Edited version of your written advice

Authorisation Number: 1051490899249

Date of advice: 7 March 2019

Ruling

Subject: Superannuation death benefits

Question

For the purposes of section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), are two persons who are beneficiaries of a deceased estate (the Beneficiaries) death benefits dependants of a person who has died (the Deceased) under paragraph 302-195(1)(c) of the ITAA 1997?

Answer

No

This ruling applies for the following period:

Income year ending 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

The Deceased died in the 2018 income year aged less than 40 years.

Beneficiaries are the parents of the Deceased.

The Deceased was in a de-facto relationship with another person (Person A) for more than five years. During that time, they purchased a house together and lived there until they separated.

Subsequently, the Deceased was diagnosed with a serious illness.

Later, the Deceased began a romantic relationship with a different person (Person B).

In late 2017, the Deceased’s illness became terminal and one of the Beneficiaries ceased working in order that they and the other Beneficiaries could care for the Deceased.

Soon after, the Deceased required 24 hour palliative care. Both Beneficiaries provided such care during the day and one, who was trained in administering pain relief, stayed with the Deceased through the night. The other Beneficiary did not stay during the night because they had to attend to pets at their own home.

During this time, Person B also stayed with the Deceased every second week to care for them and give some respite to the Beneficiaries. Person B worked during the day but assisted with the care of the Deceased during the night.

During the period from late 2017 to the Deceased’s death, the Beneficiaries provided the following care and support to the Deceased:

● they accompanied the Deceased to their medical appointments to ensure their security and comfort

● they purchased groceries, medication, personal care items, dog food and other incidentals for the Deceased

● they cleaned the Deceased’s house, cooked their meals, did their laundry, cared for their dogs and maintained their house and garden

● they assisted the Deceased with showering and personal hygiene needs, including toileting

● initially, the Deceased reimbursed the Beneficiaries for costs incurred on their behalf, however when they became too ill to do so, the Beneficiaries covered these costs themselves.

The Deceased was a member of a complying superannuation fund (the Fund) and, as a result of their death, the Fund paid a superannuation death benefit to the trustee of the Deceased’s Estate.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10

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)(c)

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)

All references are to the ITAA 1997 unless otherwise stated

Reasons for decision

Summary

Beneficiaries are not death benefits dependants of the Deceased under paragraph 302-195(1)(c) of the ITAA 1997.

Detailed reasoning

Section 302-10 of the ITAA 1997 sets out the tax treatment of superannuation death benefits paid to the trustees of a deceased estate. That treatment varies depending on whether the beneficiaries of the estate who have benefited, or may be expected to benefit, from the superannuation death benefit were, or were not, ‘death benefits dependants’ of the deceased.

Meaning of ‘death benefits dependant’

Subsection 995-1(1) of the ITAA 1997 states that death benefits dependant has a meaning given by section 302-195 of the ITAA 1997.

In accordance with subsection 302-195(1) of the ITAA 1997, 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 section 995-1.

Subsection 302-200(3) of the ITAA 1997 provides that 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 ; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship

To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 1997 (ITAR 1997) states that in considering paragraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are (in this case):

● the duration of the relationship; and

● the ownership use and acquisition of property; and

● the degree of mutual commitment to a shared life; 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 of the ITAR 1997 sets out circumstances in which two persons have, or do not have, an interdependency relationship under section 302-200 of the ITAA 1997 and states:

2 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 close personal relationship is generally one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. Indicators of a close personal relationship may include the duration of the relationship and the degree of mutual commitment to a shared life.

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

It is not disputed that the Beneficiaries enjoyed a close personal relationship with the Deceased, particularly during the final stage of their illness. However, the facts indicate that for most of their adult life, the Deceased lived an independent life with their own family/social life. While it is accepted that the Beneficiaries provided significant care for the Deceased during the latter stage of their illness, this was done for a relatively short period of time (approximately six months) and there is nothing to indicate a level of commitment to a shared life, or a level of care above what would be normal or expected of a caring and loving parent.

Therefore, while it is accepted that the Beneficiaries had a close parent/child relationship with the Deceased, it is not considered that a close personal relationship existed between them and the Deceased as contemplated in paragraph 302-200(1)(a) of the ITAA 1997.

Living together

The phrase ‘live together’ is not defined in the ITAA 1997 or the ITAR 1997. Therefore, its meaning is to be determined according to the ordinary meaning of the words in the context in which they appear.

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.

Therefore as paragraph 302-200(1)(b) of the ITAA 1997 states as a requirement that the persons live together, it is considered in the context of the provision, that the living arrangements must have some degree of permanency.

In determining if the persons live together it is relevant to have regard to ‘the degree of mutual commitment to a shared life’ and ‘any evidence suggesting that the parties intend the relationship to be permanent’. Where, as here, a person has moved in with an adult child to assist with their care when they become ill, but they usually reside elsewhere, for example with their partner, they would not be considered to have a commitment to a shared life with their child. Instead the living arrangement generally would be temporary with the person continuing to maintain their normal place of residence.

Consequently, for the purposes of paragraph 302-200(1)(b) of the ITAA 1997, the Beneficiaries did not live with the Deceased.

Financial support

To determine that an interdependency relationship existed, the Commissioner must be satisfied that some level of financial support was provided by one person to the other.

In this case, the facts indicate that such financial support was provided to the Deceased by the Beneficiaries in the form of household and medical expenses.

Domestic Support and personal care

The requirements of domestic support and personal care are cumulative and will commonly be of a frequent or ongoing nature. For example domestic support may consist of attending to the household shopping, cleaning, laundry and the like services. Personal care may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

Applying the above to the present facts, it is accepted that the Beneficiaries provided the Deceased with domestic support and personal care as required under paragraph 302-200(1)(d) of the ITAA 1997.

However, in order for an interdependency relationship to be established, it is necessary to satisfy all the requirements of the definition in subsection 302-200(1) of the ITAA 1997. In this case, it is our view that requirements in paragraph 302-200(1)(c) [financial support] and paragraph 302-200(1)(d) of the ITAA 1997 [domestic support and personal care] are satisfied, but the requirements in paragraph 302-200(1)(a) [close personal relationship] and paragraph 302-200(1)(b) of the ITAA 1997 [living together] are not satisfied.

Consequently, it is our view that the Beneficiaries are not death benefits dependants of the Deceased under paragraph 302-195(1)(c) of the ITAA 1997.