Edited version of private advice

Authorisation Number: 1051885845424

Date of advice: 25 November 2021

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the Beneficiary a death benefits dependant of the Deceased person according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997?

Answer

Yes

Question 2

Are the superannuation lump sum death benefits received by the Beneficiary during the 2021-22 income year excluded from assessable income under section 302-60 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 2022.

The scheme commences on:

1 July 2021.

Relevant facts and circumstances

1.               The Deceased suffered from a disorder in the form of a disability and on that basis was in receipt of a government disability support pension.

2.               The Beneficiary was not financially dependent on the Deceased as the Beneficiary received sufficient income. The Deceased provided marginal funding to the Beneficiary.

3.               The Deceased received some financial support from the Beneficiary but was not financially dependent on the Beneficiary leading up to and at the time of the Deceased's death, as the Deceased was in receipt of a disability support pension.

4.               Income tax returns for the Deceased were not necessary for multiple years leading up the death of the Deceased.

5.               The Beneficiary and the Deceased were not living together at the time of the Deceased's death as the Deceased was incarcerated.

6.               However, the Beneficiary advises that support was provided, inclusive of emotional support as the Beneficiary:

•                 was aware of the Deceased's health issues and need for assistance in an ongoing capacity for all aspects of life

•                 assisted the Deceased to manage personal and financial affairs as an adult and this reliance resulted in a mutual commitment to an ongoing shared life

•                 was nominated by the Deceased in a binding beneficiary nomination submitted to a superannuation fund on the basis of an interdependency relationship

•                 actively managed the Deceased's financial affairs by paying bills, transferring funds to savings accounts and ensuring sufficient funds were available for the Deceased's domestic expenses

•                 provided support in assisting the Deceased with medical issues, purchases of a domestic nature and completion of forms for banking, insurance, superannuation, and other matters.

•                 stored a significant amount of the Deceased's personal property at the Beneficiary's house and looked after their pet

•                 was in regular phone contact several times a week, in particular when the Deceased was suffering, and

•                 held both a financial and medical power of attorney for the Deceased and was declared next of kin.

7.               The Beneficiary regularly visited the Beneficiary's residence on scheduled outings from incarceration.

8.               Evidence was also provided of telephone communication.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-60

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 (1997 Act) Regulations 2021 (ITAR 2021) 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.02

Reasons for decision

Summary

9.               An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiary, as all of the requirements set out in the legislation have been satisfied in this case.

10.            Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

11.            Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

12.            Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

13.            A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as:

A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

14.            A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream, as defined in section 307-70 of the ITAA 1997.

15.            The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 of the ITAA 1997.

16.            Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.

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

18.            The Beneficiary does not fall under paragraphs 302-195(1)(a) and (b).

19.            The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

20.            The Beneficiary was not financially dependent on the Deceased person and therefore, paragraph 302-195(d) is not applicable.

21.            Accordingly, to meet the definition of a death benefits dependant, the Beneficiary must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

22.            Under subsection 302-200(1) of the ITAA 1997, an interdependency relationship is defined as:

Two persons (whether or not related by family) have an interdependency relationship under this section if:

•                 they have a close personal relationship; and

•                 they live together; and

•                 one or each of them provides the other with financial support; and

•                 one or each of them provides the other with domestic support and personal care.

23.            Subsection 302-200(2) of the ITAA 1997 states:

In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:

•                 they have a close personal relationship; and

•                 they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

•                 the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual, or psychiatric disability.

24.            To assist in determining whether two people have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 provides that the regulations may specify the matters that are, or are not to be taken into account.

25.            Subregulation 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account as follows:

•                 all of the circumstances of the relationship between the persons, including (where relevant):

•                 the duration of the relationship

•                 the ownership, use and acquisition of property

•                 the degree of mutual commitment to a shared life

•                 the degree of emotional support

•                 any evidence that the parties intend the relationship to be permanent; and

•                 the existence of a statutory declaration signed by one of the persons to the effect that the person was in an interdependency relationship with the other person.

