Edited version of your written advice

Authorisation Number: 1051499390863

Date of advice: 9 April 2019

Ruling

Subject: Death benefits dependant

Question

Did an interdependency relationship exist between the Deceased and Your Client, under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 201B

The scheme commences on:

1 July 2017

Relevant facts and circumstances

In 201A, at the age of X, the Deceased passed away suddenly.

The Deceased was a member of an Australian superannuation fund. Following their death, a superannuation death benefit was paid to the deceased estate. Your Client is the executor of the estate.

The Deceased and Your Client lived together. In 201C, the Deceased relocated from State A to a rented premises in State B (the first rental property), with Your Client. Both parties were listed on the Residential Tenancy Agreement.

The Deceased and Your Client remained living together at the first rental property for approximately X years.

During this time, both parties contributed towards rental expenses and bills. Both undertook domestic duties, and took turns cooking and cleaning. They also accompanied each other to events and regularly dined out together at restaurants.

In 201D, the lease on the first rental property was ended. Your Client signed a new lease on a unit (the second rental property), with their spouse as lessees to the tenancy agreement. The Deceased was not a party to the lease, as it was anticipated that he would be relocating overseas to undergo work training. However, the Deceased was living with your client at the second rental property.

During this time, the Deceased assisted your client by making cash payments towards household expenses including food and utilities, as well as assisting with domestic duties.

In 201E, the Deceased purchased land (the purchased property) as the sole owner. The Deceased provided the deposit, while Your Client provided an amount for fees and charges as well as a loan to cover the balance of the land. The Deceased’s intention was to build a home on this land, and reside there with Your Client and the Deceased’s other parent.

In 201A, the Deceased relocated overseas for work training, where they remained for several months. They resided at the home of a family friend. Your Client provided the Deceased with financial support during this time.

Upon returning to Australia, the Deceased resumed living with Your Client at the second rental property.

The Deceased had no spouse or children.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Subsection 302-195(1)

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

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 302-200(2)

Income Tax Assessment Act 1997 Paragraph 302-200(3)(a)

Income Tax Assessment Regulations 1997 Subregulation 302-200.01(2)

Income Tax Assessment Regulations 1997 Regulation 302-200.02

All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) existed between the Deceased and your client just before the Deceased died.

Therefore, in relation to the death benefit paid to the estate of the Deceased, Your Client is considered a death benefits dependant of the Deceased as defined in subsection 302-195(1).

Detailed reasoning

Superannuation death benefits paid to the trustee of a deceased estate

A payment made by a superannuation fund to a deceased estate after the death of the deceased is assessed as a death benefit under section 302-10.

The taxation arrangements that apply to this superannuation death benefit are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

For example, where a dependant of the deceased receives part, or all of, a superannuation death benefit and has benefited, or is expected to benefit, the trustee will not be subject to tax on that part of the benefit paid to the dependant as if it were paid to a dependant of the deceased.

Death benefits dependant

Subsection 302-195(1) defines a death benefits dependant 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.

As Your Client is a parent of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an ‘interdependency relationship’ with the Deceased or that they were a ‘dependant’ of the Deceased just before the Deceased died.

Interdependency relationship

Under subsection 302-200(1) an interdependency relationship is defined as:

Two persons (whether or not related by family) have an interdependency relationship under this 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.

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 all relevant circumstances of the relationship between the persons, including (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.

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, as in this case, 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.

In this case, Your Client is the parent of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. Your Client lived with the Deceased at successive rental properties, and provided emotional and financial support to the Deceased during the course of their life.

Your Client and the Deceased clearly remained an important part of each other’s lives and were committed to a shared life together. The Deceased (with assistance from Your Client) had, prior to their death, purchased residential land as a sole owner. It was expected that the Deceased and your client would build a house on this land, and reside there together for the remainder of your client’s life.

It is considered that this shows a commitment to a shared life above and beyond what would be expected for a parent and child. Overall the relationship between them is of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Cohabitation

The phrase ‘live together’ is not defined in the ITAA 1997 or accompanying 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.

Prior to and at the time of the Deceased's death, the Deceased and Your Client were living together in a rental property. It was anticipated that the Deceased would continue to live with your client in the purchased property once construction was complete.

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) is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

You state that the Deceased contributed some money from time to time towards household expenses. Rental expenses and bills were shared between Your Client and the Deceased. Your client financially supported the Deceased during their time studying abroad.

It is clear that Your Client and the Deceased provided each other with mutual financial support during the last years of the Deceased’s 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

Domestic support and person 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.

From the facts presented, Your Client and the Deceased provided each other with domestic support on an ongoing basis. Household tasks were shared. Both parties contributed towards domestic duties, and took turns cooking and cleaning. They also accompanied each other to events and regularly dined out together at restaurants.

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

Conclusion

As Your Client was in an interdependency relationship with the Deceased, just before their death, your client is a death benefits dependant as defined under section 302-195 of the ITAA 1997.

Consequently, it is not necessary to consider whether Your Client is a dependant of the deceased under paragraph 302-195(1)(d) of the ITAA 1997.