Edited version of private advice

Authorisation Number: 1052012866454

Date of advice: 22 November 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the Beneficiary 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.

Question:2

Was the Beneficiary a death benefits dependant of the Deceased according to section 302-195 of the ITAA 1997, due to being financially dependent upon the Deceased under section 302-195(d) of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commences on:

22 March 20XX

Relevant facts and circumstances:

The Beneficiary is the adult child of the Deceased.

The Deceased died during the 20XX income year.

You have provided a copy of the Deceased's self-managed superannuation fund's audited income tax return and financial statements for the 20XX financial year. These documents indicated that the Deceased's self-managed superannuation fund is holding a death benefit payable to the Beneficiary, who is the sole recipient.

You applied for a private ruling.

The Beneficiary received income from employment and investments, including dividends.

The Deceased received income as a director for a company ("the Deceased's company").

You have advised that the Beneficiary cared for the Deceased for the weeks preceding the Deceased's death by providing:

(a)  Domestic support, including moving in with the Deceased a month before the Deceased's death, cleaning and maintaining the property that they were both occupying, accompanying the Deceased to the shops, and taking care of the Deceased's pets,

(b)  Personal care and assistance, including becoming the Deceased's carer, taking the Deceased to their medical appointments and liaising with their doctors

(c)   Significant emotional support.

The Deceased also cared for the Beneficiary by providing:

(a)  financial support, including paying for the following regular expenses, evidenced by copies of the Deceased's bank statements and corresponding purchase receipts provided by the Beneficiary:

                             i.         Monthly home insurance for the property the Beneficiary is occupying ("the Beneficiary's property");

                            ii.        Periodic gym membership;

                           iii.        Monthly streaming subscription services.

(b)  financial support, including paying for the following one-off purchases, evidenced by copies of the Deceased's bank statements and copies of purchase receipts provided by the Beneficiary:

                             i.         Occasional transport and rideshare fees in 20XX and 20XX;

                            ii.        Occasional lunches and food delivery in early 20XX and 20XX;

                           iii.        Occasional subscription services in 20XX and 20XX;

                           iv.        Health insurance for the Deceased and the Beneficiary in 20XX;

                            v.         Occasional clothing and other like purchases from 2018 to 20XX;

                           vi.        Plumbing service at the Beneficiary's property in early 20XX;

                          vii.        Spider treatment for the Beneficiary's property in mid-20XX;

                         viii.         Society membership in late 20XX;

(c)   continued financial support of nearly $XXX per week to assist the Beneficiary in meeting their living expenses, as advised by the Beneficiary.

(d)  domestic support, including attending to occasional preparation of meals and occasional laundry services for the Beneficiary, as per copies of text messages exchanged between the Beneficiary and the Deceased as provided by the Beneficiary.

(e)  emotional support.

You have advised that the Beneficiary paid any rent or mortgage payments by themselves.

Properties:

The Beneficiary has advised that the Beneficiary lived with the Deceased in a property ("the family home") from the Beneficiary's birth until early 20XX.

The Beneficiary further advised that they then moved to live with a family friend, rent-free and expense-free from early to mid-20XX, and then rented a property with a roommate.

The Beneficiary further advised that they then lived with the Deceased in the family home from late 20XX to mid-20XX.

The Beneficiary further advised that they then moved to their own property ("the Beneficiary's property") in mid-20XX.

A copy of an email, provided by the Beneficiary, from a financial institution to the Beneficiary in early 20XX shows that a deposit was paid from the Beneficiary's bank account to a real estate agency, with the subject line referencing the Beneficiary's property. The Beneficiary has advised that the funds for this deposit were from the Deceased, but bank statements have not been able to be located.

The Beneficiary has advised that they then lived with the Deceased at the family home for certain periods, ranging from 4 days to 9 months, from late 20XX to the end of 20XX.

The Beneficiary further advised thatwhen they were not living with the Deceased at the family home, they were residing at the Beneficiary's property.

Vehicles:

The Beneficiary provided a copy of a New Vehicle Delivery Check sheet, which shows that the Deceased purchased a vehicle ("Vehicle A") which was delivered to her in late 20XX.

The Beneficiary provided documentation evidencing that the Deceased paid for the registration and maintenance of the car, although copies of service tax invoices for said maintenance list the Deceased as the customer but the Beneficiary as the contact person.

Copies of letters from the insurance company and the Deceased's bank statements, provided by the Beneficiary, show that the Deceased paid car insurance for Vehicle A of nearly $XX per month.

The Beneficiary has advised that a second vehicle ("Vehicle B") was purchased by the Deceased in mid-20XX.

