills to pay and her licence was still registered at his address as it had not been changed. The car was also registered under name of the father.

•         The beneficiary and the Deceased's dogs continue to live at the Deceased's formal house.

Information provided on the Statutory Declaration by The Executor of the Estate of the Deceased

•         The Beneficiary continues to live in the formal home of the Deceased, prior to the Estate being divided and this has been agreed by all parties

•         Discussion has also been had, and all parties agree, to the Beneficiary receiving the house or part thereof as her share when the estate is finalised.

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 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 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 not assessable income or 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 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.

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 (where relevant)

•         the duration of the relationship

•         the ownership, use and acquisition of property

•         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.

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. 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 Beneficiary and the Deceased had a close personal relationship before the Deceased's death are:

•         The Beneficiary provided care and support to the Deceased during the las few months of their illness. The Beneficiary provided the Deceased with intensive and ongoing emotional and domestic support. This level of care exceeded the care and comfort that would usually be provided by friends or flatmates. They had an exceptionally close relationship. Further details of their care arrangements are provided below, under Domestic Support and Care.

•         The Beneficiary and the Deceased have lived together since May 20XX. Due to their disability, the Deceased continued to be significantly dependent on the Beneficiary for ongoing care and support, for the remainder of the Deceased's life. They would have continued to live together if the Deceased were still alive. They had a strong mutual commitment to having a shared life.

Therefore, a close personal relationship existed between the Beneficiary 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, the Beneficiary and the Deceased lived together. As proper evidence or address proof was not available for the Beneficiary showing the address, this has been confirmed in the Statutory Declarations provided by the Beneficiary, Beneficiary's father (Ex-husband of the Deceased) and the Executor of the Deceased estate.

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.

The Deceased provided the Beneficiary with rent free accommodation from May 20XX until the death of the Deceased.

The Deceased paid for the rates, electricity, utilities, grocery and meals for the time Beneficiary was living with them.

Beneficiary would buy groceries sometimes when possible but did not seek reimbursement.

From the facts presented, the Deceased had sufficient income to support themselves financially and was not financially dependent on the Beneficiary to pay for their expenses and provide them with cash for living expenses.

Therefore, the Deceased provided the Beneficiary with financial support during the final months of the Deceased's life.

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 assistance with housework, buy groceries, drive to the medical appointments, helped the Deceased with putting the clothes on and pack bags when they had to go to the hospital.

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.

Support and care provided in a close personal relationship

Subregulation 302-200.02(2) of the ITAR 2021 provides that two people will still be in an interdependency relationship if they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997 and one or each of the parties provides the other with support and care of a type and quality normally provided in a close personal relationship, beyond what would normally be provided by a mere friend or flatmate.

From the facts presented, and information provided on the Statutory Declarations by the Beneficiary, Beneficiary's father, and the Executor of the Deceased's Estate, the Beneficiary provided the Deceased with care and support beyond what would normally be provided by a mere friend or flatmate. The Beneficiary provided significant care for the Deceased when they were unwell or suffering emotionally.

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 just before the Deceased's death.

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