Edited version of private advice

Authorisation Number: 1051752571319

Date of advice: 08 October 2020

Ruling

Subject: Death benefit dependants

Question 1

Is Beneficiary 1 a death benefits dependant of the Deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Question 2

Is Beneficiary 2 a death benefits dependant of the Deceased in accordance with section 302-195 of the ITAA 1997?

Answers

Yes

No

This ruling applies for the following period:

Year ended 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

In late 2019, the Fund on the basis that a binding death benefit nomination did not exist, paid to the Estate a death benefit on the passing of the Deceased.

The Deceased was diagnosed with an illness in early 2017 and passed away in mid-late 2018.

The Deceased was the child of Beneficiary 1 and was the sibling of Beneficiary 2.

The Deceased was not married and did not have children.

Beneficiary 1 and Beneficiary 2 are the beneficiaries of the Estate.

Once the Deceased was diagnosed with an illness, they took immediate indefinite leave from employment in early-mid 2018.

From mid-late 2018, the Deceased resided with Beneficiary 1 and Beneficiary 2 at Beneficiary 1's residence.

You have advised the Deceased moved in with Beneficiary 1 because they could not live independently due to illness. They required ongoing physical, emotional support and care. From the time the Deceased moved in with Beneficiary 1, the living arrangements became permanent. There was an allocated room solely for the Deceased's use and where possible given the speed and nature of the illness, third party addresses were changed to Beneficiary 1's home address.

Prior to illness, the Deceased resided in their own home.

The Deceased was financially independent.

Beneficiary 1, Beneficiary 2 and the Deceased were all times a very close-knit family. They also spent family time together on their holidays;

Due to the critical nature of the medical condition, the Deceased required significant psychological support and ongoing care.

By mid-late 2018, the Deceased completed medical treatment.

During weekdays, over the time period the Deceased underwent the treatments, they co habituated with Beneficiary 1 and Beneficiary 2.

The Deceased had an enhanced appetite during the period of the treatment. Beneficiary 1 provided the Deceased with ongoing physical and emotional support including food and shelter, love and care, during this difficult period.

Both Beneficiary 1 and Beneficiary 2 accompanied and drove the Deceased to medical appointments and treatments.

The ongoing significant physical, emotional support and care for the Deceased, compelled Beneficiary 1 to cease employment in mid-late 2018. Beneficiary 2 reduced their work hours during this period to provide the ongoing physical and emotional support, love and care needed by the Deceased at the difficult time. Beneficiary 1 did not receive any carer/Centrelink payments.

The Deceased went overseas for further treatments. Beneficiary 1 accompanied the Deceased. Beneficiary 1 could not afford the costs, the Deceased covered the overseas travel, accommodation and food expenses including other incidental costs.

In late 2018, after returning from overseas, the Deceased was diagnosed with a further illness.

The Deceased received their salary from employer until passing.

The Deceased provided the financial support (re daily cost of living expenses, i.e. cost of food and groceries, laundry, utilities such as gas, electricity, rates etc.) to Beneficiary 1 and Beneficiary 2.

Beneficiary 1 and Beneficiary 2 used the Deceased's motor vehicle and their own motor vehicles to drive the Deceased to regular scheduled doctor' appointments and treatments.

Beneficiary 1 had access to the Deceased's bank accounts (consented by the Deceased).

The Deceased, Beneficiary 1 and Beneficiary 2 did not own assets jointly. However, the Deceased and the Beneficiary 1 and Beneficiary 2 were using and sharing each other's assets (e.g. Beneficiary 1 and Beneficiary 2 used the money and the motor vehicle of the Deceased, Beneficiary 1 provided accommodation to the Deceased and made available general household goods etc).

Beneficiary 1 was using the Deceased's money to run the household expenditure for the Deceased, Beneficiary 1 and Beneficiary 2 (daily needs such as food, laundry, rates, electricity and car expenses, overseas travel and accommodation costs etc.) as well as the financial needs of the Deceased on daily food, medical and clothing needs. Beneficiary 1 from time to time also engaged the Deceased funds to meet general domestic expenditure.

Beneficiary 2 was helping the Deceased with daily activities including meals, daily hygiene and cleaning, grooming and toileting.

During this period, a care provider, provided the counselling and help necessarily required for each of them.

Another organisation provided in-house palliative care at Beneficiary 1's place necessary for the Deceased until passing.

A Statutory Declaration has been prepared to substantiate the fact that Beneficiary 1 and Beneficiary 2 were in an "interdependency relationship" with the Deceased

Tax has been not withheld by the Fund from the Superannuation Lump Sum payment.

