Edited version of private advice

Authorisation Number: 1051947219173

Date of advice: 1 March 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)?

Answer

Yes

Question 2

Is the superannuation lump sum death benefit received by the Beneficiary during the 20XX-XX income year excluded from their assessable income under section 302-60 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

The income year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Beneficiary is the parent of the Deceased.

The Deceased passed away on DD MM YYYY.

The Beneficiary did not reside with the Deceased prior to the Deceased's death.

The Deceased lived with the Beneficiary in the family home in early stage of the Deceased's life.

The Beneficiary could not live with the Deceased because of the Deceased's mental health issues.

The Deceased had suffered from a psychiatric disability for most of their life.

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

No tax was withheld on this death benefit payment as it was paid directly to the Beneficiary in their capacity as the Executor of the Deceased's Estate.

The Beneficiary provided financial support prior the Deceased's death

The Beneficiary cared for the Deceased until the Deceased death by providing:

(a)          financial support for the Deceased's health insurance payment, property purchase and loan repayments, groceries, car running expenses, credit card debts and cash to fund their living expenses.

(b)          domestic support for property maintenance and advice about finance, health, and personal relationships.

(c)          personal care and assistance to frequently check on the Deceased welfare through phone and email, accompany whenever they met in person and transport for shopping and attending medical appointments, particularly when the Deceased without a licence for several years.

(d)          emotional support, by constantly pre-empting and planning contingencies for inevitable crises that the Deceased would encounter in daily discussions with friends, family, and health professionals.

The interest free loan agreement shows that the Beneficiary lent money to the Deceased assist them with the purchase of their property.

The Deceased also cared for the Beneficiary until their death. The Deceased provided

(a)          domestic support by assisting the Beneficiary's housework at the Beneficiary's residence.

(b)          personal care and assistance to the Beneficiary whenever they met in person.

A private ruling application was submitted requesting a determination on interdependency relationships under

section 302-200 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-60

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

Superannuation lump sum death benefits

Under section 302-60, a superannuation lump sum death benefit received by a person who is a 'death benefits dependant' of the deceased, is not assessable income and is not exempt income.

Meaning of death benefits dependant

Subsection 302-195(1) defines death benefits dependant of a person who has died as:

(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 just before he or she died.

*To find the definition of asterisked terms, see the Dictionary, starting at section 995-1.

As the Beneficiary is a parent of the Deceased, paragraphs 302-195(1)(a) and (b) do not apply in this case. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an 'interdependency relationship' with the Deceased, or that they were a 'dependant' of the Deceased just before the Deceased died.

A ruling application was submitted for a determination on interdependency relationship under section 302-200 of the ITAA 1997. We will apply the law to establish if the Beneficiary had an interdependency relationship with the Deceased and therefore section 302-195 of ITAA applies.

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.

Regulation 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account. These matters are all of the circumstances of the relationship between the persons, including (where relevant):

(a)          the duration of the relationship

(b)          the ownership, use and acquisition of property

(c)          the degree of mutual commitment to a shared life

(d)          the reputation and public aspects of the relationship

(e)          the degree of emotional support

(f)           the extent to which the relationship is one of mere convenience

(g)          any evidence that the parties intend the relationship to be permanent; and

(h)          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.

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

(a)          they have a close personal relationship; and

(b)          they do not satisfy one or more of the other requirements set out in subsection 302-200(1) of the ITAA 1997 because one (or both) of them suffers from a disability.

Close personal relationship

A close personal relationship, as specified in subsection 302-200(1)(a), would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents would be expected to change significantly over time as the child moves out of home and obtained independence.

In this case. the Beneficiary provided the Deceased with intensive care and emotional support that exceeded the level which would be usually provided by a parent to an adult child. This shows that they had an exceptionally close relationship.

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

(a)          the Beneficiary and the Deceased emotionally supported each other by checking each other's welfare through ongoing and frequent phone and email

(b)          the Beneficiary provided interest-free loan to the Deceased to purchase the Deceased's property.

(c)          the facts indicate that the relationship between the Deceased and the Beneficiary was likely to be permanent; and

(d)          there is nothing to indicate that the relationship was one of mere convenience.

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.

Prior to the Deceased's death, the Beneficiary and the Deceased did not live together. The reason they could not live together because the Deceased suffered from a disability.

Regulation 302-200.02(4) of the ITAR 2021 states two persons can be in an interdependency relationship if they have a close relationship and the reason they live apart is due to one or both persons suffer from a disability.

Subsection 302-200(2) of the ITAA 1997 explains that the disability can be a physical, intellectual, or psychiatric disability. The Deceased in this case suffered from psychiatric disability and prevented them from living together with the Beneficiary, therefore paragraph 302-200(1)(b) of the ITAA 1997 is satisfied.

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 Deceased did not have sufficient income to support themselves financially and was financially dependant on the Beneficiary to pay for their health insurance, loan repayments on their property, groceries, car running expenses and credit card debts and provide with cash for living expenses.

As mentioned in the Close personal relationship section, the Beneficiary lent money to the Deceased on interest-free terms to assist them with purchasing a property.

Therefore, the Beneficiary provided the Deceased with financial support during the final years 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 Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004, which inserted formed section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936) 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.

The Beneficiary provided the Deceased with domestic support including:

(a)          significant support and assistance that included property maintenance;

(b)          providing advice regarding finances, health, and personal relationships;

(c)          checking up on their welfare through frequent and ongoing phone and email communication; and

(d)          transporting them for shopping and medical appointments, particularly when the Deceased was without a licence for several years.

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

The Deceased provided the Beneficiary with housework whenever they were at the Beneficiary's residence and checked up on the Beneficiary's welfare through frequent and ongoing phone and email communication.

Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 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 2021 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.

Taxation of the lump sum death benefits paid to dependants

Section 302-60 of the ITAA 1997 provides that a superannuation lump sum you receive because of the death of a person of whom you are a 'death benefits dependant' is not assessable and is not exempt income.

In this case, the Beneficiary is a death benefits dependant of the Deceased in accordance with paragraph 302-195(1)(c) of the ITAA 1997. Consequently, the superannuation lump sum paid to the Beneficiary by the Deceased's superannuation fund is non-assessable, non-exempt income under section 302-60 of the ITAA 1997.