Edited version of private advice

Authorisation Number: 1051999083598

Date of advice: 27 October 2022

Ruling

Subject: Superannuation death benefit

Question 1:

Was the beneficiary a death benefits dependant 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:

Are the superannuation lump sum death benefits received by the beneficiary excluded from their assessable income under section 302-60 of the ITAA 1997?

Answer:

Yes

This ruling applies for the following period

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances:

The Beneficiary is the partner but not a spouse of the Deceased.

The Deceased was born in the 19XX-XX income year.

The Deceased die intestate in the 20XX-XX income year.

The Deceased's superannuation death benefits were paid to the Deceased estate.

The Deceased's superannuation death benefits will be distributed according to the terms of the settlement deed.

You provided the information in the facts listed below in a statutory declaration dated in the 20XX-XX income year.

The Deceased and the Beneficiary met in 20XX and began dating.

The Beneficiary at the time lived in a residence with their child.

In 20XX, the Deceased moved in with the Beneficiary and their child.

In 20XX, the Beneficiary bought a new property and the Deceased continued to stay with the Beneficiary and their child at the Deceased's place of living.

In 20XX, the Deceased bought a new house as they did not get along well with the Beneficiary's child.

The Deceased continued living with the Beneficiary until the Deceased moved out to in late 20XX as their relationship with the Beneficiary's child worsened.

The Beneficiary would stay at their residence during the day to take care of their child and stay with the Deceased during the night. The beneficiary made dinner for both their child and the Deceased.

As the Beneficiary's child got older, the Beneficiary spent more time with the Deceased at the Deceased's residence.

Statutory declarations have been provided from neighbours of the Beneficiary and Deceased which support the cohabitation between the two.

The Beneficiary bought furniture and other household items for the Deceased's residence. The Beneficiary also moved personal items to the Deceased's residence.

From 20XX to the time of the Deceased's death, they shared domestic duties between them.

The Deceased and Beneficiary did not have a joint bank account but allowed each other access to their personal bank accounts. They paid for household expenses depending on who had the money at the time.

The Deceased and the Beneficiary's child had a good relationship sporadically.

Their relationship was supported and accepted by their close friends and family except the Deceased's parents due to age related reasons.

They spent their time together socialising with friends and were invited to social events as a couple.

They also went on weekend getaways and sometimes stayed with their family.

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 Section 302-200.01

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

Reasons for decision

Question 1

Summary

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

Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Consequently, the taxable component of a superannuation lump sum death benefit paid to the Beneficiary is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. 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.

A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as:

(a)  A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream, as defined in section 307-70 of the ITAA 1997.

Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.

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 the partner but not a spouse 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.

The Beneficiary was not financially dependent on the Deceased person and therefore, paragraph 302-195(1)(d) of the ITAA 1997 is not applicable.

To meet the definition of a death benefits dependant, the Beneficiary 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.

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)  whether or not a sexual relationship exists

(c)   the ownership, use and acquisition of property

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

(e)  the care and support of children

(f)    the reputation and public aspects of the relationship

(g)  the degree of emotional support

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

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

(j)    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.

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two people have, or do not have an interdependency relationship.

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.

Subsection 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 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;

(c)   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 the Beneficiary and the Deceased had a close personal relationship before the Deceased's death are:

(a)  the length of time that the relationship between the Beneficiary and Deceased existed, being X years;

(b)  the relationship between the Beneficiary and the Deceased with regard to the care and friendship extended to the Beneficiary's child and the Deceased; and

(c)   the status of the relationship as evidenced by the social interactions they encountered as a couple.

Therefore, a close personal relationship existed between the Beneficiary 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 Beneficiary and the Deceased lived together periodically.

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

Subsection 302-200.02(3) of the ITAR 2021 provides relief in that two persons still have an interdependency relationship under the conditions that:

(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 they are temporarily living apart. For example, because one of them is temporarily working overseas or is in gaol.

From the facts presented, the Deceased and Beneficiary temporarily lived apart at specific points of time due to unique circumstances regarding the Deceased's habits which sometimes prevented the Deceased from permanently living with the Beneficiary during specific periods. Therefore, the fact that they did not live together until the Deceased's death would not prevent them from being in an interdependency relationship.

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.

As stated, the Beneficiary provided financial support for the Deceased by purchasing furniture for their temporary place of residence.

As well as this, both the Deceased and the Beneficiary assisted each other with paying for household expenses during the relationship.

Therefore, the Beneficiary and the Deceased provided each other with financial support.

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:

(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, the Beneficiary and the Deceased provided each other with significant assistance with domestic support and personal care.

In addition, the Beneficiary and the Deceased provided each other with significant emotional support and comfort.

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 Beneficiary were in an interdependency relationship in the period just before the Deceased's death.

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