The Last Will and Testament of the Deceased directs the Executor and Trustee of the Estate, to distribute assets, after payment of all Estate's debts, expenses etc equally to Beneficiary 1 and Beneficiary 2.

You have advised that the family home was owned jointly by Beneficiary 1 and their ex-partner.

Beneficiary 2 lived with Beneficiary 1 before the Deceased's illness.

Beneficiary 1 did not receive any financial support from anyone else other than the Deceased for the duration of the Deceased illness and up to the time they passed away.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

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

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200 (1) of the ITAA 1997 did not exist between the Deceased and Beneficiaries 1 and 2.

Beneficiary 1 was a dependent of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997 just before the Deceased died.

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 of the ITAA 1997.

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.

Paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply to Beneficiary 1 and 2. Therefore, to conclude that Beneficiary 1 and Beneficiary 2 are death benefits dependant of the Deceased, it must be established that they are either in an 'interdependency relationship' with the Deceased in accordance with paragraph 302-195(1)(c) or they are a person who was a dependant of the deceased person just before he or she died in accordance with paragraph 302-295(1)(d)

Beneficiary 1

What is an interdependency relationship?

Subsection 302-200(1) of the ITAA 1997 states that two persons (whether 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(2) of the ITAA 1997 states, in addition, 2 persons (whether 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 suffer from a physical, intellectual or psychiatric disability

Subsection 302-200(3) of the ITAA provides that the 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.

All the conditions already specified in subsection 302-200(1) of the ITAA 1997 or alternatively in subsection 302-200(2), must be satisfied for a person to be in an interdependency relationship.

Close personal relationship.

In accordance with regulation 302-200.02 of the ITAR 1997, two persons have an interdependency relationship if they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997 and one 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 a mere friend or flatmate. For example, significant care provided to another person when they are unwell or when they are suffering emotionally.

The expression 'close personal relationship' is not defined in the ITAA 1997. However, the meaning of the term is discussed 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). According to the SEM:

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.

Furthermore, in the explanatory statement (ES) to the Income Tax Amendment Regulations 2005 (No.7), it states that:

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

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.

While the statement in the ES does not absolutely preclude a child from being in an interdependency relationship with a parent it does suggest that it will only exist where there are aspects to the relationship that go beyond what would usually be observed in such a situation. 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.

Given that the Deceased was a child of Beneficiary 1 and sibling of Beneficiary 2 at the time of death, the Deceased and Beneficiary 1 and Beneficiary had of course known each other for some time. However, the 'duration of a relationship' in and of itself is not sufficient to categorize a relationship as 'close and personal.' The other considerations must also be taken into account.

Of importance in this case are the related matters outlined in paragraphs (iv), (viii) and (ix) of subregulation 302-200.01(2) of the ITAR 1997.

You have advised that Beneficiary 1, Beneficiary 2 and the Deceased lived at the Residence until the Deceased death, however this was for a short period of time - mid-late 2018 up until the Deceased passed away on DDMMYY.

The facts in this case indicate that the relationship between the Deceased and Beneficiary 1 was not beyond a familial relationship.

Specifically, the facts provided in this case do not indicate that there was a mutual commitment to a shared life between the Deceased and Beneficiary 1 and the Deceased and Beneficiary 2. Beneficiary 1, Beneficiary 2 and the Deceased enjoyed a close personal relationship.

Beneficiary 1 and 2's ongoing emotional and domestic support and personal care of the Deceased indicated that their relationships were not of mere convenience. Therefore, it is considered that a close personal relationship existed between Beneficiary 1 and the Deceased and Beneficiary 2 and the Deceased as contemplated in paragraph 302-200(1)(a) of the ITAA 1997.

The degree of support outlined in your contentions must be considered in accordance with paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997. It is acknowledged that the degree of emotional support provided by Beneficiary 1 and Beneficiary 2 to the Deceased is significant however this does not go beyond the level of emotional support that would typically be expected in a relationship between a parent and child and between siblings. It is noted that the Deceased maintained a considerable amount of independence by living in their Home up until the short period before death. As such, a consideration of paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997 does not sufficiently differentiate the situation in this case from others involving a parent and child or between siblings.

In view of the above it is considered that whilst a close familial relationship existed between Beneficiary 1 and the Deceased, and Beneficiary 2 and the Deceased, they were not in a close personal relationship as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, paragraph 302-200 (1)(a) of the ITAA 1997 has not been satisfied with respect to Beneficiary 1 and Beneficiary 2.

