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Edited version of private advice

Authorisation Number: 1051935254604

Date of advice: 31 March 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

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)?

Answer

No

Question 2

Is the death benefit paid to the Beneficiary from the Estate of the Deceased tax free in the hands of the Beneficiary under Section 302-60 of the Income Tax Assessment Act 1997 (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 a sibling of the Deceased.

The Deceased died during mid 20XX.

Along with the Private Ruling application, payment summaries and statements from the relevant super funds was provided as evidence in relation to the Death Benefit payments and Superannuation entitlements of the Deceased.

The Beneficiary received a death benefit payment from the Deceased's superannuation funds.

The Beneficiary cared for the Deceased by providing:

•         domestic support by taking meals once a week and shared the meal

•         emotional support, including sharing time on a weekly basis to check if the deceased was going well and if there was anything they needed support with.

•         sharing the Beneficiary's motor vehicle with the Deceased when required.

The Deceased also cared for the Beneficiary by providing:

•         domestic support, including attending to gardening

•         provide transport to and from the hospital

•         assist with essential shopping for Beneficiary's spouse as she does not drive and due to health issues she was not able to carry heavy items

•         assistance with maintenance and operation of the Beneficiary's solar system.

The Deceased lived most of his life in the family residence. The Beneficiary and the Deceased lived together at this family residence for more than XX years before the Beneficiary moved out.

Following the death of the Deceased's parent, the Deceased purchased the family home and remained there for the remainder of their life.

The Deceased was never married and never lived in a de-facto relationship.

The Beneficiary stated that he suffers from a physical disability and had a medical condition. This made the Beneficiary rely on the Deceased to provide transport to and from hospital and to do essential shopping for the Beneficiary and his spouse.

Following the death of the Deceased, the coroner's findings led the Beneficiary to do further health checks which led the Beneficiary undergo a heart surgery.

The Beneficiary and the Deceased provided each other with emotional support and comfort whenever they meet, for example weekly.

Both the Deceased and the Beneficiary gave each other financial support in the form of non-monetary goods and services, including sharing tools. The Beneficiary was mainly dependent on the Deceased for his skills to assist with maintenance and operation of Beneficiary's solar system.

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(1)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(a)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(b)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(c)

Income Tax Assessment Act 1997 Section 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 Act 1997 Section 302-200(2)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(3)(b)

Income Tax Assessment Act 1997 Subsection 995-1(1)

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.

The Beneficiary was not financially dependent on the Deceased at the time of the Deceased's death, within the meaning in paragraph 302-195(1)(d) of the ITAA 1997.

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

Death benefits dependant

Subsection 302-195(1) 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 a sibling of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that they are either in an 'interdependency relationship' with the Deceased in accordance with paragraph 302-195(1)(c) or they are a person who was a dependant of the deceased person just before he or she died in accordance with paragraph 302-295(1)(d).

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 states that two persons (whether 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.

Subsection 302-200(2) of the ITAA 1997 states, in addition, 2 persons (whether 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 suffer from a physical, intellectual or psychiatric disability

Subsection 302-200(3) of the ITAA provides that the regulations may specify:

(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship

To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 1997 (ITAR 1997) states that in considering paragraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are all relevant circumstances of the relationship between the persons, including (in this case):

•         the duration of the relationship; and

•         the ownership use and acquisition of property; 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; and

•         any evidence suggesting that the parties intend the relationship to be permanent.

All the conditions already specified in subsection 302-200(1) of the ITAA 1997 or alternatively in subsection 302-200(2), must be satisfied for a person to be in an interdependency relationship.

Close personal relationship

In accordance with regulation 302-200.02 of the ITAR 1997, two persons have 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 them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than a mere friend or flatmate. For example, significant care provided to another person when they are unwell or when they are suffering emotionally.

The expression 'close personal relationship' is not defined in the ITAA 1997. However, the meaning of the term is discussed in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 which inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). According to the SEM:

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. flatmates), 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.

The Deceased did not provide significant care and support to the Beneficiary throughout their life. They did not provide each other with intensive and ongoing domestic and financial support.

