Edited version of private advice

Authorisation Number: 1051917793515

Date of advice: 22 November 2021

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the beneficiary 1 and 2 were death benefits dependants 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.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

The Beneficiary 1 is the brother of the Deceased and the Beneficiary 2 is the wife of Beneficiary 1.

The Deceased died on XX December 20XX.

Both Beneficiary 1 and 2 applied for a private ruling.

The Deceased had been permanently disabled since a car accident at the age of 15. The disabilities were primarily intellectual in nature however some physical disabilities were present (limited control of left-hand side of the body).

The Deceased was not able to live an independent life and was a protected person in State A due to the severity of their intellectual disabilities.

The Deceased person's brother, another brother, was appointed manager of the estate of Deceased in 20XX by the Supreme Court of the relevant state and remained in this position until the death of the Deceased.

The Deceased lived with Beneficiary 1 and Beneficiary 2 at their residence.

The Deceased lived in semi attached transportable home, which was completed in circa 20XX. The transportable was adjacent to a covered outdoor patio area. The transportable contained a bedroom and a living room (Floor area Xm²). Shared bathroom facilities were used in the main dwelling. The transportable building had no plumbing or kitchen facilities. Cooked meals were eating as household in the main dwelling.

Both Beneficiary 1 and Beneficiary 2 were financially dependent on the Deceased as they received sufficient financial support and income from:

•         Deceased Trust account, a $XX recurring weekly payment made into Beneficiary 1 and 2's joint bank account. (Approved and maintained by manager of the Deceased's protected estate). This payment compensated Beneficiary 1 and Beneficiary 2 for the fact that Beneficiary 2 could not be employed whilst caring for the Deceased. The payment more than covered the Deceased's share of the household expenses

•         Centrelink benefits of $XXX per annum for the carer payment & allowance for at least 6 years which is a considerable long time. The most recent benefits were approximately $XX per fortnight for the carer payment and $X per fortnight for the allowance.

•         All of Beneficiary 2's contributions to the household finances were as a result of the care provided to the Deceased.

The Deceased was not financially dependent on the Beneficiary as the Deceased person received sufficient financial support and income from:

•         Centrelink benefits from Centrelink disability support pension until they turned 65. An account-based pension income stream was commenced in June 20XX.

Both, Beneficiary 1 & 2 cared for the Deceased from the date the Deceased moved into their family home to live by providing:

•         domestic support, including attending to the household shopping, cleaning, laundry and cooking

•         personal care and assistance, including ensuring personal hygiene & personal presentation was maintained, liaising with the Deceased's doctor regarding modification of medication as required

•         assisting the Deceased with their mental wellbeing and emotional behaviour

•         travelled with the Deceased for shopping trips, doctor appointments and concerts

•         accompanied the Deceased to family events e.g. sporting, graduations and visiting relatives

•         the Deceased spent time with specialised carers twice a week but the remaining time was spent in the care of Beneficiary 2

•         the living and care arrangements were permanent and intended to continue until suitable care could no longer be provided.

Relevant legislative provisions

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

An interdependency relationship as defined under section 302-200 (1) of the ITAA 1997 existed between the Deceased and the Beneficiaries 1 and 2, as all of the requirements set out in the legislation have been satisfied in this case.

Therefore, the Beneficiaries 1 and 2 are death benefits dependants of the Deceased as defined in section 302-195 (1)(c) of the ITAA 1997.

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

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.

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.

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.

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.

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.

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.

As the Beneficiary 1 is the brother of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

As the Beneficiary 2 is the brother's wife (Beneficiary 1's wife) of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

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.

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

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:

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(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:

a)    they have a close personal relationship; and

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

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

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.

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 (in this case)

•         the duration of the relationship

•         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 is, or (in the case of a statutory declaration made after the end of the relationship) was in an interdependency relationship with the other person.

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

Subregulation 302-200.02(2) of the ITAR 2021 provides that an interdependency relationship exists between two people where:

a)    they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997; and

b)    one 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, for example one person provides significant care for the other person when they are unwell or suffering emotionally.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively, subsection 302-200(2) of the ITAA 1997, must be satisfied for a person to be in an interdependency relationship.

