Edited version of private advice

Authorisation Number: 1051816405378

Date of advice: 19 March 2021

Ruling

Subject: Death benefit dependants

Question 1

Is the Beneficiary, the spouse of the Deceased, a dependant for tax purposes in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is the death benefit paid to the Beneficiary from the estate of the Deceased tax free in the hands of the Beneficiary under section 302-60 of the ITAA 1997?

Answer

Yes

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 passed away in late 20XX.

The Beneficiary and the Deceased cohabited from mid-20XX. The Beneficiary lived with the deceased in a domestic relationship with their children from mid July 20XX until the Deceased's death in late 20XX, apart from a brief separation of approximately X months.

The details and history of the relationship and the living arrangements before and after the separation are set out in the copy of the Statutory Declaration provided signed by the Beneficiary

The solicitor acting for the Beneficiary has completed a Terms of Settlement which has been signed by the Beneficiary and the adult daughter of the Deceased arising out of their dispute over the distribution of the estate which provides that the death benefit was to be paid to the Beneficiary "as domestic partner".

The super fund elected instead to pay the proceeds to the Beneficiary in her capacity as legal personal representative, not paid to her directly as domestic partner.

The solicitor also included in the Terms of Settlement that if the ATO determined that the Beneficiary was not the Deceased's domestic partner and tax was therefore payable, the Beneficiary and the daughter of the deceased would share the tax liability.

The solicitor therefore needs an ATO ruling as to whether the death benefit is taxable to the taxpayer.

The lump sum payment from the super fund was paid to the Beneficiary as legal personal representative rather than as domestic partner on 7 November 20XX. A copy of the death benefit documents including the Member Exit Advice, Transaction Listing and PAYG Payment Summary - superannuation lump sum have been provided.

The Beneficiary also provided the following documentation:

a)    A Statutory Declaration signed by an individual in support of the Beneficiary's claim.

b)    Workcover claim acceptance dated late 20XX

c)    Copy of a Will of the Deceased dated late 20XX

d)    Copy of the Deceased death certificate dated late 20XX

e)    Copy of a Statutory Declaration signed by the Beneficiary in support of the claim.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Section 995 -1

Reasons for decision

Summary

Beneficiary 1 was a dependent of the Deceased under paragraph 302-195(1)(a) of the ITAA 1997.

Detailed reasoning

Superannuation death benefits paid to the trustee of a deceased estate

A payment made by a superannuation fund to a deceased estate after the death of the deceased is assessed as a death benefit under section 302-10 of the ITAA 1997.

The taxation arrangements that apply to this superannuation death benefit are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

For example, where a dependant of the deceased receives part, or all of, a superannuation death benefit and has benefited, or is expected to benefit, the trustee will not be subject to tax on that part of the benefit paid to the dependant as if it were paid to a dependant of the deceased.

Death benefits dependant

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

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.

Section 995 -1 of the ITAA 1997 defines a spouse as follows:

spouse of an individual includes:

a.    another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a *State law or *Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

b.    another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

In relation to Beneficiary 1 we are satisfied that Beneficiary 1 and the Deceased lived together in a genuine domestic basis and the definition of spouse has been met as we have considered:

a.    the copy of the statutory declaration provided states the circumstances of their relationship was a de facto relationship. This was submitted as part of court proceedings.

b.    A copy of the Workcover finding formally advised that the lnsurer, on behalf of the Department of the Environment, Land, Water & Planning, has accepted the dependency claim that they made on the Beneficiaries' behalf, in full, determining the following pursuant to s 235(b) of the Workplace lnjury Rehabilitation & Compensation Act (2013): that the Beneficiary was the Deceased's dependent partner at the time of his death as defined in s 234 of the Act.

c.     The copy of the death certificate provided lists the Beneficiary as being in a domestic relationship with the Deceased.

Paragraphs 302-195(1)(a) and (b) of the ITAA 1997 therefore applies to Beneficiary 1 and they are considered a death benefits dependant.

Taxation of a Death benefits

According to section 302-60 of the ITAA 1997:

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.

In other words, the benefit paid from the estate of the Deceased to the Beneficiary will be tax free in accordance with section 302-60 of the ITAA 1997.

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