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Edited version of your written advice

Authorisation Number: 1051424337890

Date of advice: 12 September 2018

Ruling

Subject: Taxation of superannuation death benefits

Question 1

Is a person (the Beneficiary) a death benefits dependant of a person who is deceased (the Deceased) in accordance with section 302-195 of the Income Tax Assessment Act 1997(ITAA 1997)?

Answer

No

Question 2

Is the superannuation lump sum death benefit received by the Beneficiary from the Trustee of the Deceased Estate 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 period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased died in early 20XX.

The Beneficiary is the sibling of the Deceased.

The Deceased was diagnosed with brain cancer less than five years ago. The ongoing and progressive effects of this illness required ongoing care and support.

The Deceased lived with their parent and, following their diagnosis, was cared for by the Beneficiary and the Deceased.

The Beneficiary did not live with the Deceased.

In 20XX, the Deceased was admitted to hospital for treatment. While the Deceased was in hospital, the parent passed away.

It was the intention that the Deceased would move in with the Beneficiary. However, the rapid decline of the Deceased’s physical and cognitive health resulted in their transfer to palliative care.

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

The Deceased’s superannuation fund paid a lump sum death benefit (the Benefit) to the Trustee of the Deceased Estate in 20XX.

The Benefit was paid to the Beneficiary from the Deceased Estate.

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 Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1997 Section 302-140.

Income Tax Assessment Act 1997 Section 302-145.

Reasons for decision

Question 1

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.

Detailed reasoning

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

As paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case, it must be established that the Beneficiary was in an ‘interdependency’ relationship’ with the Deceased or that the Beneficiary was a ‘dependant’ of the Deceased just before the Deceased died.

What is an interdependency relationship?

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 the matters and circumstances which are to be considered in determining whether an interdependency relationship exists between two persons under that section may be specified in the regulations.

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

In this case, the facts do not indicate a relationship between a brother and a sister that may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997. There is nothing to indicate a level of commitment to a shared life or a level of care above what would normally be expected between family members. It is expected that family members would provide emotional support in difficult times. There is no evidence to suggest that the Beneficiary and the Deceased were mutually committed to a shared life together. Instead, the Deceased had resided with their parent until that parent’s passing.

Consequently, while it is accepted that the Beneficiary and the Deceased had a close sibling 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.

Death Benefits Dependant

As the Beneficiary is not considered to be in an interdependency relationship with the Deceased, will must now consider whether the Beneficiary is a ‘dependant’ of the Deceased just before they died under paragraph 302-195(1)(d) of the ITAA 1997.

Meaning of ‘dependant’

The term ‘dependant’ is not defined in the ITAA 1997 therefore, it has its common law meaning.

According to the Macquarie Dictionary, a ‘dependant’ is:

Butterworth’s Australian Legal Dictionary defines ‘dependant’ as ‘a person who depends on another, wholly or substantially’.

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

Handing down the decision in Re Malek v. Federal Commissioner of Taxation Case [1999] AATA 678; (1999) 42 ATR 1203, (1999) 99 ATC 2294, Senior Member Pascoe of the Administrative Appeals Tribunal (AAT) further clarified the meaning of the word dependant, stating:

In Case [2000] AATA 8, (2000) 43 ATR 1273; 2000 ATC 129, Senior Member Fayle in considering the definition of dependant in relation to section 27AAA of the Income Tax Assessment Act 1936 stated:

In the current case, the Deceased did not provide the Beneficiary with any financial support. Therefore, it cannot be said that the Beneficiary depended or relied on the support of the Deceased to maintain their normal standard of living at the time of the Deceased’s death.

Consequently, the Beneficiary is not a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Question 2

Summary

As the Trustee of the Estate of the Deceased (the Estate) has received a superannuation death benefit payable ultimately to non-dependant beneficiaries, it is income to which the beneficiaries are not presently entitled and the trustee is liable to pay tax on that income.

Therefore, as the Benefit represents a distribution of the corpus it is not included in the assessable income of the Beneficiary.

Detailed Reasoning

Section 302-60 of the ITAA 1997 applies to superannuation death benefits payments made directly to the Beneficiary.

In this instance, the Benefit was paid to the Trustee of the Deceased Estate. Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the Trustee of a Deceased Estate. Therefore, section 302-10 of the ITAA 1997 will apply to the Benefit.

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

Subsection 302-10(3) of the ITAA 1997 states:

Therefore, where a non- dependent beneficiary receives or will receive all or part of a superannuation death benefit payment, the trustee will be subject to tax on that part of the benefit paid or to be paid to the dependent as if it had been paid to that beneficiary. However, the dependent beneficiary is not presently entitled to the payment and the benefit does not form a part of their assessable income.

Section 302-140 of the ITAA 1997 provides that the tax free component of a superannuation death benefit payment received by a non-dependent is not assessable income and is not exempt income.

As the Beneficiary is a non-dependant of the Deceased, the taxable component of the lump sum payments made by the Fund will be taxed as per the above rates. The taxable components of the payments are disclosed in the income tax return of the Estate.

Once the payment is made from the Estate to the relevant beneficiary, it will not need to be included as assessable income in that beneficiary’s tax return as the payment represents a distribution of the Estate.


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