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Ruling

Subject : Superannuation death benefits - Dependency

Question

Will any part of the superannuation lump sum death benefit paid to the trustee of a deceased estate from a superannuation fund be tax-free under section 302-60 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answer

Yes.

This ruling applies for the following periods

For the year ended 30 June 2011

For the year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In late 2008, the deceased died intestate.

The deceased and the beneficiary had known each other for over 15 years and were in a de facto relationship for over 5 years prior to and at the time of the deceased's death.

Under the Laws of Intestacy in a specified State, the beneficiary is the sole beneficiary of the deceased estate and as such will be paid the residue of the estate.

The deceased's living relatives include the deceased's parent and sibling.

Both parties maintained separate residences due to the beneficiary's domestic arrangements with a child who is a minor.

The deceased and the beneficiary did not live permanently at one address but stayed with each other, either at the beneficiary's or the deceased's place, depending on what the minor child was doing at the time.

The deceased and the beneficiary made a commitment to a life together and the deceased was like a parent to the minor child.

Both parties went on holidays together, shopped together, shared household duties, which included cooking, cleaning, laundry and gardening.

The deceased's credit card was used by the beneficiary with a shared PIN.

The deceased and the beneficiary had a sexual relationship, socialised as a couple and were regarded as a couple by their friends.

A year prior to the deceased's death, they all went on an overseas holiday which was paid for by the deceased.

The deceased made contributions towards the minor child's education expenses and financially supported the beneficiary.

The deceased and the beneficiary had made plans to live together once the minor child had completed high school. They had discussed retiring to open up a business.

The deceased advised the hospital that the next of kin is the beneficiary who was with the deceased at the time of the deceased's death.

Superannuation benefits were made to the deceased's estate from superannuation funds.

In an Affidavit, a person made an oath that they had known the deceased and the beneficiary for over 5 years and that they appeared to be in a relationship like a married couple and were always supportive of each other.

In a Statutory Declaration, another person has declared knowing the deceased and the beneficiary for over 5 years and became very close to both of them and that during this time they appeared very much in love and inspirational as partners.

In a Statutory Declaration, the beneficiary declared that at the time of the deceased's death, although not legally married they were a couple and lived together in a genuine domestic basis and had done so for a period of over 5 years.

Relevant legislative provisions

Acts Interpretation Act 1901 Section 22A.

Acts Interpretation Act 1901 Section 22B.

Acts Interpretation Act 1901 Section 22C.

Acts Interpretation Act 1901 Subsection 22C(1).

Acts Interpretation Act 1901 Subsection 22C(2).

Acts Interpretation Act 1901 Subsection 22C(3).

Family Law Act 1975 Section 4AA.

Income Tax Assessment Act 1997 Section 302-10.

Income Tax Assessment Act 1997 Section 302-60.

Income Tax Assessment Act 1997 Section 302-195.

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

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

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

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

Income Tax Assessment Act 1997 Paragraph 302-195(1)(d).

Income Tax Assessment Act 1997 Section 302-200.

Income Tax Assessment Act 1997 Subsection 302-200(1).

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

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

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

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

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

Income Tax Assessment Act 1997 Section 960-255.

Summary

The beneficiary was in a de facto relationship with the deceased in the period immediately prior to the deceased's death, because they were living together as a couple on a genuine domestic basis. Therefore, the beneficiary satisfies the requirements of a death benefits dependant.

Detailed reasoning

Superannuation death benefits paid to a trustee of a deceased estate

Under section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

This means that where a dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a dependant of the deceased, and the benefit is taken to be income to which no beneficiary is presently entitled.

Where a person that is not a dependant is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled.

Accordingly, in the present case, the payment from the superannuation funds paid to the trustee of the deceased estate is assessable to the trustee as income to which no beneficiary is presently entitled.

The superannuation death benefits will be treated concessionally if a dependant of the deceased will benefit from the estate. Where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income. It will now be determined if the beneficiary is a dependant of the deceased.

Death Benefits Dependant in relation to a Superannuation Death Benefit:

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.

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.

De facto relationship:

Family relationships are clarified under section 960-255 of the ITAA 1997. The relationship between couples who are not married is treated in the same way as if they are legally married if one individual is the spouse of another because of the definition of spouse in subsection 995-1(1).

The definition of 'spouse' in subsection 995-1(1) of the ITAA 1997 is as follows:

spouse of a person includes a person who, although not legally married to the person, lives with the person on a genuine domestic basis as the person's husband or wife.

A deceased person's de facto spouse is therefore included in this definition of 'death benefits dependant' in paragraph 302-195(1)(a) of the ITAA 1997.

