Edited version of private advice

Authorisation Number: 1052026947088

Date of advice: 19 October 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Are you a death benefits dependent in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is the superannuation lump sum death benefit received by you during the 20XX-XX income year tax free under section 302-60 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period

1 July 20XX to 30 June 20XX

Relevant facts and circumstances

The Deceased died during the 20XX year of income.

You are the parents of the Deceased and the Beneficiaries of this Estate.

The Deceased had no partner or spouse at the time of his death and had never married or had children.

You have stated that you worked in the Deceased's business X days per week (with no financial remuneration) for over X years to help financially support the Deceased.

The Deceased moved back home with you in 20XX as he was no longer capable of caring for himself.

20XX was the last time the Deceased worked in his business. You continued to work to help support yourselves and the Deceased to cover all your living costs.

In 20XX the Deceased was admitted into hospital. The Deceased was incapable of looking after himself or attending to his basic needs. You continued to support the Deceased medically, physically, domestically and financially and make sure he followed up on his appointments. This included tasks such as eating, bathing, domestic chores, wound care, etc)

The Deceased paid weekly board to you. You used this money to make regular payments towards the Decease credit card and living costs.

The Deceased had no binding death benefit nomination in place for his superannuation benefits. A death benefit lump sum from his superannuation fund was paid to the Estate of the Deceased.

A letter from the Deceased's XXXX states that the Deceased was diagnosed with XXXX XXXX XXXX. He completed XXXX XXXX and XXXX XXXX programs on X occasions.

You provided and cared for the Deceased in the following ways:

•                     Medicine management and wound care

•                     Medical planning (appointment confirmations etc)

•                     Transporting the deceased to and from medical appointments

•                     Daily meal preparation

•                     Assistance with self-care, regular washing and cleaning

•                     Regular Business and personal administration

You provided for all the Deceased financial needs, which included:

•                     Servicing the Deceased substantial credit card debt (included regular payments to his credit card)

•                     Provision of accommodation and food

•                     Provision of transport to and from medical appointments

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Section 307-5

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

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

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

Reasons for decision

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.

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. Subsection 302-195(1) 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 Deceased was your adult child, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable in this case.

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(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

However, as you requested an assessment of an interdependency relationship, we considered paragraph 302-195(1)(c) of the ITAA 1997 for this ruling.

Interdependency relationship

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

2 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 2 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:

a)            the duration of the relationship

b)            whether or not a sexual relationship exists

c)            the ownership, use and acquisition of property

d)            the degree of mutual commitment to a shared life

e)            the care and support of children

f)             the reputation and public aspects of the relationship

g)            the degree of emotional support

h)            the extent to which the relationship is one of mere convenience

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

j)              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.

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

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

b)            one or both 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.

Subregulation 302-200.02(5) of the ITAR 2021 states that 2 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) 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 paragraph 302-200(1)(a) of the ITAA 1997, which states that the 2 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 2 parties.

As previously mentioned, 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, and

•                    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:

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 2 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) of the ITAA 1997.

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

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

•                     You provided significant care and support to the Deceased throughout their life, regardless of whether they were living together or separately.

•                     You 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.

•                     You had an exceptionally close relationship. Further details of your care arrangements are provided below, under Financial Support and Domestic Support and Care.

Therefore, a close personal relationship existed between you 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 2 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, you and the Deceased lived together at the same address.

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 2 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.

From the facts presented, you provided financial support for the Deceased's personal, living and medical costs and took the Deceased to the hospital/doctor's appointments. The Deceased relied on your financial support and due to his medical conditions, he was unable to work since 20XX.

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 2 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, you provided the Deceased with significant assistance that included food, accommodation, personal care, taking over all his personal bills and taking the Deceased to medical appointments.

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

Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied.

Support and care provided in a close personal relationship

Subregulation 302-200.02(2) of the ITAR 2021 provides that 2 people will still be in an interdependency relationship if they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997 and one or both of the parties provides the other with support and care of a type and quality normally provided in a close personal relationship, beyond what would normally be provided by a mere friend or flatmate.

From the facts presented, you provided the Deceased with care and support beyond what would normally be provided by a mere friend or flatmate. You provided significant care for the Deceased when he was unwell or suffering emotionally, for example by assisting with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 have been satisfied, it is concluded that you and the Deceased were in an interdependency relationship in the period prior to and at the time of the death.

As you were in an interdependency relationship with the Deceased, you are a death benefits dependant as defined under section 302-195 of the ITAA 1997.

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