Edited version of your written advice

Authorisation Number: 1013021803657

Date of advice: 20 May 2016

Ruling

Subject: Superannuation death benefit - interdependency relationship

Question

Is a person (the Beneficiary) a death benefits dependant of a person who has died (the Deceased) under section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased was a citizen of a foreign country who died in Australia in the 20XX-YY income year.

The Deceased was a member of an Australian complying superannuation fund (the Fund).

Several months after the Deceased's death, the Fund made a superannuation lump sum payment to the Beneficiary who is a parent of the Deceased and lives in a foreign country. The Fund withheld tax from the payment.

Prior to coming to Australia, the Deceased lived with their parents. The Deceased was not married and had no other dependents at the time of death.

The Beneficiary suffers from a severe disability. While the Deceased lived with the Beneficiary, the Deceased provided support to the Beneficiary in the form of:

• interpreting all incoming and outgoing telephone calls;

• dealing with and interpreting documents in most aspects of life such as banking, insurance, electricity, phone, gas, medical, government;

• organising for professional interpreting for more technical communications or documents; and

• accompanying the beneficiary out of their house when communication is required, such as to medical appointments.

The Deceased had been providing financial support to the Beneficiary since 20VV. From 20VV to 20WW, the Deceased was making monthly contributions to help with the Beneficiary's expenses.

The Deceased came to Australia in the 20WW-UU income year on a Working Holiday visa. Prior to leaving their country of origin, the Deceased had provided the Beneficiary with an amount in cash.

While the Deceased was in Australia, the Deceased provided financial support to the Beneficiary in the form of monthly bill payments.

The Deceased had intended to ask a friend to take cash from the Deceased's bank account in Australia to the Beneficiary at the end of 20XX.

The Beneficiary provided 'pocket money' to the Deceased in 20TT, 20WW and 20XX, and paid for their university accommodation in 20TT.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 302-B

Income Tax Assessment Act 1997 Subdivision 302-C

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 section 307-65

Income Tax Assessment Act 1997 section 307-70

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

Income Tax Assessment Regulations 1997 regulation 302-200.02

Reasons for decision

Summary

The Beneficiary is a death benefits dependant of the Deceased under section 302-195 of the ITAA 1997 as the Beneficiary and the Deceased were in an interdependency relationship just before the Deceased died.

Detailed reasoning

Superannuation death benefits

Subsection 995-1(1) of the ITAA 1997 states that a 'superannuation death benefit' has the meaning given by section 307-5 of the ITAA 1997.

A superannuation death benefit is defined in subsection 307-5(4) of the ITAA 1997 as being a payment described in Column 3 of the table in subsection 307-5(1) of the ITAA 1997. A superannuation death benefit is described in Column 3 of Item 1 of the table in subsection 307-5(1) 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.

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.

In this case, the Deceased died during the 20XX-YY income year. Following their death, the Fund made a payment directly to the Beneficiary during the 20XX-YY income year. The payment was made because the Deceased was a member of the Fund. Hence this payment is a superannuation death benefit within the meaning of Column 3 of Item 1 of the table in subsection 307-5(1) of the ITAA 1997.

The payment is thus a superannuation death benefit as defined in subsection 307-5(4) of the ITAA 1997 and a superannuation lump sum within the meaning of section 307-65 of the ITAA 1997.

Death benefits dependant

The taxation of superannuation death benefits is outlined in Subdivision 302-B and Subdivision 302-C of the ITAA 1997 and depends on whether the death benefit is paid to a person who is a 'death benefits dependant' or 'death benefits non-dependant' of the person who has died.

The definition of 'death benefits dependant' is outlined by section 302-195 of the ITAA 1997 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.

*To find definitions of asterisked terms, see the Dictionary, starting at 995-1

As the Beneficiary is a parent of the Deceased, it is evident that they are not a death benefits dependant under paragraph 302-195(1)(a) or paragraph 302-195(1)(b) of the ITAA 1997.  The beneficiary must therefore satisfy another criterion of subsection 302-195(1) of the ITAA 1997 to be classified as a death benefits dependant.  The most relevant criterion in these circumstances is paragraph 302-195(1)(c) of the ITAA 1997 (interdependency relationship) rather than paragraph 302-195(1)(d) of the ITAA 1997 (dependant of the deceased according to its ordinary meaning). 

Relevantly, subsection 302-200(1) 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.

Each of the requirements under subsection 302-200(1) of the ITAA 1997 will be discussed in detail below.

'Close personal relationship'

The Beneficiary had a close personal relationship with the Deceased.  While the expression 'close personal relationship' is not defined in the ITAA 1997, guidance appears in paragraphs 2.12 to 2.14 of the Supplementary Explanatory Memorandum of the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2003 ('the Supplementary Explanatory Memorandum'):

2.12 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.

2.13 Indicators of a close personal relationship may include:

n the duration of the relationship;

n the degree of mutual commitment to a shared life;

n the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged).

