Edited version of your written advice

Authorisation Number: 1013119448162

Date of advice: 3 November 2016

Ruling

Subject: Superannuation death benefits - interdependency relationships

Question 1

Is the superannuation lump sum death benefit received by a person (the Beneficiary) as result of the death of a person (the Deceased) tax free in accordance with section 302-60 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Income year ended 30 June 20YY.

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Beneficiary is a parent of the Deceased.

The Deceased had no spouse or children.

The Deceased suffered from a mental illness. The nature of this illness meant that they required ongoing care and support.

The Deceased was in receipt of a Centrelink disability pension for two years prior to their death.

With the exception of one six-month period, the Deceased lived in their family home with the Beneficiary and the Beneficiary's spouse.

The Beneficiary provided the Deceased with ongoing financial support and domestic support and personal care, including the following:

● providing accommodation, power, water and utilities free of charge;

● providing additional funds to the Deceased to help pay their medical insurance, medication and counselling session.

● providing transport and accompanying the Deceased to and from their medical appointments;

● renovating their house so that the Deceased had their own kitchen, bedroom and bathroom to provide them with privacy;

● assisting the Deceased with completing routine domestic tasks, including household cleaning; and

● providing a supportive and comfortable home environment.

As a result of the Deceased's death, the Deceased's superannuation fund (the Fund) paid a lump sum superannuation death benefit (the Benefit) to the Beneficiary.

The Benefit was paid by the Fund on the basis that the Beneficiary was in an interdependency relationship with the Deceased.

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 Regulations 1997 regulation 302-200.01

Reasons for decision

Summary

The Beneficiary is a death benefits dependant of the Deceased because an interdependency relationship, as defined under section 302-200 of the ITAA 1997, existed between the Beneficiary and the Deceased just before the Deceased died.

Therefore, in accordance with section 302-60 of the ITAA 1997, the Benefit received by the Beneficiary from the Fund is not assessable income and is not exempt income. That is, the Benefit is tax free.

Detailed reasoning

Section 302-60 of the ITAA 1997 states:

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.

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

Subsection 302-195(1) of the ITAA 1997 defines a '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) of the ITAA 1997 do not apply in this case. Therefore, to find that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary was in an 'interdependency relationship' with the Deceased, or that they were a 'dependant' of the Deceased just before the Deceased died.

What is an interdependency relationship?

Relevantly, subsection 302-200(1) of the ITAA 1997 states that two persons (whether or not 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.

Close personal relationship

A close personal relationship, a specified in subsection 302-200(1) of the ITAA 1997, 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 obtains independence.

However, where, as here, 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) of the ITAA 1997.

In this case, it is considered that the relationship between the Beneficiary and the Deceased was over and above that of a normal family relationship and that a close personal relationship existed as required by paragraph 302-200(1)(a) of the ITAA 1997.

The matters that indicate that the Beneficiary and the Deceased had a close personal relationship are:

● the Deceased had lived with the Beneficiary all of their life; they never moved out of the family home, never married and had no children;

● the Beneficiary renovated their home to provide the Deceased with a safe, supportive and comfortable environment; and

● there is nothing to indicate that the relationship was one of mere convenience.

Living together

As stated above, the Deceased and the Beneficiary were living together at the time of the Deceased's death and had done so for most of the Deceased's life.

Financial support

Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.

The facts indicate that the Beneficiary provided the Deceased with accommodation, power, utilities and water without charge. The Beneficiary also provided the Deceased with additional funds to assist them with the payment of their medical insurance and medical bills.

Domestic support and personal care

Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attention to the household shopping, cleaning, and 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 facts presented in this case indicate that the Beneficiary provided domestic support and personal care to the Deceased on an ongoing basis. This consisted of assisting the Deceased with completing routine domestic tasks, accompanying the Deceased and providing transportation to and from medical appointments, and providing a supportive and comfortable home environment to ensure the physical and emotional wellbeing of the Deceased.

Based on the above, the Beneficiary meets all the requirements of an interdependency relationship for the purposes of subsection 300-200(1) of the ITAA 1997. Therefore the Beneficiary is a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

Consequently, it is not necessary to consider whether the Beneficiary is a 'dependant' of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997.

As the Beneficiary is a death benefits dependant of the Deceased, the Benefit received from the Fund is not assessable income and is not exempt income in accordance with section 302-60 of the ITAA 1997. That is, the Benefit is tax free.

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