Edited version of private advice

Authorisation Number: 1051992030715

Date of advice: 20 July 2022

Ruling

Subject: Superannuation death benefit

Question:

Are you a death benefits dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997?

Answer:

No

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

Relevant facts and circumstances:

You are the sibling and a Beneficiary of the Deceased.

The Deceased was diagnosed with cancer and was admitted to hospital.

The Deceased was transferred a few weeks after admission to clinical trial ward with the aim to transition into a local nursing home for future care needs.

After six weeks from transfer to clinical trial ward, the Deceased's cancer had become aggressive and it was decided by the doctors during a meeting with the family that the Deceased would remain in hospital for end-of-life care through the palliative team.

You were not financially dependent on the Deceased and received sufficient income from employment.

The Deceased was not financially dependent on you as the Deceased received sufficient income from employment and financial support in the form of disability pension from Centrelink when they became ill.

You have stated that you provided the Deceased with ongoing financial and domestic support and personal care including the following:

•         Providing the Deceased with companionship, emotional support, personal care, guidance and assistance

•         Payment of various debts including household repairs and veterinary costs

•         Assisting the Deceased with cleaning, general upkeep of their home and rehoming of the Deceased's dog.

•         Providing support in dealings with medical practitioners

•         Providing transport to Doctor appointments

The Deceased lived alone in their own home, was single with no children.

You were appointed as Administrator and Guardian to the Deceased by the State Administrative Tribunal.

You are the Executor of the Deceased's Estate.

Documentation from the Fund shows you had binding beneficiary nomination.

The Fund paid the Deceased's death benefits to the Deceased Estate.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-145

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 302-200.02

Reasons for decision

Summary

An interdependency relationship as defined under section 302-200 of the ITAA 1997 did not exist between the Deceased and the Beneficiary, as all of the requirements set out in the legislation have not been satisfied in this case.

Therefore, the Beneficiary is not a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is assessable income, taxed under section 302-145 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

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 you are the brother of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable.

The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

You were not financially dependent on the Deceased and therefore, paragraph 302-195(1)(d) of the ITAA 1997 is not applicable.

To meet the definition of a death benefits dependant, you must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Under subsection 302-200(1) of the ITAA 1997, 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(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.

Subsection 302-200(3) of the ITAA 1997 provides the matters and circumstances which are to be considered in determining whether an interdependency relationship exists between two persons under that section may be specified in the regulations.

Subregulation 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account. These matters are all of the circumstances of the relationship between the persons, including (where relevant):

(a)  the duration of the relationship

(b)  the ownership, use and acquisition of property

(c)   the degree of mutual commitment to a shared life

(d)  the reputation and public aspects of the relationship

(e)  the degree of emotional support

(f)    the extent to which the relationship is one of mere convenience

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

(h)  the existence of a statutory declaration signed by one 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.

Regulation 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have, or do not have, an interdependency relationship.

Subregulation 302-200.02(2) of the ITAR 2021 provides that an interdependency relationship exists between two people where:

(a)  they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997; and

(b)  one or both of them provides the other with support and care of a type and quality normally provided in a close personal relationship rather than by a mere friend or flatmate, for example one person provides significant care for the other person when they are unwell or suffering emotionally.

Subregulations 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

(a)  they have a close personal relationship; and

(b)  they do not satisfy one or more of the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

                                  i.    they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

                                 ii.    one (or both) of them suffers from a disability.

Subregulation 302-200.02(5) of the ITAR 2021 states that two persons do not have an interdependency relationship if one of them provides domestic support and personal care to the other:

(a)  under an employment contract or a contract for services; or

(b)  on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

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 2021 must be satisfied for a person to be in an interdependency relationship with another person. We deal with each condition in turn, to establish if an interdependency relationship existed.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that the 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 2021.

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 states:

(a)  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.

(b)  Indicators of a close personal relationship may include:

i)      the duration of the relationship;

ii)     the degree of mutual commitment to a shared life;

iii)   the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged).

The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist.

People who share accommodation for convenience (such as flatmates) or people who provide care as part of an employment relationship or on behalf of a charity are not intended to fall within the definition of a close personal relationship

The matters that indicate that you and the Deceased did not have a close personal relationship before the Deceased's death are:

(a)  Beneficiary did not provide significant care and support to the Deceased throughout their illness and their life. The Beneficiary provided the Deceased with emotional support. This level of care did not exceed the care and comfort that would usually be provided by a sibling. You did not have an exceptionally close relationship. Further details of your care arrangements are provided below, under Domestic Support and Care.

(b)  You and the Deceased have not lived together. The Deceased lived independently in their own home by themself. You had a family of your own. The Deceased was not significantly dependent on you for ongoing care and support, for the remainder of the Deceased's life. There was no demonstrated and ongoing commitment to the emotional support and well-being of the two parties. You did not have a strong mutual commitment to having a shared life.

Therefore, a close personal relationship did not exist between you and the Deceased and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not been satisfied in this case.

Living together

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states that two interdependent persons (whether or not related by family) live together.

The term 'live' 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. In the context of paragraph 302-200(1)(b) of the ITAA 1997, the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

Prior to the Deceased's death, you and the Deceased never lived together. Further, the Deceased was in hospital for acute then palliative care for more than two months before they died.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been satisfied in this case.

Financial support

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

Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

From the facts presented, both you the Deceased had sufficient income from employment to support yourselves financially and you were not financially dependent on each other to pay for your personal and household expenses and provide each other with accommodation, meals and cash for living expenses.

Therefore, you did not provide each other with financial support prior to or during the final months of the Deceased's life.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has not been satisfied.

Domestic support and personal care

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, which 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:

(a)  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, you did not provide each other with significant assistance in relation to domestic support and personal care.

In addition, you did not provide each other with significant emotional support and comfort.

Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied.

Conclusion

As all the requirements in section 302-200 of the ITAA 1997 have not been satisfied, you and the Deceased were not in an interdependency relationship in the period just before the Deceased's death.

As you were not in an interdependency relationship with the Deceased, you are not a death benefits dependant as defined under section 302-195 of the ITAA 1997.