Edited version of private advice

Authorisation Number: 1051581417420

Date of advice: 19 September 2019

Ruling

Subject: Superannuation death benefits

Question

Is the Beneficiary a death benefits dependant as defined in section 302-195 of the Income Tax Assessment Act 1997 of the Deceased?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The Beneficiary is a parent of the Deceased.

The Deceased was suffering from various ongoing ill health. These issues arose due to the Deceased's traumatic experiences surrounding the death of a parent some years prior.

The Deceased had previously lived independently; however, due to their worsening health, the Beneficiary moved into the Deceased's home in 2017 in order to care for them. At the time of their death, the Deceased lived with the Beneficiary.

Since the Deceased's health issues began, the Beneficiary provided the Deceased with ongoing domestic and personal support, including grocery and other shopping, household chores such as cooking and cleaning, and helping to care for the Deceased's dog. The level of domestic and personal support increased when the Beneficiary moved into the Deceased's home in 2017.

The Beneficiary also assisted the Deceased financially. Due to their health issues, the Deceased was unable to continue working, and was in receipt of a government pension. The Beneficiary assisted the Deceased by paying for their rent, utilities, internet, groceries and medical expenses.

The Beneficiary provided emotional support to the Deceased. The Deceased was not married and did not have children, and had no close relationships beyond the Beneficiary. The Deceased also provided emotional support to the Beneficiary.

The Deceased passed away intestate in the 2017-18 year as a result of their health issues.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

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 302-200(2)

Income Tax Assessment Act 1997 Subsection 302-200(3)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the Beneficiary, as all of the requirements which are set out in the relevant legislation have been satisfied in this case.

Therefore, the Beneficiary is a dependant of the Deceased within the definition of death benefits dependant.

Detailed reasoning

Death Benefits Dependant in relation to the Superannuation Death Benefit

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits that are made after 30 June 2007. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

Where a person receives a superannuation death benefit and that person was a 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. Subsection 302-195(1) of the ITAA 1997 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 the Beneficiary is a parent of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

You have contended that the Beneficiary was in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 states:

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.

Paragraph 302-200(3)(a) of the ITAA 1997 states that the regulations may specify the matters 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.

Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the matters to be taken into account as follows:

(a)   all of the circumstances of the relationship between the persons, including (where relevant):

(i)           the duration of the relationship; and

(ii)         whether or not a sexual relationship exists; and

(iii)        the ownership, use and acquisition of property; and

(iv)        the degree of mutual commitment to a shared life; and

(v)         the care and support of children; and

(vi)        the reputation and public aspects of the relationship; and

(vii)      the degree of emotional support; and

(viii)     the extent to which the relationship is one of mere convenience; and

(ix)        any evidence suggesting that the parties intend the relationship to be permanent; and

(b)   the existence of a statutory declaration signed by 1 of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was, in an interdependency relationship with the other person.

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two persons have, or do not have an interdependency relationship under section 302-200 of the ITAA 1997. These are specified in regulation 302-200.02 of the ITAR 1997.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively subsection 302-200(2) of the ITAA 1997, or one of the tests in regulation 302-200.02 of the ITAR 1997 must be satisfied for a person to be in an interdependency relationship with another person. It is proposed to deal with each condition in turn.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997. It states that two persons (whether or not related by family) must have a 'close personal relationship'.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR 1997.

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 which inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). In discussing the meaning of close personal relationship 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:

·     the duration of the relationship;

·     the degree of mutual commitment to a shared life;

·     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.

2.15 It is not intended that people who share accommodation for convenience (e.g. flatmates), or people who provide care as part of an employment relationship or on behalf of a charity should fall within the definition of close personal relationship.

In the Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the Income Tax Regulations 1936, it stated that:

Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

As stated above, the intention of the law is that a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents would be expected to change significantly over time. It would be expected that the adult child would eventually move out and secure independence from their parents.

In this case, the Beneficiary 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. The Deceased's other parent passed away some years prior, and the traumatic circumstances surrounding their death were the catalyst for the Deceased's mental health issues and alcohol dependence.

Due to the Deceased's ongoing impairment, the Beneficiary lived with the Deceased from 2017 until their death and provided them with high level emotional, financial and domestic support. It was not known when or if the Deceased would be well enough to live independently.

In respect of emotional support, it is accepted that the Beneficiary provided a significant degree of support to the Deceased throughout the course of their illness, regardless of whether they were living together or separately.

It is clear that a loving and supportive relationship existed between the Beneficiary and the Deceased. Due to the Deceased's tragic personal circumstances and their resulting incapacitation and ongoing illness, the relationship between the Deceased and the Beneficiary was above and beyond what would be expected for a parent and child. It is considered that 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 second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that two persons live together.

Prior to and at the time of the Deceased's death, the Deceased and the Beneficiary were living together in the Deceased's home. The Beneficiary had moved into the Deceased's home in 2017 in order to provide a higher level of care.

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

Financial Support

The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, and states that one or each of these two persons provides the other with 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.

As the Deceased was not able to work and relied on a government pension, the Beneficiary continued to support them financially, by paying for their rent, groceries, utilities and other personal expenses. The Beneficiary had been financially supporting the Deceased since the time the Deceased had lost their job, some years prior.

It is clear that the Beneficiary provided the Deceased with 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

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, and states that one or each of these two persons provides the other with 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.

From the facts presented, the Beneficiary clearly provided domestic support to the Deceased on an ongoing basis. The Beneficiary provided the Deceased with significant assistance, including grocery and other shopping, household chores, and caring for the Deceased's dog.

It is also apparent that the Beneficiary and the Deceased provided each other with significant emotional support.

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.

Application of subsections 302-10(2)and 302-10(3) of the ITAA 1997

Subsection 302-10(2) of the ITAA 1997 states:

To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

Under subsection 302-10(2) of the ITAA 1997 where a dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the Trustee of the Estate will be subject to tax on that part of the benefit paid or to be paid to the dependant as if it were paid to a dependant of the deceased. However the dependant is not presently entitled to this superannuation death benefit at this time and the benefit therefore does not form part of his or her assessable income.

As the Beneficiary has been determined to be in an interdependency relationship with the Deceased just before he died, subsection 302-10(2) of the ITAA 1997 will apply to treat the corresponding portion of the death benefit received by the Executor as if the Executor was a death benefits dependant of the Deceased.

The portion to be paid to the Beneficiary is tax free in the hands of the Executor in accordance with section 302-60 of the ITAA 1997.

Conclusion

As all of the requirements in subsection 302 200(1) of the ITAA 1997 have been satisfied in this case, it is considered that the Deceased and the Beneficiary were in an interdependency relationship in the period prior to, and at the time of, the Deceased's death.

As the Beneficiary was considered to be in an interdependency relationship with the Deceased, the Beneficiary is a death benefits dependant as defined under section 302-195 of the ITAA 1997.