Edited version of private advice

Authorisation Number: 1051640148351

Date of advice: 26 February 2020

Ruling

Subject: Superannuation death benefits

Question

For the purposes of section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), isthe Beneficiary a death benefits dependant of the late the Deceased under paragraph 302-195(1)(c) of the ITAA 1997?

Answer

Yes

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased died in 20XX.

The Beneficiary is the child of the Deceased.

The Deceased did not make a binding death benefit nomination in relation to their interest in their Superannuation Fund. The Trustee for the Fund intends to pay the entirety of the death benefit to the Beneficiary.

The Beneficiary is over XX years of age and has an intellectual and physical disability since birth. The Beneficiary struggles to complete basic physical activities as a result of their disability.

The Beneficiary has lived rent free with both parents in the family home until their father died in 20XX, and continued to live with the Deceased until death in 20XX.

The Beneficiary has only lived alone for a X month period in 20XX, however was unable to continue to live alone as they found it too difficult.

The Deceased continued to work full-time and completed the shopping, cooking and cleaning for the Beneficiary. The Deceased paid for all food, grocery expenses and holidays.

The Beneficiary relied on the Deceased for employment in the family business. The Beneficiary performs basic administrative tasks in the business.

The Deceased managed the financial affairs of the Beneficiary and paid for most of the living expenses.

The Deceased organised and accompanied the Beneficiary to all medical appointments, holidays and social gatherings.

The Deceased and Beneficiary purchased property as joint tenants and obtained a loan together. The Deceased contributed the main portion of the deposit.

The Beneficiary is an Executor and beneficiary of the Deceased's Estate.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-10

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 subsection 302-195(1)

Income Tax Assessment Act 1997 paragraph 302-195 (1)(c)

Income Tax Assessment Act 1997 section 302-200

Income Tax Assessment Act 1997 subsection 302-200(1)

Income Tax Assessment Act 1997 paragraph 302-200(1)(a)

Income Tax Assessment Act 1997 paragraph 302-200(1)(b)

Income Tax Assessment Act 1997 paragraph 302-200(1)(c)

Income Tax Assessment Act 1997 paragraph 302-200(1)(d)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Summary

For the purposes of section 302-10 of the ITAA 1997, the Beneficiary is a death benefit dependants of the Deceased under paragraph 302-195(1)(c) of the ITAA 1997.

Detailed reasoning

Section 302-10 of the ITAA 1997 sets out the tax treatment of superannuation death benefits paid to the trustees of a deceased estate. That treatment varies depending on whether the beneficiaries of the estate who have benefited, or may be expected to benefit, from the superannuation death benefit were, or were not, 'death benefits dependants' of the deceased.

Meaning of 'death benefits dependant'

Subsection 995-1(1) of the ITAA 1997 states that death benefits dependant has a meaning given by section 302-195 of the ITAA 1997.

In accordance with subsection 302-195(1) of the ITAA 1997, a death benefits dependant of a person who has died, is:

(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 person just before he or she died.

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

Subsection 302-200(3) of the ITAA 1997 provides that regulations may specify:

(a)           matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship ; and

(b)           circumstances in which 2 persons have, or do not have, an interdependency relationship

To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 1997 (ITAR 1997) states that in considering paragraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are (in this case):

·         the duration of the relationship; and

·         the ownership use and acquisition of property; and

·         the degree of mutual commitment to a shared life; and

·         the degree of emotional support; and

·         the extent to which the relationship is one of mere convenience; and

·         any evidence suggesting that the parties intend the relationship to be permanent.

Regulation 302-200.02 of the ITAR 1997 sets out circumstances in which two persons have, or do not have, an interdependency relationship under section 302-200 of the ITAA 1997 and states:

2 persons have an interdependency relationship if:

(a) they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the Act; and

(b) 1 or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.

Examples of care normally provided in a close personal relationship rather than by a friend or flatmate

1. Significant care provided for the other person when he or she is unwell.

2. Significant care provided for the other person when he or she is suffering emotionally.

Close personal relationship

A close personal relationship is generally one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. Indicators of a close personal relationship may include the duration of the relationship and the degree of mutual commitment to a shared life.

Generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between a parent and child. This is because the relationship between a parent and child would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where unusual and exceptional circumstances exist, a relationship between a parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

The Beneficiary and the Deceased enjoyed a close personal relationship. The facts indicate that for most of their adult life, the Beneficiary did not live an independent life with their own family/social life. The Beneficiary has a disability and needs significant care. The Deceased provided care and companionship to the Beneficiary throughout their life. The purchase of property as joint-tenants, as well as the fact that the Beneficiary was employed by the family business owned by the Deceased indicates a level of commitment to a shared life, or a level of care above what would be normal or expected of a caring and loving parent.

Therefore, it is 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.

Living together

The phrase 'live together' is not defined in the ITAA 1997 or the ITAR 1997. Therefore, its meaning is to be determined according to the ordinary meaning of the words in the context in which they appear.

According to the Macquarie Dictionary, the term 'live' means to dwell or reside. The term 'reside' is defined as the action of dwelling in a particular place permanently or for a considerable time.

Therefore as paragraph 302-200(1)(b) of the ITAA 1997 states as a requirement that the persons live together, it is considered in the context of the provision, that the living arrangements must have some degree of permanency.

In determining if the persons live together it is relevant to have regard to 'the degree of mutual commitment to a shared life' and 'any evidence suggesting that the parties intend the relationship to be permanent'. It is evident that the Beneficiary and Deceased would have continued to live together. It was a permanent arrangement that only ceased due to the passing of the Deceased.

Therefore, paragraph 302-200(1)(b) of the ITAA 1997 has been qualified.

Financial support

To determine that an interdependency relationship existed, the Commissioner must be satisfied that some level of financial support was provided by one person to the other.

In this case, the facts indicate that such financial support was provided to the Beneficiary by the Deceased in the form of food, groceries, and holiday expenses.

Domestic support and personal care

The requirements of domestic support and personal care are cumulative and will commonly be of a frequent or ongoing nature. For example domestic support may consist of attending to the household shopping, cleaning, laundry and the like services. Personal care may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

Applying the above to the present facts, it is accepted that the Deceased provided the Beneficiary with domestic support and personal care as required under paragraph 302-200(1)(d) of the ITAA 1997.

It is our view that the Beneficiary is a death benefits dependants of the Deceased under paragraph 302-200 of the ITAA 1997.

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