The Beneficiary and the Deceased have not lived together for many years before the deceased passed away. The Deceased was unable to ever move out of the family's home. They would not have continued to live together if the Deceased were still alive. They did not have a strong mutual commitment to having a shared life.

The degree of support outlined in your contentions must be considered in accordance with paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997. It is acknowledged that the degree of emotional support provided by the Beneficiary to the Deceased is significant however this does not go beyond the level of emotional support that would typically be expected in a relationship between siblings. It is noted that the Deceased maintained a considerable amount of independence by living in his own home. As such, a consideration of paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997 does not sufficiently differentiate the situation in this case from others involving siblings.

In view of the above it is considered that whilst a close familial relationship existed between the Beneficiary and the Deceased, they were not in a close personal relationship as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, the requirements in paragraph 302-200 (1)(a) of the ITAA 1997 have not been satisfied.

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 did not live together.

No evidence has been provided that the Beneficiary and the Deceased had committed to a shared life together and intended the relationship to be permanent. Therefore, it is considered that the Beneficiary and the Deceased did not live together for the purpose of satisfying paragraph 302-200(1) (b) of the ITAA 1997.

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.

You contend that the Beneficiary and the Deceased provided each other with financial support by way of non-monetary goods and services. No evidence has been provided to demonstrate either that the Deceased was financially dependent on the Beneficiary or that the Deceased contributed to the Beneficiary's household expenses.

Accordingly, the requirements specified in paragraph 302-200(1)(c) of the ITAA 1997 have-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.

Applying the above to the present facts listed under Relevant facts and circumstances section (points 8,9 and 10), it is accepted that the Beneficiary provided the Deceased with domestic support and personal care as required under paragraph 302-200(1)(d) of the ITAA 1997.

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

As all of the conditions already specified in subsection 302-200(1) of the ITAA 1997 have not been met consideration needs to be given to subsection 302-200(2),

To meet the conditions of this section paragraphs (a) to (f) have to be met. As set out in paragraphs 15 - 18 is considered that a close familial relationship existed between the Beneficiary and the Deceased, but it was not a close personal relationship as envisaged by paragraph 302-200(2)(a) of the ITAA 1997.Therefore as paragraph 302-200(2)(a) has not been met subsection 302-200(2) has not been satisfied.

Financial dependency

A person may also qualify as a death benefits dependant where they were a dependant of the deceased person just before he or she died, per paragraph 302-195(1)(d) of the ITAA 1997. Therefore, we will now consider whether Beneficiary is a financial dependant of the Deceased.

According to the Macquarie Dictionary (2000 multimedia edition), one meaning of the term dependant is 'a person to whom one contributes all or a major amount of necessary financial support'.

In the CCH Macquarie Concise Dictionary of Modern Law, a dependant is defined as being 'a person substantially maintained or supported financially by another'.

In both dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial. In determining whether a person is a dependant it is necessary to establish the actual level of financial support that was provided to that person by the deceased. This is because dependence is assessed based on the fact of dependence or reliance on the earnings of another for support. This is a question of fact (Aafjes v. Kearney (1976) 180 CLR 199, per Chief Justice Barwick).

Senior Member Fayle of the Administrative Appeals Tribunal (AAT), in case [2000] AATA 8, in considering the definition of 'dependant' in relation to former section 27AAA of the ITAA of the ITAA 1936 stated:

The Act is primarily concerned with commercial and financial matters. An Act relating to the imposition assessment and collection of tax upon income. As such, a question of dependency should be construed within that context. The relevant question in this sense is whether the applicants were financially dependent on their son at the relevant time.

Where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. So, a financial dependant is a person to whom another person contributes all or a major amount of necessary financial support. If the level of financial support is insignificant or minor, beyond a level of subsistence, then the person should not be characterised as a dependant in terms of paragraph 302-195(1)(d) of the ITAA 1997.

