Edited version of private advice

Authorisation Number: 1051557934587

Date of advice: 22 August 2019

Ruling

Subject: Superannuation death benefits

Question

Are two beneficiaries each considered to be a death benefits dependant of the deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The deceased passed away in 2015 after suffering from an illness.

The deceased resided with the two beneficiaries at the property.

The first beneficiary was the de facto partner of the deceased for sixteen years and resided at the property.

The second beneficiary is the adult child of the deceased and resided at the property.

The second beneficiary received a government allowance from early 2014 until the deceased passed away.

The second beneficiary completed high school and lived at home. The second beneficiary did not pay board. The deceased paid for all of the second beneficiary's food, groceries, utilities, clothing and other expenses while the second beneficiary was at school.

The deceased continued to support the second beneficiary after high school until the deceased passed away. This included all food, groceries, and household utilities. The deceased also provided the second beneficiary use of a motor vehicle and paid for the registration, insurance, repairs and maintenance of the vehicle, including a substantial amount of fuel.

The second beneficiary did not pay any board during their university studies and the deceased paid for text books.

The second beneficiary paid for some fuel when using the deceased's motor vehicle. The second beneficiary used their government allowance and casual employment from the first quarter of 2015 to pay for clothing and personal expenses.

Two superannuation lump sums were received by the estate of the deceased in the 2016-17 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

The two beneficiaries are each a death benefits dependant of the deceased for the purposes of section 302-195 of the ITAA 1997.

Detailed reasoning

Section 302-195 of the ITAA 1997 defines death benefits dependant, of a person who has died, 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 dependant of the deceased person just before he or she died.

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

The first beneficiary

Family relationships are clarified under section 960-255 of the ITAA 1997. The relationship between couples who are not married is treated in the same way as if they are legally married, if one individual is the spouse of another because of the definition of spouse in subsection 995-1(1).

A 'spouse' is defined in subsection 995-1(1) of the ITAA 1997 as follows:

spouse of an individual includes:

(a)  another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a State law or Territory law prescribed for the purposes of section 22B of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b)  another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

A deceased person's de facto spouse is therefore included in this definition of 'death benefits dependant' in paragraph 302-195(1)(a) of the ITAA 1997.

The facts of this case show that the first beneficiary was the deceased's partner for sixteen years before the deceased passed away. The first beneficiary resided with the deceased at the property.

Therefore, the first beneficiary is a spouse of the deceased in accordance with the definition of a death benefits dependent under section 302-195 of the ITAA 1997.

The second beneficiary

As the second beneficiary is a beneficiary of the deceased aged over 18, paragraphs 302-195(1)(a), 302-195(1)(b) of the ITAA 1997 do not apply. Therefore, to conclude that the second beneficiary is a death benefits dependant of the deceased, it must be established that the second beneficiary had an 'interdependency relationship' with the deceased or that they were a 'dependant' of the deceased just before the deceased died

What is an interdependency relationship?

Subsection 302-200(1) of the ITAA 1997 states that two persons (whether or not related by family) have an 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 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 instance, based on the facts provided, it is not considered that the relationship between the second beneficiary and the deceased is over and above that of a normal family relationship as contemplated in subsection 302-200(1) of the ITAA 1997.

Any other person who was a dependant of the deceased

Therefore, in order for the second beneficiary to be a death benefits dependent of the deceased, dependency under paragraph 302-195(1)(d) of the ITAA 1997 will need to be established. That is, whether the second beneficiary was financially dependent on the deceased.

The Commissioner considers that financial dependence occurs where a person is wholly or substantially maintained financially by another person. The point to be considered is whether the facts show that a person depended or relied on the earnings of the deceased for their day to day sustenance.

If the financial support provided merely supplements the person's income and represents quality of life payments, then it would not be considered substantial support. What needs to be determined is whether or not the person would be able to meet their daily basic necessities (shelter, food, clothing, etc.) without the additional financial support.

Based on the evidence provided, it is considered that the second beneficiary was financially dependent on the deceased just before the deceased died because:

·         the deceased provided ongoing financial assistance that was regular and relied upon, such as board and food;

·         the financial support made by the deceased was not supplementary to the income of the second beneficiary and

·         the second beneficiary would not have been able to meet their daily necessities without the additional financial support provided by the deceased.

Consequently, the second beneficiary is a death benefits dependent of the deceased for the purposes of section 302-195 of the ITAA 1997.