Edited version of your written advice

Authorisation Number: 1051194779213

Date of Advice: 22 February 2017

Ruling

Subject: Superannuation death benefits

Question

Did a person (the Beneficiary) have an interdependency relationship under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with a deceased person (the Deceased) at the time of the Deceased's death?

Answer

Yes.

This ruling applies for the following period

Income year ended 30 June 2016

The scheme commenced on

1 July 2015

Relevant facts and circumstances

The Deceased died during the 2015-16 income year.

The Deceased was a member of a complying self-managed superannuation fund (the Fund).

The Deceased had given to the trustees of the Fund a binding death nomination in favour of the Beneficiary.

The Beneficiary is a child of the Deceased aged more than 18 years.

The Deceased had a terminal illness. Due to the Deceased's illness, the Beneficiary moved in with the Deceased in the 2014-15 income year to act as a full-time nurse and carer for the Deceased.

The Beneficiary provided ongoing emotional support to the Deceased, accompanied the Deceased to medical appointments, administered the Deceased's required treatments and medication, supervised the Deceased's therapy and assisted with the Deceased person's hygiene.

The Deceased and the Beneficiary were each other's trusted companion and confidant.

The Beneficiary had been diagnosed shortly after birth with a medical condition.

The Deceased provided the Beneficiary with emotion support and helped supervise the Beneficiary's physical therapy.

The Beneficiary is in receipt of a Centrelink Disability Support Pension.

The Beneficiary is unable to work and has been financially dependent on the Deceased. The Deceased supported the Beneficiary financially with day to day living expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 302

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 Subsection 995-1(1)

Income Tax Regulations 1997 Regulation 302-200.01(2)

Income Tax Regulations 1997 Regulation 302-200.02(2)

Reasons for decision

Summary

The Beneficiary had an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997 just before the Deceased died. Hence, the Beneficiary is a death benefits dependant of the Deceased under section 302-195 of the ITAA 1997.

Detailed reasoning

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 or non-dependant of the deceased and whether the benefit is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

In accordance with section 302-60 of the ITAA 1997, where a person receives a superannuation lump sum death benefit and that person was a 'death benefits dependant' of the deceased, it is not assessable income and is not exempt income.

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. Section 302-195 of the ITAA 1997 defines a death benefits dependant as follows:

A death benefits dependant, of a person who has died, is:

The deceased person's *spouse or former spouse; or

The deceased person's *child, aged less than 18; or

Any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

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 section 995-1.

As the Beneficiary is a child of the Deceased who is aged more than 18 years, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case. Therefore, to determine whether the Beneficiary is a death benefits dependant of the Deceased, we need to consider whether they had an 'interdependency relationship' with the Deceased under paragraph 302-195(1)(c) of the ITAA 1997, or they were a 'dependant' of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997 just before the Deceased died.

Interdependency relationship

The term 'interdependency relationship' is defined in section 302-200 of the ITAA 1997 which states:

Subject to subsection (3), for the purposes of this Subdivision, 2 persons (whether or not related by family) have an 'interdependency relationship' if:

They have a close personal relationship; and

They live together; and

One or each of them provides the other with financial support; and

One or each of them provides the other with domestic support and personal care…

Subsection 302-200(3) of the ITAA 1997 states that the regulations may specify the matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

In accordance with regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITAR 1997), matters that are to be taken into account in determining whether two persons have an interdependency relations include, where relevant, the following:

The duration of the relationship; and

Whether or not a sexual relationship exists; and

The ownership, use and acquisition of property; and

The degree of mutual commitment to a shared life; and

The care and support of children; and

The reputation and public aspects of the relationship; and

The degree of emotional support; and

The extent to which the relationship is one of mere convenience; and

Any evidence suggesting that the parties intend the relationship to be permanent

Regulation 302-200.02(2) of the ITAR 1997 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

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. In discussing the meaning of 'close personal relationship' the SEM, as far as relevant, states:

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.

In this case, a close personal relationship existed between the Beneficiary and the Deceased at the time of the Deceased's death. This was demonstrated in a number of ways including the following:

The Beneficiary and the Deceased provided each other with ongoing emotional support; and

The Beneficiary and the Deceased provided care to each other when they were unwell.

Therefore, it is accepted that a close personal relationship existed between the Beneficiary and the Deceased as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

Living together:

The Deceased and the Beneficiary lived together until the Deceased's death. Therefore the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in 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.

In this case, the Beneficiary is unable to work and has been financially supported by the Deceased throughout their life.

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

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.

The Deceased provided the Beneficiary with ongoing emotion support and helped supervise the Beneficiary's physical therapy.

In addition, the Beneficiary provided emotional support to the Deceased, accompanied the Deceased to medical appointments, administered the Deceased's required treatments and medication, supervised the Deceased's therapy and assisted with the Deceased's personal hygiene.

Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

As all conditions of subsection 302-200(1) of the ITAA 1997 have been satisfied, the Beneficiary and the Deceased had an interdependency relationship under section 302-200 of the ITAA 1997 just before the Deceased died.

Therefore, the Beneficiary is a death benefits dependant of the Deceased under paragraph 302-195(1)(c) of the ITAA 1997. As such, there is no need to consider whether the Beneficiary is a dependant of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997.