Disclaimer
You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051193976261

Date of advice: 21 February 2017

Ruling

Subject: Death benefits- interdependency

Question

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

Answer

No

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 child of the Deceased aged over 18.

The Deceased suffered from various illnesses. The ongoing and progressive effects of these illnesses restricted the Deceased's ability to perform everyday tasks.

The Deceased did not reside with the Beneficiary. Prior to moving into an aged-care facility, the Deceased resided in their own home. As the Deceased resided in close proximity to the Beneficiary, the Beneficiary visited the Deceased daily.

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

In the 20XX-YY income year, the Beneficiary received two superannuation lump sum payments (the Benefit) from the Deceased's superannuation fund (the Fund).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302‑60.

Income Tax Assessment Act 1997 Section 302-140.

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 Regulations 1997 Regulation 302-200.01.

Reasons for decision

Summary

The Beneficiary is not a death benefits dependant of the Deceased because an interdependency relationship, as defined under section 302-200 of the ITAA 1997, did not exist between the Beneficiary and the Deceased, nor was the Beneficiary a dependant of the Deceased, just before the Deceased died. Therefore, the Benefit is not tax free in accordance with section 302-60 of the ITAA 1997;

The tax free component of the Benefit is tax free under section 302-140 of the ITAA 1997.

The taxable component is assessable income under section 302-145 of the ITAA 1997; it should be included in the Beneficiary's assessable income for the 20XX-YY income year.

Detailed reasoning

Section 302-60 of the ITAA 1997 states:

Subsection 302-195(1) of the ITAA 1997 defines a 'death benefits dependant' of person who has died as follows:

As the Beneficiary is a child of the Deceased aged over 18, 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:

Subsection 302-200(3) of the ITAA 1997 provides that the matters and circumstances which are considered in determining whether an interdependency relationship exists between two person under that section may be specified in the regulations.

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

A close personal relationship, as 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 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, the facts do not indicate that a situation of unusual and exceptional circumstances existed. The Beneficiary was an independent adult child and did not cohabitate with the Deceased. There is nothing to indicate a level of commitment to a shared life or a level of care above what would be normal or expected of an adult child that lives nearby their ill parent.

Consequently, while it is accepted that the Beneficiary and the Deceased had a close parent/child relationship, it is not considered that a close personal relationship existed between the Beneficiary and the Deceased as contemplated in paragraph 302-200(1)(a) of the ITAA 1997.

As all the conditions of subsection 302-200(1) of the ITAA 1997 must be satisfied for an interdependency relationship to exist, an interdependency relationship between the Beneficiary and the Deceased did not exist because it has not been established that the Beneficiary and the Deceased had a close personal relationship just before the Deceased died.

Even if it could be argued that the Beneficiary and the Deceased did, in fact, have a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997, based on the information provided, it is our view that they did not have an interdependency relationship because just before the Deceased died:

Is the Beneficiary a dependant of the deceased?

Relevantly, ATO Interpretative Decision 2014/22 Income Tax: death benefits dependant- adult child caring for a terminally ill parent (ATOID 2014/22) considered the scope of paragraph 302-195(1)(d), stating:

The facts do not indicate that the Beneficiary was financially dependent on the Deceased for maintenance and support at the time of the Deceased's death.

Accordingly, the condition in paragraph 302-195(1)(d) has not been established.

Tax treatment of a death benefits payment made to a non-dependant beneficiary

Section 302-140 of the ITAA 1997 provides that the tax-free component of a superannuation lump sum received by a non-dependant beneficiary is not assessable income and is not exempt income.

Section 302-145 of the ITAA 1997 provides that the taxable component of a superannuation lump sum received by a non-dependant beneficiary is assessable income, with a tax offset to ensure that the rate of tax on the element taxed in the fund does not exceed 15% and that the rate of tax on the untaxed element in the fund does not exceed 30%.


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).