Living together

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.

Therefore, as paragraph 302-200(1)(b) of the ITAA 1997 requires 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'.

You have advised that the Deceased moved in permanently to the Residence in mid-late 2018 and as per the facts provided the Deceased passed away in DDMMYY - a period of less than two months.

You have also advised that when the Deceased moved out of the Home it was not rented or sold. It was part of the plan for the Deceased's residence to be placed on the rental market, but because the illness absorbed most of the family's time, it was not possible to do so prior to the Deceased's passing.

The evidence provided confirms a commitment to reside together to support the Deceased whilst needing care in the final weeks of illness. It is therefore concluded that the Deceased, Beneficiary 1 and Beneficiary 2 had not been living together for a considerable time and there is no evidence to support a mutual commitment to a shared life or permanency, other than where the Deceased required the relevant care in the final weeks of illness. Consequently, paragraph 302-200(1)(b) of the ITAA 1997 has not been satisfied.

Financial support

Financial support under paragraph 302-200 (1) (c) is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other, for example providing support for a person's household and/or medical expenses.

In this case, the facts indicate that such financial support was provided to Beneficiary 1, and to a lesser degree Beneficiary 2, by the Deceased to meet day-to day living expenses, including food and accommodation.

Therefore, the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has been met.

Domestic support and personal care

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 activities. Personal care service may 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 Beneficiary 1 provided the Deceased with domestic support and personal care as required under paragraph 302-200(1)(d) of the ITAA 1997.

It is therefore considered that the requirement in paragraph 302-200(1) (d) of the ITAA 1997 have been satisfied in this instance.

Conclusion

Beneficiary 1 and Beneficiary 2 cannot be in an interdependency relationship with the Deceased just before they died as the conditions specified in subsections 302-200(1) of the ITAA 1997 have not been met.

Therefore, we need to consider if Beneficiary 1 and Beneficiary 2 are death benefits dependent of the Deceased for the purposes of section 302-195 of the ITAA 1997 by virtue of satisfying paragraph 302-195(1)(d).

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 Beneficiary 1 and Beneficiary 2 were financial dependants of the Deceased.

According to the Macquarie Dictionary (2000 multimedia edition), one meaning of the term dependent 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 dependent 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 based on the fact of dependence or reliance on the earnings of another for support. This is a question of fact (Aafjes v. Kearney (1976) 180 CLR 199, per Chief Justice Barwick).

Senior Member Fayle of the Administrative Appeals Tribunal (AAT), in Case [2000] AATA 8, in considering the definition of 'dependant' in relation to former section 27AAA of the ITAA 1936 stated:

The Act is primarily concerned with commercial and financial matters. An Act relating to the imposition assessment and collection of tax upon incomes. As such, a question of dependency should be construed within that context. The relevant question in this sense is whether the applicants were financially dependant on their son at the relevant time.

Where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. So, a financial dependant is a person to whom another person contributes all or a major amount of necessary financial support. If the level of financial support is insignificant or minor, beyond a level of subsistence, then the person should not be characterised as a dependant in terms of paragraph 302-195(1)(d) of the ITAA 1997.

In the case of Aafjes v Kearney (1976) 180 CLR at page 207 Gibbs J cited the High Court case of Kauri Timber Co (Tas) Pty Ltd v Reeman (1973) 128 CLR 77 at pages 188-189, and further clarified uncertainty concerning dependency noting

...but it does not follow from it that a person who in fact receives some support from one person cannot properly be said to be wholly dependent on another. It is not the mere fact of receipt of support but the dependence or reliance upon another to provide it that matters. [Emphasis added]

In the Victorian Supreme Court case of Fenton v. Batten [1949] ALR 69; [1948] VLR 422, Justice Fullager made the following comments regarding dependency:

The word dependant is, in a true sense a technical term. If the evidence established that the alleged dependant relied on or relies on another as the source wholly or in part of his or their existence then dependence is established. Questions of scale of living do not enter into the matter in the absence of some such statutory enactment.

These comments made in Fenton v. Batten when read in the context with the facts established in that case, confirm the definition of dependant contained in the CCH Macquarie Dictionary of Modern law and the meaning quoted above from the Macquarie Dictionary.

In the full High Court case of Kauri Timber Co. (Tas) Pty Ltd v. Reeman (1973) 128 CLR 177, Justice Gibbs (as he then was) in speaking of previous cases on the issue of dependency stated that:

The principle underlying these authorities is the actual fact of dependence or reliance on the earnings of another for support that is the test.

