Edited version of your written advice

Authorisation Number: 1051349462356

Date of advice: 5 April 2018

Ruling

Subject: Superannuation death benefits - dependent

Question 1

Is the Beneficiary a death benefits dependant of the Deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997) by virtue of being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997 just before the Deceased’s death?

Answer

Yes

Question 2:

Is the taxable component of the superannuation lump sum death benefits received during the 2016-17 income year, non-assessable non-exempt income under section 302-60 of the ITAA 1997??

Answer

Yes

This ruling applies for the following period:

For the year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

● The Deceased died in the 2016-2017 financial year

● The Beneficiary was a child of the Deceased aged over 18 years.

● The Beneficiary received a Death Benefit payment from the Deceased’s Superannuation fund. The Superannuation fund withheld tax from the payment.

● You applied for a private ruling. In this application you advised that at the date of death, the Beneficiary was a full time student and was reliant on the Deceased.

● You supplied the following additional information

● The Beneficiary was the only child of the deceased and lived with them all her life

● The Beneficiary had a close emotional and financial relationship with the Deceased

● The Beneficiary has never received any form of Centrelink support and was emotionally and financially supported by the Deceased.

● The Deceased paid most of the Beneficiary’s expenses including paying for food, accommodation and utilities.

● The Beneficiary spent many hours at home caring for the Deceased.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-195

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

Income Tax Assessment Act 1997 Section 302-200

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

Reasons for decision

For superannuation death benefits paid after 1 July 2007, 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.

A death benefits dependant of a person who has died is defined in subsection 302-195(1) of the ITAA 1997 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 dependent of the deceased just before he or she died

Interdependency relationship

Paragraph 302-195(1)(c) of the ITAA 1997 provides that a death benefits dependant is any person with whom the deceased person had an interdependency relationship under section 302-200 of the ITAA 1997 just before they died.

To this extent, paragraphs 302-200(1)(a) to (d) of the ITAA 1997 provides that two persons have 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.

Subsection 302-200(3) of the ITAA 1997 provides that Income Tax Assessment Regulations 1997 (the Regulations) may specify matters that are, or are not, to be taken into account in ascertaining whether a interdependency relationship exists as per subsection 302-200(1) of the ITAA 1997.

Did the Beneficiary have a close personal relationship with the deceased?

The term ‘close personal relationship’ is not defined in the ITAA 1997 or the Regulations.

However, the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 which inserted former section 27AAB of the Income Tax Assessment Act 1936 provides some explanation of a close personal relationship. To this end, the SEM 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.

2.13 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).

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.

Based on the information you have provided, we consider that the Beneficiary had a close personal relationship with the Deceased

As such, paragraph 302-200(1)(a) of the ITAA 1997 is satisfied.

Did the Beneficiary live with the deceased?

The term ‘live’ is not defined in the ITAA 1997 or the 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.

You have advised that the Beneficiary had lived with the Deceased all their life and was living with the Deceased at the time of the Deceased’s death.

The Commissioner therefore considers that the Beneficiary and the Deceased lived together for the purposes of paragraph 302-200(1)(b) of the ITAA 1997.

Did the Deceased provide the Beneficiary with financial support?

The information provided indicates that the Deceased provided the Beneficiary with financial support including paying for food, accommodation and utilities.

On balance, the Commissioner is satisfied that the Deceased provided the Beneficiary with financial support for the purposes of paragraph 302-200(1)(c) of the ITAA 1997.

Did the Beneficiary provide the deceased with domestic support and personal care?

Subregulation 301-200.02(1) of the Regulations provides that for the purposes of paragraph 302-200(1)(d) of the ITAA 1997, the support and care provided must be of a type and quality normally provided in a close personal relationship.

It has been established that the Deceased and the Beneficiary were in a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997.

In light of the above, the Commissioner considers that the support and care provided is of a type and quality normally provided in a close personal relationship and therefore constitute the provision of domestic support and personal care per paragraph 302-200(1)(d) of the ITAA 1997.

Conclusion – interdependency relationship

As the conditions stipulated by subsection 301-200(1) of the ITAA 1997 have been satisfied, the Commissioner considers that there was a interdependency relationship and therefore the Beneficiary is a death benefits dependant in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Taxation of lump sum death benefits to dependants

Section 302-60 of the ITAA 1997 provides that a superannuation lump sum 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.

The Commissioner has determined that the Beneficiary is a death benefits dependant of the Deceased in accordance with paragraph 302-195(1)(c) of the ITAA 1997; therefore, under section 302-60 of the ITAA 1997, the benefit received is regarded as non-assessable income, non-exempt income.