Edited version of private advice

Authorisation Number: 1051616933035

Date of advice: 5 December 2019

Ruling

Subject: Superannuation Death Benefits

Question

Were the Beneficiaries death benefits dependants as defined in section 302-195 of the Income Tax Assessment Act 1997 of the Deceased?

Answer

No

This ruling applies for the following period:

30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

The Beneficiaries are the parents of the Deceased.

The Deceased was an active member of the Australian Defence Force.

Prior to their death, the Deceased lived at the family home. Their parent 1 resided with them at this address. The home was owned jointly by the Beneficiaries.

The Beneficiaries had recently separated, although the divorce had not yet been finalised. The Deceased's parent 2 no longer resided at the family home.

The home and utilities were paid for by the Deceased's parent 1.

The Deceased's parent 1 performed the bulk of the housework and chores, including washing, cooking and home maintenance. The Deceased assisted with these tasks.

The Deceased's parent 1 paid for groceries and home maintenance, and paid for the Deceased's dental and private health insurance costs, as well as providing the Deceased with extra funds for incidentals.

The Deceased's parent 2 owned and paid for the maintenance, registration and insurance of the car used by the Deceased. They also provided financial support, paying for bills and providing additional money as needed.

The Deceased's grandparent was undergoing medical treatment due to illness at the time of the Deceased's death.

The Deceased passed away in mid 2018 due to misadventure.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

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 sub section 302-200(1) of the Income Tax Assessment Act 1997 (ITAA 1997) did not exist between the Deceased and the Beneficiaries as not all of the requirements which are set out in the relevant legislation have been satisfied in this case.

The Beneficiaries were not financially dependent on the Deceased. The Deceased did not contribute all or a major amount of necessary financial support to the Beneficiaries. Therefore, the Beneficiaries were not dependants of the Deceased with the definition of death benefit 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 or not 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. Section 302-195 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 adult child of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

You have contended that the Deceased was in an interdependency relationship with the Beneficiaries, per paragraph 302-195(1)(c) of the ITAA 1997. For completeness, we will also consider whether the Beneficiaries were dependents of the Deceased just before they died, under paragraph 302-195(1)(d) of the ITAA 1997.

Interdependency relationship

Section 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.

Section 302-200(2) of the ITAA 1997 states:

In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:

(a) they have a close personal relationship; and

(b) they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

(c) the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.

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.

Regulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states 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) states that the regulations may specify the circumstances in which two persons have, or do not have an interdependency relationship under subsections 302-200(1) and (2) 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), or alternately both the condition in paragraph 302-200(1)(a) and the condition in 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 the taxpayer to be able to claim that he/she has an interdependency relationship. 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 ITR 1936, it stated that:

It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship

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 Deceased is the child of the Beneficiaries. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. The Deceased lived with the Beneficiaries jointly until the Beneficiaries' separation, and continued to live with their parent 1 after that time. Both Beneficiaries provided emotional support and domestic assistance to the Deceased during the course of their life.

While the Beneficiaries remained an important part of the Deceased's life, it is evident that the relationship had already changed.

Prior to and at the time of the Deceased's death, the Deceased was undergoing military training and was embarking on a career.

Although the Deceased continued to live in the family home, they were beginning to establish an independent life from the Beneficiaries. Accordingly, the Deceased's relationship with the beneficiary was such that it cannot be said that there was a mutual commitment to a shared life.

In respect of emotional support, it is accepted that the Beneficiaries provided significant support to the Deceased throughout the course of their life, including supporting each other during the Beneficiaries' divorce and the Deceased's grandparent's illness.

There is no doubt that a loving and supportive relationship existed between the Beneficiaries and the Deceased. However, although there are some aspects of a 'close personal relationship' evident between the Deceased and your client, it is considered that overall the relationship between them is not of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not 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.

The third edition of the Macquarie Dictionary (2000 multimedia edition) in its definition of live lists:

24. live together,... cohabit.

The Macquarie Dictionary defines cohabit as:

2. to dwell or reside in company or in the same place.

The Macquarie Dictionary further defines dwell as:

1. to abide as a permanent resident.