2.14 The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist.  (Emphasis added.)

The behaviour of the Beneficiary and the Deceased indicated a mutual intention that their close familial relationship was permanent. The Beneficiary and the Deceased consistently provided each other with support (financial, domestic and emotional) during the Deceased's studies. The mutual commitment and close relationship between the two persisted as the Deceased commenced full-time work in their country of origin, and later in Australia. The Deceased's ongoing commitment of sending money to the Beneficiary even while working in Australia indicates that their relationship was not one of mere convenience.

'Living together'

The Beneficiary and the Deceased did not live together just before the latter's death.  The Deceased was on a working holiday in Australia, while the Beneficiary remained at their residence in their country of origin.

'Financial support'

The Deceased and the Beneficiary provided each other with financial support. The Beneficiary provided 'pocket money' to the Deceased in 20TT, 20WW and 20XX, and paid for their university accommodation in 20TT. The Deceased made monthly contributions to the Beneficiary and their spouse for general household and living expenses. The Deceased continued to provide monthly contributions during 20XX while in Australia (as well as a cash payment prior to leaving).

'Domestic support and personal care'

The Deceased provided domestic support and personal care to the Beneficiary.  While the expression 'domestic support and personal care' is not defined in the ITAA 1997, paragraph 2.16 of the Supplementary Explanatory Memorandum sheds light on its meaning:

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.  (Emphasis added.)

Before coming to Australia, the Deceased provided substantial and ongoing domestic support to the Beneficiary by interpreting and communicating for them (due to their severe hearing disability), such as accompanying them to appointments and helping them to communicate effectively with service providers. 

However, the Deceased could not provide the same level of domestic support and personal care during 20XX as the Deceased and the Beneficiary were temporarily living apart.

Temporarily living apart

On the facts, the Beneficiary's relationship with the Deceased does not satisfy the requirements of subsection 302-200(1) of the ITAA 1997.  However, the circumstances indicate that the Beneficiary and the Deceased were only temporarily living apart. As such, their interdependency relationship still existed by virtue of subsection 302-200(3) of the ITAA 1997 and subregulation 302-200.02(3) of the Income Tax Assessment Regulations 1997 (ITAR 1997).

Subsection 302-200(3) of the ITAA 1997 states that:

The regulations may specify:

(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.  (Emphasis added.)

Relevantly, subregulations 302-200.02(1) and (3) of the ITAR 1997 state:

(1) For paragraph 302-200(3)(b) of the Act, this regulation sets out circumstances in which 2 persons have, or do not have, an interdependency relationship under section 302-200 of the Act.

…

(3)  2 persons have an interdependency relationship if:

(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 Act; and

(c) the reason they do not satisfy the other requirements is that they are temporarily living apart.

Example for paragraph (3)(c): One of the persons is temporarily working overseas or is in gaol.  (Emphasis added.)

Subregulation 302-200.02(3) of the ITAR 1997 requires the parties to have a close personal relationship, which clearly existed (as previously discussed).  The failure to satisfy the other requirements of subsection 302-200(1) of the ITAA 1997 (namely living together, and the Deceased's provision of domestic support and personal care) is due to the fact that they were temporarily living apart at the time of the Deceased's death.

The circumstances indicate that the Deceased, who was a citizen of a foreign country, came to Australia on a Working Holiday visa (subclass 417). This visa allows the holder to stay in Australia for up to 12 months.  The holder may also apply for a second Working Holiday visa to extend their stay if they completed three months of specified work in regional Australia while on their first Working Holiday visa.  The result is that it is possible for a person on a Working Holiday visa to stay in Australia for a maximum of 24 months.

Nothing in the facts indicates that the Deceased had intended to live permanently in Australia.  Their visa permitted them to live and work in Australia for up to 12 months, with the possibility of extending to 24 months if they satisfied the regional work requirement. The facts do not suggest that they intended to extend their visa, or that they intended to obtain a different visa or become a resident once their Working Holiday visa lapsed.  All circumstances indicate that the Deceased lived and worked in Australia on a temporary basis only.

Therefore, by the operation of subregulation 302-200.02(3) of the ITAR 1997, the Beneficiary had an interdependency relationship with the Deceased at the time of their death for the purpose of section 302-200 of the ITAA 1997.  This means that the Beneficiary is a death benefits dependant of the Deceased under paragraph 302-195(1)(c) of the ITAA 1997.

The tax treatment of the superannuation death benefit

According to section 302-60 of the ITAA 1997:

A *superannuation lump sum that you receive because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.

*To find definitions of asterisked terms, see the Dictionary, starting at 995-1

In this case, an amount of tax has been withheld by the Fund. As the death benefit is tax free, the Beneficiary may obtain a refund of tax withheld. To do so, the Beneficiary must apply for a tax file number (TFN) and lodge an income tax return for the 20XX-YY income year.

The Beneficiary may apply for a TFN by completing the form Tax file number - application or enquiry for individuals living outside Australia (NAT 2628).