Close personal relationship

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.

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.

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 (such as whether the relationship is publicly acknowledged)

•         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.

The matters that indicate the Beneficiary and the Deceased had a close personal relationship before the Deceased's death are:

•         Both Beneficiary 1 and 2 provided significant care and support to the Deceased throughout their illness. The Beneficiary provided the Deceased with intensive and ongoing emotional, domestic and financial support. This level of care exceeded the care and comfort that would usually be provided by a parent to an adult child. They had an exceptionally close relationship. Further details of their care arrangements are provided below, under Financial Support and Domestic Support and Care.

•         The Beneficiary and the Deceased have lived together since the Deceased became disabled at the age of 15. The Deceased continued to be significantly dependent on the Beneficiary 1 and 2 for ongoing care and support, for the remainder of the Deceased's life. The Deceased had no intention to ever move out of the family's home. They would have continued to live together if the Deceased were still alive. They had a strong mutual commitment to having a shared life.

Therefore, a close personal relationship existed between the Beneficiary 1 & 2 and the Deceased and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

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.

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.

The Deceased was permanently disabled since a car accident at the age of 15. The disabilities were primarily intellectual in nature however some physical disabilities were present (limited control of left hand side of the body).

The Deceased was not able to live an independent life due to the severity of his intellectual disabilities, hence, lived at the residency of Beneficiary 1 and 2 together until the Deceased was alive.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together since 2007. The Deceased lived in semi attached transportable home, which was completed in circa 2009. The transportable home was adjacent to a covered outdoor patio area. The transportable home contained a bedroom and a living room (Floor area 27m²). Shared bathroom facilities were used in the main dwelling. The transportable home had no plumbing or kitchen facilities. Cooked meals were eaten as household in the main dwelling.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this case.

Financial support

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.

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.

The Deceased was in receipt of a Centrelink disability support pension until they turned 65 years of age.

Beneficiary 2 was in receipt of a Centrelink carer payment and allowance as they gave constant care to the Deceased. The payments were received for at least 6 years. The most recent benefits were approximately $XX per fortnight for the carer payment and $X per fortnight for the allowance (i.e. Centrelink payment of $XXX per annum).

Due to the significant care required by the Deceased, Beneficiary 2 couldn't maintain employment whilst caring for the Deceased and Beneficiary 1's employment was impacted too.

In recognition of the provided by Beneficiary 1 and 2, a $XX recurring weekly payment ($XXX per annum) was made into Beneficiary 1 and 2's joint bank account from the Deceased's trust account. (Approved and maintained by the manager of the Deceased's protected estate).

The above payments compensated Beneficiary 1 and 2 for the Deceased's share of the household expenses.

From the facts presented, the Beneficiary 1 and 2 did not have sufficient income from to support themselves financially and was financially dependent on the Deceased to pay for their expenses e.g. bills, food, medical expenses, utilities and provide them with accommodation, meals and cash for living expenses.

Therefore, the Beneficiary and the Deceased provided each other with financial support during the final years of the Deceased's life.

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

Domestic support and personal care

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.

From the facts presented, both Beneficiary 1 and 2 provided the Deceased with significant assistance including the below

(a)  Household shopping, cleaning, laundry and cooking

(b)  Doctor appointments

(c)   Attend concerts, sporting events, graduations and visiting relatives

(d)  The Deceased spent time with the specialised carers twice a week. The remaining time was spent in the care of Beneficiary 1 and 2

(e)  Ensuring personal hygiene & personal presentation of the Deceased was maintained

(f)    Liaising with the Deceased's doctor regarding modification of medication as required

In addition, the Beneficiary 1 and 2 provided the Deceased with significant emotional support and comfort.

Therefore, the requirement in paragraph 302-200(1)(d) has been satisfied.

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 have been satisfied, the Deceased and Beneficiary 1 and 2 were in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary 1 and 2 were in an interdependency relationship with the Deceased, the Beneficiary 1 and 2 are death benefits dependants as defined under section 302-195 of the ITAA 1997.

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