26.            Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two people have, or do not have an interdependency relationship.

27.            Regulation 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

28.            Subregulations 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

•                 they have a close personal relationship; and

•                 they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

-                 they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

-                 one (or both) of them suffers from a disability.

29.            All the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively, subsection 302-200(2) of the ITAA 1997, or one of the tests in regulation 302-200.02 of the ITAR 2021 must be satisfied for a person to be in an interdependency relationship with another person. We deal with each condition in turn, to establish if an interdependency relationship existed.

Close personal relationship

30.            The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that the two persons (whether or not related by family) must have a close personal relationship.

31.            This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR 2021.

32.            A detailed explanation of subsection 302-200(1) of the ITAA 1997 is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004, which states:

A close personal relationship will be 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

•                 the degree of mutual commitment to a shared life

•                 the reputation and public aspects of the relationship

•                 any evidence that the parties intend the relationship to be permanent

The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist.

People who share accommodation for convenience (such as flatmates) or people who provide care as part of an employment relationship or on behalf of a charity are not intended to fall within the definition of a close personal relationship.

33.            Evidence was provided of the existence of a close personal relationship between the Beneficiary and the Deceased and as such the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 is satisfied.

Living together

34.            The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states that two interdependent persons (whether or not related by family) live together.

35.            The term 'live' is not defined in the ITAA 1997 or accompanying regulations. 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. In the context of paragraph 302-200(1)(b), the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

36.            Although the Beneficiary and the Deceased had lived together, just prior to the Deceased's death, the Beneficiary and the Deceased did not live together.

37.            Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been satisfied in this case.

38.            Subregulation 302-200.02(3) of the ITAR 2021 provides relief in that two persons still have an interdependency relationship under the conditions that:

•                 they have a close personal relationship and

•                 they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because they are temporarily living apart. For example, because one of them is temporarily working overseas or is in gaol.

39.            From the facts presented, the Deceased and Beneficiary were temporarily living apart at the time of the Deceased's death because the Deceased was incarcerated. Therefore, the fact that they did not live together until the Deceased's death would not prevent them from being in an interdependency relationship.

Financial support

40.            The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, which states that one or each of these two persons provides the other with financial support.

41.            Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

42.            From the facts presented, the Beneficiary had sufficient income from employment and rental income to support themselves financially and was not financially dependent on the Deceased to pay for their expenses and provide them with cash for living expenses.

43.            From the facts presented the Beneficiary provided the Deceased with financial support in the form of payment for legal expenses incurred and supplements to the Deceased's disability pension income.

44.            Therefore, although the Deceased was not financially dependent on the Beneficiary, the Beneficiary provided the Deceased with financial support historically and, albeit for marginal amounts, just prior to the death of the Deceased.

45.            Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied.

Domestic support and personal care

46.            The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, which states that one or each of these two persons provides the other with domestic support and personal care. In discussing the meaning of domestic support and personal care, paragraph 2.16 of the SEM states:

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

47.            From the facts presented, the Beneficiary and the Deceased did not provide each other with domestic support and personal care of any significance.

48.            Therefore, the requirement in paragraph 302-200(1)(d) has not been satisfied. However, as stated above, the relief provided in subregulation 302-200.02(3) of the ITAR 2021 can apply to the Beneficiary and Deceased because the Deceased was incarcerated. This applies to this test as well.

Conclusion

49.            As some of the requirements in subsection 302-200(2) of the ITAA 1997, and the relief in subregulation 302-200.02(3) of the ITAR 2021 have been satisfied, the Deceased and Beneficiary were in an interdependency relationship in the period just before the Deceased's death.

50.            As the Beneficiary was in an interdependency relationship with the Deceased, the Beneficiary is a death benefits dependant as defined under section 302-195 of the ITAA 1997.

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