In the case of Aafjes v Kearney (1976) 180 CLR at page 207 Gibbs J cited the High Court case of Kauri Timber Co (Tas) Pty Ltd v Reeman (1973) 128 CLR 77 at pages 188-189, and further clarified uncertainty concerning dependency noting

...but it does not follow from it that a person who in fact receives some support from one person cannot properly be said to be wholly dependent on another. It is not the mere fact of receipt of support but the dependence or reliance upon another to provide it that matters. [Emphasis added]

In the Victorian Supreme Court case of Fenton v. Batten [1949] ALR 69; [1948] VLR 422, Justice Fullager made the following comments regarding dependency:

The word dependant is, in a true sense a technical term. If the evidence established that the alleged dependant relied on or relies on another as the source wholly or in part of his or their existence, then dependence is established. Question of scale of living do not enter into the matter in the absence of some such statutory enactment.

These comments made in Fenton v. Batten when read in the context with the facts established in that case, confirm the definition of dependant contained in the CCH Macquarie Dictionary of Modern law and the meaning quoted above from the Macquarie Dictionary.

In the full High Court case of Kauri Timber Co. (Tas) Pty Ltd v. Reeman (1973) 128 CLR 177, Justice Gibbs (as he then was) in speaking of previous cases on the issue of dependency stated that:

The principle underlying these authorities is the actual fact of dependence or reliance on the earnings of another for support that is the test.

Handing down the decision in Re Malek v. Commissioner of Taxation (Cth) Case [1999] AATA 678 (Malek), Senior Member Pascoe further clarified the meaning of the word dependant, stating:

In my view, the question is not to be decided by counting up the dollars required to be spent on the necessities of life for [Mrs Malek], then calculating the proportion of those dollars provided by the [son] and regarding their as a dependant only if that proportion exceeds 50%... In my view, the relevant financial support is that required to maintain the persons normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard.

In Malek, the evidence supplied by the taxpayer was able to demonstrate that the financial support received from their deceased son had been significant. The son had accepted responsibility for mortgage repayments, maintenance and other expenses of the unit in which the taxpayer lived.

That dependency involves more than the mere receipt of support, but also reliance on it, was affirmed by Hamilton J in Griffiths v Westernhagen [2008] NSWSC 851, [58]:

For a relationship of dependency to be established, there must be more than the mere giving of money. Rather there must be a relationship where one party relies on the other for what is required for their ordinary living.

The tenor of the case law noted above refers to a level of dependency to maintain the dependant's ordinary living (Griffiths v Westernhagen), normal standards of living (Malek's case) and relying on another as a means of subsistence (Kauri Timber Co (Tas) Pty Ltd).

If the financial support provided merely supplements the person's income and represents quality of life payments, then it would not be considered substantial support.

The point to be considered is whether the facts show Beneficiary relied on the earnings of the Deceased to maintain an ordinary standard of living at the time of the Deceased's death.

In this case, you have advised:

•         Both the Deceased and the Beneficiary gave each other financial support in the form of non-monetary goods and services.

•         The Beneficiary was mainly dependent on the Deceased for his skills to assist with maintenance and operation of Beneficiary's solar system.

•         Beneficiary assisted the Deceased with many renovations at his home and the Deceased was helping Beneficiary's spouse with driving to shopping or assisting with garden chores.

•         The Deceased and the Beneficiary shared the tools

•         Beneficiary shared his previous motor vehicle when the Deceased's vehicle was failed to operate

•         Every week the Beneficiary prepared and shared a meal with the Deceased.

The evidence does not support that the Beneficiary needed financial support from the Deceased to maintain his standard of living. The support was at best to supplement their income by way of the exchange of some non- monetary services between the Beneficiary and the Deceased.

Taxation of a Death benefits

According to section 302-60 of the ITAA 1997:

A superannuation lump sum that you receive because of the death of a person of whom you are a death benefits dependant is not assessable income and is not exempt income.

In other words, the benefit paid from the estate of the Deceased to the Beneficiary will be tax free in accordance with section 302-60 of the ITAA 1997.

In this case as the beneficiary is not a Dependant of the deceased the superannuation lump sums received will not be tax free in accordance with section 302-60 of the ITAA 1997.

Conclusion

As all 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.

The Beneficiary was not financially dependent on the Deceased just before the Deceased died and therefore the conditions in paragraph 302-195(d) of the ITAA 1997 have not been met.

As the Beneficiary was not in an interdependency relationship or financially dependent on the Deceased just before the Deceased died, the Beneficiary is not a death benefits dependant as defined under section 302-195 of the ITAA 1997.