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Edited version of your written advice
Authorisation Number: 1051193976261
Date of advice: 21 February 2017
Subject: Death benefits- interdependency
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)?
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:
● providing informal financial support to the Deceased;
● assisting the Deceased with routine domestic tasks such as cooking meals, laundry and shopping;
● contacting the Deceased's medical practitioners; and
● regularly checking on the welfare of the Deceased.
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
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.
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.
Subsection 302-195(1) of the ITAA 1997 defines a 'death benefits dependant' of person who has died as follows:
(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 definitions of asterisked terms, see the Dictionary, starting at section 995-1.
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:
(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(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) the duration of the relationship; and
(b) the degree of commitment to a shared life; and
(c) the degree of emotional support; and
(d) the extent to which the relationship is one of mere convenience; and
(e) any evidence suggesting that the parties intend the relationship to be permanent.
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:
(a) the Deceased was living in an aged-care facility;
(b) neither party provided financial support to the other; and
(c) the Beneficiary did not provide domestic support and personal care to the Deceased.
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 definition of death benefits dependant in paragraph 302-195(1)(d) does not stipulate the nature or degree of dependency, but it is generally accepted that this refers to financial dependence and it is a condition that must exist in relation to the taxpayer at the time of the deceased's death.
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%.
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