Prior to and at the time of the Deceased's death, the Deceased resided at the family home with their parent. Prior to the Beneficiaries' separation, the Deceased's parent had also resided with the Deceased at this address; however, they were no longer living with the Deceased at the time of their death.

Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance in relation to the Deceased's parent 1 and not satisfied in relation to the Deceased's parent 2.

As all of the requirements specified in paragraph 302-200(1)(b) must be satisfied, it is not necessary to consider whether the Deceased's father meets the remaining requirements.

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.

Unlike the situation prior to 1 July 2004 where financial dependency (substantial support) needs to be satisfied, 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.

The Beneficiaries provided the Deceased with some degree of financial support during the course of the Deceased's life. This continued even when the Deceased embarked on her career and began to earn their own income.

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 Deceased's parent 1 clearly provided domestic support to the Deceased on an ongoing basis. The Deceased's parent 1 attended to cleaning, household chores, and shopping. The Deceased also assisted with these tasks.

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 in relation to the Deceased's parent 1.

Application of subsection 302-200(2):

As the four requirements in subsection 302-200(1) of the ITAA 1997 have not been met, we will consider the application of subsection 302-200(2) of the ITAA 1997 and regulation 302-200.02 of the ITAR 1997.

Essentially, subsection 302-200(2) ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one of both of them, they do not satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997, they will still be considered to have an interdependency relationship.

However, subsection 302-200(2) of the ITAA 1997 will only apply where the deceased and the beneficiary satisfy the requirements of paragraph 302-200(1)(a), in accordance with the terms of paragraph 302-200(2)(a).

As the requirements specified in paragraph 302-200(1)(a) have not been satisfied in this instance consideration of the other conditions is not necessary in this case.

Consequently, subsection 302-200(2) of the ITAA 1997 does not apply in this instance.

Regulation 302-200.02 of the ITAR 1997 sets our circumstances in which two people have an interdependency relationship for the purposes of section 302-200 of the ITAA 1997. Common to all of these circumstances is the requirement that paragraph 302-200(1)(a) is satisfied. As discussed above, as this requirement has not been satisfied, regulation 302-200.02 of the ITAR 1997 will not apply in this instance.

Interdependency relationship

From the foregoing, not all of the requirements which are set out in section 302-200 of the ITAA 1997 have not been satisfied in this case. Consequently it is considered that the Deceased and the Beneficiaries were not in an interdependency relationship.

Financial dependency

A person may also qualify as a death benefits dependant where they were a dependant of the deceased person just before he or she died, per paragraph 302-195(1)(d) of the ITAA 1997.

Therefore, we will now consider whether the Beneficiaries were dependents of the Deceased.

According to the Macquarie Dictionary (2000 multimedia edition), one meaning of the term dependant is 'a person to whom one contributes all or a major amount of necessary financial support'.

In the CCH Macquarie Concise Dictionary of Modern Law a dependant is defined as being 'a person substantially maintained or supported financially by another'.

In both dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial. In determining whether a person is a dependant it is necessary to establish the actual level of financial support that was provided to that person by the deceased. This is because dependence is assessed on the basis of the actual fact of dependence or reliance on the earnings of another for support.

In this case, the point to be considered is whether the facts show the Beneficiaries depended or relied on the earnings of the Deceased to maintain their ordinary standard of living at the time of the Deceased's death.

As the Beneficiaries were still providing financial support to the Deceased, and did not depend on their income to support their standard of living, it cannot be said that the Deceased was the one who contributed all or a major amount of necessary financial support to the Beneficiaries. That is, the Beneficiaries were not substantially maintained or supported financially by the Deceased.

In view of the above it is considered the Beneficiaries were not financially dependent on the Deceased at the time of the Deceased's death, within the meaning in paragraph 302-195(1)(c) of the ITAA 1997

Conclusion

As the Beneficiaries were not financially dependent on the Deceased, nor in an interdependency relationship with the Deceased, just before the Deceased's death, the beneficiaries are not death benefits dependents as defined under section 302-195 of the ITAA 1997