Edited version of private advice

Authorisation Number: 1051972668564

Date of advice: 8 September 2022

Ruling

Subject: Superannuation death benefit - interdependency relationship

Question

Was the Beneficiary a death benefits dependant of the Deceased 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:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances:

The Beneficiary is the parent of the Deceased.

The Deceased died in 20XX.

In late 20XX, a lump sum payment was made to the Deceased's estate.

You applied for a Private Ruling in January 20XX.

You provided the information below:

•         Private Ruling application

•         Death Certificate for the Deceased

•         Payment Summary - Superannuation lump sum issued by a Superannuation Fund

•         Deceased's Bank statement

•         Beneficiary's Bank statement

•         Rates notice and utility bills of the Beneficiary

•         Trust account statement for the Estate of the Deceased

•         Correspondence on details of Deceased's assets that were held and/or sold

The Deceased never married or had children.

Prior to 20XX, the Deceased lived in a detached house with both the Beneficiary, and with his parent.

Whilst the Deceased lived at the house, he received free lodging and board in return for assisting his parent with the everyday jobs of running a racehorse stable and looking after an acreage property.

From 20XX, until the date of death, the Deceased lived in a detached dwelling located within the Beneficiary's property.

From the time of the Deceased's parent's death in YYYY, the Deceased was the Beneficiary's primary carer.

The Deceased received a government payment from late YYYY until his death. (This was his sole source of income (for those years).

The Deceased owned a property at which was sold in late 20XX. The Deceased used this property as a long weekend getaway accommodation.

The Beneficiary cared for the Deceased by:

•         Providing rent-free accommodation

•         Paying for groceries

•         Cooking meals

•         Paying for all household utility and water bills

•         Paying for fuel expenses.

The Deceased cared for the Beneficiary by:

•         Providing financial contributions towards the payment of electricity, telephone and grocery bills

•         Helping with household chores (such as?), lawn mowing, garden work, laundry and cooking

•         Driving the Beneficiary to any doctor appointments, functions, purchase of medicines etc where the Beneficiary needed to travel

•         Providing emotional and physical support post the death of the Beneficiary's spouse (the Deceased's parent)

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 302

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 Subsection 302-195(1)

Income Tax Assessment Act 1997 Subsection 302-195(1)(a)

Income Tax Assessment Act 1997 Subsection 302-195(1)(b)

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

Income Tax Assessment Act 1997 Section 302-200

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

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

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

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

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

Income Tax Assessment Act 1997 Subsection 302-200(2)

Income Tax Assessment Act 1997 Subsection 302-200(3)(a)

Income Tax Assessment Act 1997 Subsection 302-200(3)(b)

Income Tax Assessment Act 1997 Section 307-5

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Act 1997 Section 307-70

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

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.01(2)

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

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.02(2)

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.02(3)

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.02(4)

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.02(5)

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.03

Reasons for decision:

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.

Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 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.    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 is the parent of the Deceased, subsection 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.

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

To meet the definition of a death benefits dependant, the Beneficiary must have been in an interdependency relationship with the Deceased, in accordance with subsection 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, subsection 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.

Sub-regulation 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account. These matters are all of the circumstances of the relationship between the persons, including (where relevant):

a.    the duration of the relationship

b.    the ownership, use and acquisition of property

3. the degree of mutual commitment to a shared life
4. the care and support of children
5. the reputation and public aspects of the relationship
6. the degree of emotional support
7. the extent to which the relationship is one of mere convenience
8. any evidence that the parties intend the relationship to be permanent; and
9. 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.

Subsection 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.

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

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

a.    they satisfy the requirements of subsection 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.

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

a.     they have a close personal relationship; and

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

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

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

Sub-regulation 302-200.02(5) of the ITAR 2021 states that two persons do not have an interdependency relationship if one of them provides domestic support and personal care to the other:

a.     under an employment contract or a contract for services; or

b.     on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

All of 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 sub-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

The first requirement to be met is specified in subsection 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.    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.

b.    Indicators of a close personal relationship may include:

      i.         the duration of the relationship

     ii.        the degree of mutual commitment to a shared life

    iii.        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 Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) stated that:

a.    Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

While this statement does not preclude a child from being in an interdependency relationship with a parent, it suggests that interdependency only exists where the relationship goes beyond the usual relationship between an adult child and a parent.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between a parent and an adult child because there would not be a mutual commitment to a shared life between the two. In addition, the relationship between parents and their adult children would be expected to change significantly over time. It would be expected that the adult child would eventually move out and secure independence from their parents.

However, where unusual and exceptional circumstances exist, a relationship between a parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1).

The relationship between the Beneficiary and the Deceased was over and above a normal family relationship between a parent and an adult child.

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

•         The Deceased provided significant care and support to the Beneficiary throughout their life. The Deceased provided the Beneficiary with ongoing emotional, domestic and financial support. This level of care exceeded the care and comfort that would usually be provided by an adult child to a parent. 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 20XX until their date of death. The Beneficiary continued to be significantly dependent on the Deceased 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 and the Deceased and the first requirement specified in subsection 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 subsection 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.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together. This was a permanent arrangement and had been so since 20XX.

The deceased lived in a detached dwelling at the same address. The dwelling was described as a liveable shed, a few hundred metres from the main dwelling.

The deceased and the beneficiary would see each day.

The deceased and the beneficiary would prepare meals together at the main dwelling.

The deceased would do his washing at the main dwelling.

Consequently, the requirement specified in subsection 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 subsection 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 subsection 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 Beneficiary paid for the Deceased's accommodation, utilities, and water bill. The Deceased contributed for electricity, telephone, and grocery bills. The Beneficiary and the Deceased were committed to continue this arrangement had the Deceased was still alive and for indefinite period.

Therefore, the Beneficiary and the Deceased provided each other with financial support.

Consequently, subsection 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 subsection 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, the Deceased provided the Beneficiary with significant assistance with personal care, domestic chores, taking to the medical appointments, driving to functions and shopping, preparing for meals, help with laundry, mowing lawn, garden work and help with any maintenance of Beneficiary's vehicle.

In addition, both the Beneficiary and the Deceased provided each other with significant emotional support and comfort.

Therefore, the requirement in subsection 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 the Beneficiary were in an interdependency relationship in the period just before the Deceased's death.

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

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