Edited version of private advice

Authorisation Number: 1051992719602

Date of advice: 29 July 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Are the beneficiaries, death benefits dependants of the deceased person 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

Yes

Question 2

Is the superannuation lump sum death benefit received by the Beneficiaries during the 2021-22 income year excluded from assessable income under section 302-60 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Beneficiaries are the parents of the deceased person.

The Deceased died in 20XX

The Deceased suffered from a medical illness

The Beneficiaries received a death benefit payment from the Deceased's superannuation funds.

The Beneficiaries cared for the Deceased by providing:

a.            Accommodation in their home for the entire life of the Deceased, with the exception of two periods of two to three years.

b.            Financial support for most of the household expenses and for basic living needs.

c.             Significant emotional support was provided to the Deceased throughout their life but especially after 20XX when the illness started to get worse

d.            Cooking meals, provide transport for medical appointments, take them shopping to buy groceries, medicines and other supplies

e.            Clean and vacuum the Deceased's living space as their illness prevented them from performing these duties

The Deceased also cared for the Beneficiaries by providing:

a.            Paying an amount for board, which the Beneficiaries calculated as the cost of providing main meals and the Deceased contributions to utilities.

b.            The Beneficiaries relied on this support from the Deceased, because by sharing the Beneficiaries home with the Deceased they were unable to rent out part of the house for additional income.

c.             The Deceased looked after the house and pets when the Beneficiaries were away from home for short periods, which ensured that the Beneficiaries did not need to arrange boarding or a house-sitter in their absence.

d.            The Beneficiaries also provided a degree of reciprocal financial support to the Deceased, by providing them with accommodation far below what would be the market rate.

The Deceased and the Beneficiaries had a mutual understanding and commitment to a shared life considering the Deceased would not be able to live independently post 20XX and therefore they would continue to live together in the family home and support each other.

Between 20XX to 20XX, with ongoing health difficulties the Deceased was unable to work on a regular basis, so they were on sick leave and other leave along with government sickness benefits. As part of the return-to-work program, the Deceased's employer enabled the Deceased to work on a reasonably regular basis in a permanent part time capacity until shortly before their death.

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(1)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(a)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(b)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(c)

Income Tax Assessment Act 1997 Section 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 Section 302-200(2)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(3)(b)

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

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

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

Reasons for decision

An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiaries, as all of the requirements set out in the legislation have been satisfied in this case.

Therefore, the Beneficiaries are death benefits dependants 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 Beneficiaries is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

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.

As the Beneficiaries are the parents of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that the Beneficiaries are death benefits dependants 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).

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.

To assist in determining whether two people have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 provides that the regulations may specify the matters that are or are not to be taken into account.

Subsection 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 care and support of children

e.    the reputation and public aspects of the relationship

f.      the degree of emotional support

g.    the extent to which the relationship is one of mere convenience

h.    any evidence that the parties intend the relationship to be permanent; and

i.      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.

Section 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

Subsection 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.

Subsections 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.

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 section 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 section 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 Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) stated that:

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

While this statement does not preclude a child from being in an interdependency relationship with a parent, it suggests that interdependency only exists where the relationship goes beyond the usual relationship between an adult child and a parent.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between a parent and an adult child because there would not be a mutual commitment to a shared life between the two. In addition, the relationship between parents and their adult children 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.

However, where unusual and exceptional circumstances exist, a relationship between a parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

The relationship between the Beneficiaries and the Deceased was over and above a normal family relationship between a parent and an adult child.

The matters that indicate the Beneficiaries and the Deceased had a close personal relationship before the Deceased's death are:

a.    Beneficiaries provided significant care and support to the Deceased throughout their life. The Beneficiaries provided the Deceased with intensive and ongoing emotional, domestic and financial support. This level of care exceeded the care and comfort that would usually be provided by a parent to an adult child. They had an exceptionally close relationship. Further details of their care arrangements are provided below, under Domestic Support and Care.

b.    The Beneficiaries and the Deceased have lived together since the birth of the Deceased. Due to their disability, the Deceased continued to be significantly dependent on the Beneficiaries for ongoing care and support, for the remainder of the Deceased's life. The Deceased had no intention to ever move out of the family's home. They would have continued to live together if the Deceased were still alive. They had a strong mutual commitment to having a shared life.

Therefore, a close personal relationship existed between the Beneficiaries and the Deceased and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has 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, the Beneficiaries and the Deceased lived together.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this case.

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, the Deceased had sufficient income to support themselves financially and was financially not dependent on the Beneficiaries to pay for their accommodation, meals, household expenses and groceries. However, the Beneficiaries provided accommodation to the Deceased far below the market rate including access to other parts of the house.

Therefore, the Beneficiaries and the Deceased provided each other with financial support during the Deceased's entire life.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has 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:

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.

Applying the above to the present facts, it is accepted that the Beneficiaries provided the Deceased with significant domestic support and personal care as required under paragraph 302-201(1)(d) of the ITAA 1997.

Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied.

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 have been satisfied, the Deceased and Beneficiaries were in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiaries were in an interdependency relationship with the Deceased, the Beneficiaries are death benefits dependants as defined under section 302-195 of the ITAA 1997.