Edited version of private advice

Authorisation Number: 1052264278406

Date of advice: 9 July 2024

Ruling

Subject: Superannuation death benefit - interdependency

Question

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

No.

This ruling applies for the following period

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 on XX month 20XX, at the age of XX years.

The Beneficiary received a death benefit payment from the Deceased's superannuation fund.

You applied for a private ruling on XX March 20XX and XX May 20XX.

You provided the following documents in support of your application:

a.    Personal statement which states:

•         the Deceased began living with the Beneficiary again in 20XX due to loss of employment

•         the Deceased struggled with substance abuse issues and holding down employment

•         the Deceased was aware that functioning outside of living from home was not possible and support was required

•         a negotiated amount of $XX per week for board was established when the Deceased moved back in with the Beneficiary, which includes food, electricity and internet

•         the Beneficiary often provided extra money despite the Deceased not always making board payments

•         the Deceased struggled to maintain employment until their terminal illness diagnosis

•         the Deceased was diagnosed with terminal illness on XX month 20XX

•         the Beneficiary became the Deceased's carer which required significant support including:

o   accompanying the Deceased to medical appointments and treatments

o   assisting in showering, food intake and management of medications

b.    Superannuation fund exit statement for period 1 July 20XX to XX October 20XX

c.     Letters of Administration granted to the Beneficiary, dated 15 September 20XX

d.    Death Certificate for the Deceased, dated XX April 20XX

e.    Bank transaction history for the Beneficiary, with address of XXX, covering transaction dates of

f.      XX December 20XX to XX April 20XX, which shows intermittent transactions made by the Deceased

g.    Patient pharmaceutical statement for the Deceased, dated XX March 20XX

h.    Discharge Summary for the Deceased, with address of XXX, with admission date of

i.      XX November 20XX and XX March 20XX respectively

j.      XXX correspondence for the Beneficiary, with address of XXX, dated XX January 20XX advising Beneficiary has been appointed as a correspondence nominee for the Deceased

k.     XXX Funeral Directors account addressed to the Beneficiary, with address of XXX, dated XX April and XX May 20XX respectively

l.      Driver's licence for the Beneficiary, with address of XXX

m.   Driver's licence for the Deceased, with address of XXX

On XX November 20XX, the Deceased was diagnosed with a terminal illness.

The Beneficiary cared for the Deceased from 20XX until XX month 20XX by providing:

•         domestic support, including attending and accompanying to medical appointments and treatments

•         personal care and assistance, including showering, food intake and medication management

•         emotional support, including providing comfort.

The Beneficiary lived with the Deceased from 20XX until XX month 20XX.

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 Act 1997 Section 307-5

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200

Reasons for decision:

Issue: Death Benefits Dependant - 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), being in an interdependency relationship with the Deceased under section 302-200 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.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 defines interdependency relationship, it states that two persons (whether or not related by family) have an interdependency relationship 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.

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.

Subsection 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):

•         the duration of the relationship

•         the degree of mutual commitment to a shared life

•         the care and support of children

•         the reputation and public aspects of the relationship

•         the degree of emotional support

•         the extent to which the relationship is one of mere convenience

•         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.

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.

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

Subsection 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 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.

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 section 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 relationship between the Beneficiary and the Deceased was not over and above a normal family relationship between a parent and an adult child.

It was not the case that the Deceased had always lived with the Beneficiary and intended to do so.

While both parties lived together for a long period of time, the Deceased had lived apart from the Beneficiary for a reasonable part of his life which is confirmed by personal statement from the Beneficiary that the Deceased moved back home in 2018.

There is no evidence to support that the Beneficiary and the Deceased had a mutual commitment to share a life.

Therefore, a close personal relationship did not exist between the Beneficiary and the Deceased and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not 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) of the ITAA 1997, 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 from 20XX to month 20XX.

Documentation provided, in the form of driver's licence, shows the Deceased residing at the same residence as the Beneficiary as date of death.

The Deceased moved in with the Beneficiary due to loss of employment and subsequently his medical diagnosis.

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.

It is acceptable that a level of financial support in way of reduced board payments was present in the relationship prior to the Deceased illness and subsequent passing.

The Beneficiary provided the Deceased with financial support during the final years of the Deceased's life.

The Beneficiary gave extra money to the Deceased even when the Deceased failed to make rent payment.

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.

Statement provided contends that the Beneficiary provided the Deceased with some level of domestic support and personal care, which included attending and accompanying to medical appointments and treatments, assistance with showering, food intake and medication management.

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

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

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 have not been satisfied, the Deceased and Beneficiary were not in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary was not in an interdependency relationship with the Deceased, the Beneficiary is not a death benefits dependant as defined under section 302-195 of the ITAA 1997.

Consequently, the taxable component of the superannuation lump sum received is assessable income and is subject to income tax under section 302-145 of the ITAA 1997.

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