Edited version of your written advice

Authorisation Number: 1012880904407

Date of advice: 22 September 2015

Ruling

Subject: Death benefits - interdependency relationship

Question 1

Is your client a death benefits dependant of the deceased as defined under section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is the superannuation death benefit to be paid to your client treated as assessable income of the trustee of the deceased estate in accordance with section 302-145 of the ITAA 1997?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 2015

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

Your client is the relative of a person (the Deceased) who died during the relevant income year after a long illness.

Prior to the death of the Deceased, your client and the Deceased had lived together for more than 30 years.

At the time the Deceased died, your client and the Deceased jointly owned their home and a number of rental properties. They shared loan repayments on their home and owned several joint bank accounts.

Income from the rented properties was held in the Deceased's and your client's joint bank accounts. Related expenses, as well as personal expenses, were paid from those accounts.

Your client and the Deceased jointly owned a car which was used for domestic purposes and for travelling to the hospital for the Deceased's medical treatment.

Your client and the Deceased shared their domestic duties of cooking, cleaning, laundry, etc. After the Deceased was diagnosed with a terminal illness, your client provided all the domestic and personal care for the Deceased.

To care for the Deceased, Your client had a flexible working arrangement with their employer and had reduced their working hours.

Your client had attended doctor/hospital appointments with the Deceased.

Your client received carer's payments from Centrelink for caring for the Deceased.

During the 2014-15 income year, the trustees of the Deceased's estate (the Trustees) received a superannuation death benefit from a complying superannuation fund.

During the 2015-16 income year, the Trustees resolved that the full superannuation death benefit payment will be paid to your client.

Relevant legislative provisions

Income Tax Assessment Act 1936 former section 27AAB.

Income Tax Assessment Act 1997 section 302-10.

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 Regulations 1997 regulation 302-200.

Reasons for decision

Summary

Just before the Deceased died, your client and the Deceased had an interdependency relationship as defined in section 302-200 of the ITAA 1997. Therefore, your client is considered to be a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

A superannuation lump sum death benefit paid to a person who is a death benefits dependant is not assessable income and is not exempt income of the person, that is, it is tax free.

To the extent that a death benefits dependant has benefited, or may be expected to benefit, from a superannuation death benefit received by the trustee of a deceased estate, the benefit is treated by the trustee as if it had been paid to the death benefit dependant. Therefore, the superannuation lump sum death benefit to be paid to your client from the Deceased's estate is not treated as assessable income of the trustees of the Deceased's estate.

Detailed reasoning

Death benefits dependant

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits.

Section 302-195 of the ITAA 1997 defines death benefits dependant, of a person who has died, as:

(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 paragraphs (a), (b) or (d) of the above definition do not apply to your client, paragraph 302-195(c) of the ITAA 1997 is considered to determine whether your client was in an interdependency relationship with the Deceased just before the Deceased died.

Interdependency relationship

Relevantly, section 302-200 of the ITAA 1997 provides that two persons (whether or not related by family) have an interdependency relationship under that 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.

In accordance with subsection 302-200(3) of the ITAA 1997, matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under that section may be specified in the regulations.

To that effect, subregulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) states that the matters to be taken into account for the purposes of paragraph 302-200(3)(a) of the ITAA 1997 are all the relevant circumstances of the relationship between the persons, including (in this case):

(i)  the duration of the relationship; and …

(iii) the ownership, use and acquisition of property; and …

(iv)  the degree of mutual commitment to a shared life; and …

(vi)  the reputation and public aspects of the relationship; and

(vii)  the degree of emotional support; and

(viii)  the extent to which the relationship is one of mere convenience; and …

Subregulation 302-200.02 of the ITAR 1997 sets out the circumstances in which two persons have an interdependency relationship and, as far as relevant, states that two persons have an interdependency relationship if:

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

(b)  1 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.

Examples of care normally provided in a close personal relationship rather than by a friend or flatmate

1. Significant care provided for the other person when he or she is unwell.

2. Significant care provided for the other person when he or she is suffering emotionally.

Close personal relationship:

Generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between specific relatives who live together. This is because the relationship between specific relatives would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where, as in this case, unusual and exception circumstances exist, a relationship between specific relatives may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

The relationship between the Deceased and your client was over and above that of a normal family relationship for two specific relatives living together. They purchased a home and held investments in joint names, shared household expenses and had lived together for many years. Therefore, there is, in this case, evidence of a mutual commitment to a shared life between the Deceased and your client.

The facts show that a close familial relationship existed between your client and the Deceased, not only at the time of the Deceased's death, but also for many years prior to the death. This was demonstrated in a number of ways such as the on-going support the two provided to each other and the personal care and support your client provided to the Deceased during the time the Deceased suffered from a terminal illness. This is far beyond what might be expected from friends or flatmates.

Therefore, it is considered that a close personal relationship existed between your client and the Deceased as required by paragraph 302-200(1)(a) of the ITAA 1997.

Living together:

At the time of the Deceased's death, your client and the Deceased had been living together for many years. Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance.

Financial support:

Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.

Your client and the Deceased jointly held a number of investment properties and several bank accounts. Their personal/investment expenses were paid from jointly held bank accounts. Therefore, it is considered that they each provided financial support to the other.

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

Domestic support and personal care:

The Supplementary Explanatory Memorandum to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 which inserted former section 27AAB of the ITAA 1936 (the immediate predecessor to section 302-200 of the ITAA 1997) discusses the meaning of domestic support and personal care and states:

2.16 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 activities. Personal care services may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

You state that both your client and the Deceased shared domestic duties such as cooking, cleaning and laundry for many years. Following the Deceased's diagnosis, your client reduced their working hours to care for the Deceased and to attended hospital/doctor's appointments with the Deceased.

Furthermore, your client received a carer's payment from Centrelink for caring for the Deceased during their illness.

In view of the above it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been met.

As all the conditions of subsection 302-200(1) of the ITAA 1997 have been satisfied, your client and the Deceased were in an interdependency relationship just before the Deceased died.

Consequently your client is a death benefits dependant of the Deceased for the purposes of section 302-10 of the ITAA 1997.

Superannuation death benefit paid to the trustee of deceased estate

Section 302-10 of ITAA 1997 applies to superannuation death benefits paid to the trustee of a deceased estate.

Relevantly, subsection 302-10(2) of the ITAA 1997 states:

To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and …

Therefore, subsection 302-10(2) of the ITAA 1997 applies so that the Trustees will treat the superannuation death benefit that is to be paid to your client as if it were paid to your client directly.

Accordingly, in accordance with section 302-60 of the ITAA 1997, superannuation death benefit to be paid to your client is not assessable income and is not exempt income.