The Acts Interpretation Act 1901 (the AIA) which applies to all Acts of Parliament, has a reference to de facto partners in section 22A. Section 22A states the following:

For the purposes of a provision of an Act that is a provision in which de facto partner has the meaning given by this Act, a person is the de facto partner of another person (whether of the same sex or a different sex) if:

(a) the person is in a registered relationship with the other person under section 22B; or

(b) the person is in a de facto relationship with the other person under section 22C.

De facto relationships are further identified under subsection 22C(1) of the AIA as follows:

(a) are not legally married to each other; and

(b) are not related by family (see subsection (6)); and

(c) have a relationship as a couple living together on a genuine domestic basis.

Subsection 22C(2) of the AIA states:

In determining for the purposes of paragraph (1)(c) whether 2 persons have a relationship as a couple, all the circumstances of their relationship are to be taken into account, including any or all of the following circumstances (emphasis added):

· the duration of the relationship;

· the nature and extent of their common residence;

· whether a sexual relationship exists;

· the degree of financial dependence or interdependence, and any arrangements for financial support, between them;

· the ownership, use and acquisition of their property;

· the degree of mutual commitment to a shared life;

· the care and support of children;

· the reputation and public aspects of the relationship.

Furthermore, subsection 22C(3) of the AIA states:

no particular finding in relation to any circumstance mentioned in subsection (2) of the AIA is necessary in determining whether 2 persons have a relationship as a couple for the purposes of paragraph (1)(c).

The term 'de facto relationship' is similarly defined in section 4AA of the Family Law Act 1975 (FLA). The meaning of a de facto relationship is as follows:

A person is in a de facto relationship with another person if:

(a) the individuals are not legally married to each other

(b) the individuals are not related by family (as defined), and

(c) having regard to all the circumstances of their relationship, they have a relationship as a couple living together on a genuine domestic basis.

The main issue in this case is determining if the beneficiary and the deceased were a couple living together on a genuine domestic basis. This can be a difficult matter and Australian Courts consider all of the circumstances and utilise a number of factors that are appropriate to determine if there is a de facto relationship.

Considering the circumstances of the beneficary and the deceased against some of the indicators for a couple outlined in subsection 22C(2) of the AIA would indicate they were a couple. This is based on the following:-

They had resided together for a period of over 5 years. Although they did not live permanently at one address they stayed with each other, either at the beneficiary's or the deceased's place. This would adequately satisfy paragraph 22C(2)(a) regarding duration of the relationship.

Paragraph 22C(2)(b) considers the nature of their common residence. A common residence infers that a couple are living together and sharing a household. In Hayes v. Marquis [2008] NSWCA 10; [2008] DFC 95-415; [2008] ALMD 5421; [2008] ALMD 5423 (Hayes v. Marquis) it was stated:

The expression "living together" in the context of the Act is to be understood as referring to sharing a home, that is to say, cohabiting or dwelling together. The test is an objective one. It involves assessing the nature and extent of the claimed common residence. The concept of "living together" in s 5(1)(b) requires two adult persons be seen as regarding the place or places in which they live as "their home". The dominant parameter will be whether or not the individuals concerned may be discerned to regard the premises in question as their home and in so doing to be acting reasonably:

For a period of over 5 years and up until the date of the deceased's death in late 2008, the beneficiary and the deceased were living together in a common residence. Although the location of the common residence changed between the two places, the beneficiary and the deceased resided together for the whole period. This would adequately satisfy paragraph 22C(2)(b) regarding common residence.

The deceased and the beneficiary had a sexual relationship, socialised as a couple and went on holidays together. Clearly a degree of financial support existed between them. Therefore the circumstances under paragraphs 22C(2) (c) and (d) are satisfied.

Paragraph 22C(2)(f) of the AIA looks at the degree of mutual commitment to a shared life. The beneficiary and the deceased had been living together for over 5 years. They were living in a domestic relationship like a married couple and had planned to retire together and open up a business. Clearly paragraph 22C(2)(f) is satisfied.

Paragraph 22C(2)(h) considers the reputation and pubic aspects of a relationship. Two persons have made declarations that the deceased and the beneficiary at social gatherings appeared to be in a relationship like a married couple and were always supportive of each other. The public perception of this relationship could only be construed as a couple.

The above factors also indicate the couple were living together on a genuine domestic basis. Therefore, for the purposes of subsection 995-1(1) of the ITAA 1997, the beneficiary would be considered to be the de facto spouse of the deceased in the period immediately prior to the deceased's death. Consequently, the beneficiary satisfies the requirements of a death benefits dependant specified in paragraph 302-195(1)(a).

The taxation treatment of a superannuation death benefits:

As the beneficiary is considered to be a death benefits dependant the entitlement of the superannuation death benefits to the beneficiary will be tax-free under section 302-60 of the ITAA 1997 and is not included as assessable income in the hands of the deceased estate. The amount ultimately distributed from the Estate to the beneficiary will not be taxable in the beneficiary's hands because the amount will represent a distribution of the corpus of the Estate.