Handing down the decision in Re Malek v. Commissioner of Taxation (Cth) Case [1999] AATA 678 (Malek), Senior Member Pascoe further clarified the meaning of the word dependant, stating:

In my view, the question is not to be decided by counting up the dollars required to be spent on the necessities of life for [Mrs Malek], then calculating the proportion of those dollars provided by the [son] and regarding their as a dependant only if that proportion exceeds 50%...In my view, the relevant financial support is that required to maintain the persons normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard.

In Malek, the evidence supplied by the taxpayer was able to demonstrate that the financial support received from their deceased son had been significant. The son had accepted responsibility for mortgage repayments, maintenance and other expenses of the unit in which the taxpayer lived.

That dependency involves more than the mere receipt of support, but also reliance on it, was affirmed by Hamilton J in Griffiths v Westernhagen [2008] NSWSC 851, [58]:

For a relationship of dependency to be established, there must be more than the mere giving of money. Rather there must be a relationship where one party relies on the other for what is required for their ordinary living.

The tenor of the case law noted above refers to a level of dependency to maintain the dependant's ordinary living (Griffiths v Westernhagen), normal standards of living (Malek's case) and relying on another as a means of subsistence (Kauri Timber Co (Tas) Pty Ltd).

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.

The point to be considered is whether the facts show Beneficiary 1 and Beneficiary 2 relied on the earnings of the Deceased to maintain an ordinary standard of living at the time of the Deceased's death.

In this case, you have advised:

·   The Deceased provided the financial support (re daily cost of living expenses, i.e. cost of food and groceries, laundry, utilities such as gas, electricity, rates etc.) to Beneficiary 1 and Beneficiary 2

·   Beneficiary 1 and Beneficiary 2 used the Deceased's motor vehicle and their own motor vehicles to drive the Deceased to her regular scheduled doctor' appointments and treatments;

·   Beneficiary 1 had access to the Deceased's bank accounts (consented by the Deceased);

·   The Deceased, Beneficiary 1 and Beneficiary 2 did not own assets jointly. However, the Deceased and the Beneficiary 1 and Beneficiary 2 were using and sharing each other's assets (e.g. Beneficiary 1 and Beneficiary 2 used the money and the motor vehicle of the Deceased, Beneficiary 1 and Beneficiary 2 provided accommodation to the Deceased and made available general household goods etc);

·   Beneficiary 1 was using the Deceased's money to run the household expenditure for the Deceased, Beneficiary 1 and Beneficiary 2 (daily needs such as food, laundry, rates, electricity and car expenses, overseas travel and accommodation costs etc.) as well as the financial needs of the Deceased on daily food, medical and clothing needs. Beneficiary 1 from time to time also engaged funds to meet general domestic expenditure.

·   Beneficiary 1 did not receive any financial support from anyone else other than the Deceased for the duration of the Deceased illness and up to the time they passed away.

·   Beneficiary 2 has no assets and lived with Beneficiary 1 after a relationship breakdown and before the Deceased's illness.

The support from the Deceased was regular and continuous. Whilst it is accepted Beneficiary 1 relied on the Deceased for what is required for their ordinary living. The financial support provided however supplemented the income of Beneficiary 2, rather than maintaining basic living standards. Beneficiary 1 ceased employment in early-mid 2018 to care for the Deceased and was fully dependent on the Deceased for financial support up until death DDMMYY.

Therefore, it can be said that the Deceased was the one who contributed all or a majority of the necessary financial support to Beneficiary 1, which maintained Beneficiary 1's standard of living.

In relation to Beneficiary 2, financial assistance was a result of the Deceased having to live for a short period of time with Beneficiary 1 and Beneficiary 2. Beneficiary 2 was not at a time outside of this period maintained or supported financially by the Deceased. Beneficiary 2 continued to work, albeit in a reduced capacity. The evidence does not support that Beneficiary 2 needed financial support from the Deceased to maintain his standard of living as he had worked and lived with Beneficiary 1 since before the Deceased became ill.

Conclusion

In view of the above it is considered Beneficiary 1 is financially dependent on the Deceased at the time of the Deceased's death, within the meaning in paragraph 302-195(1)(d) of the ITAA 1997

However, it is determined that Beneficiary 2 was not financially dependent on the Deceased at the time of the Deceased's death, within the meaning in paragraph 302-195(1)(d) of the ITAA 1997.

Therefore, Beneficiary 1 is a death benefit dependant however Beneficiary 2 is not a death benefits dependant, as defined under section 302-195 of the ITAA 1997.