The Beneficiary has provided documentation evidencing that the Deceased paid for the registration and maintenance of the car. The Deceased is listed as the customer.

Copies of letters from the insurance company and the Deceased's bank statements, provided by the Beneficiary, show that the Deceased paid car insurance for Vehicle B of over $XX per month.

Vehicle B is listed as the Deceased's car.

The Beneficiary has advised that Vehicle B was initially purchased for them, but that all cars purchased by the Deceased were utilised by both the Deceased and the Beneficiary as family cars.

Additional expenses (utilities, groceries, credit card bills):

The Beneficiary has advised that they paid for all utilities, except telephone charges, Internet services and maintenance.

In support of this statement, the Beneficiary has provided the following:

(a)  a copy of an invoice dated early 20XX for Internet services, charged to the Deceased's company;

(b)  a copy of a change of ownership form, dated early 20XX, changing Internet ownership from the Deceased's company to the Beneficiary;

(c)   a copy of a change of ownership form, dated early 20XX, changing Telstra ownership from the Deceased's company to the Beneficiary;

(d)  a copy of an invoice dated late 20XX, which includes telephone charges for the Beneficiary's mobile number, addressed to the Deceased's company.

You and the Beneficiary have advised that the Deceased paid for the Beneficiary's recurrent grocery expenses, and copies of the Deceased's bank statements, copies of text messages between the Beneficiary and the Deceased, and a video of the Deceased in a shopping centre have all been provided by the Beneficiary in support for this statement. The Beneficiary contended that the Deceased purchased groceries for both parties together, so the amount referable to the Beneficiary's individual grocery expenses cannot be determined.

You further advised that the Deceased paid for the Beneficiary's credit card bills. The Beneficiary has advised that these were not regular payments by the Deceased, but ad hoc as needed. The Beneficiary has advised that the bank statements and records for this are not easily accessible. The Beneficiary was able to provide one instance of the credit card bill payment in mid-20XX.

In mid-20XX, the Beneficiary's credit card bills were paid as per copies of the Beneficiary's bank statement provided by the Beneficiary, and the Beneficiary also provided copies of text messages between themselves and the Deceased on 26 May 20XX where the Beneficiary and the Deceased discuss the Beneficiary sending the Deceased the 'transaction statements' and the Deceased states that they have paid it.

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 Subsection 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 Paragraph 302-195(1)(d)

Income Tax Assessment Act 1997 Section 302-200

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

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

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

Income Tax Assessment Act 1997 Section 995-1

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

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

Income Tax Assessment (1997 Act) Regulations 2021 Subsection 302-200.01(2)

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

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(2)

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(3)

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(4)

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(5)

Reasons for decision:

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 the Beneficiary is the adult child 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)  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.

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:

(e)  they have a close personal relationship; and

(f)    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;

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

Although the Beneficiary had moved out from the family home, significant financial support continued to be provided by the Deceased for expenses such as groceries, credit card bills and Internet and phone services, that would be expected to be paid for by an adult child after moving out from their family home.

Therefore, it could be concluded that the Beneficiary had not managed to secure independence from the Deceased.

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.

The Beneficiary and the Deceased lived together at the family home for certain periods, ranging from 4 days to 9 months, from late 20XX to the end of 20XX.

Additionally, in the month prior to the Deceased's death, the Beneficiary moved back into the family home to live with the Deceased.

Although frequent, the periods of time for which the Beneficiary and the Deceased lived together cannot be necessarily classified as having some degree of permanency.

When the Beneficiary was not living at the family home, they were generally residing at the Beneficiary's property, which is therefore where they would be spending the majority of their time.

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, the Beneficiary had sufficient income from their employment to support themselves financially.

However, the Beneficiary was financially dependent on the Deceased to pay for their food, Internet and telephone services, motor vehicle expenses, and assist in the acquisition of their accommodation.

The Beneficiary estimates that the Deceased's weekly contribution towards the Beneficiary's normal living expenses was nearly $XXX.

Therefore, the Deceased provided the Beneficiary with financial support throughout the Deceased's life, with the Deceased's company continuing to provide said financial support after the Deceased's death.

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 Deceased provided the Beneficiary with domestic support services, including the occasional preparation of meals and occasional laundry services.

From the facts presented, the Beneficiary provided the Deceased with domestic support services during the final period of the Deceased's life, including accompanying the Deceased for household shopping, cleaning and maintaining the family home that the Beneficiary had moved into to assist the Deceased. The Beneficiary also took on the role of the Deceased's carer during this final period of the Deceased's life.

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 not been satisfied, the Deceased and Beneficiary were not in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary was not in an interdependency relationship with the Deceased, the Beneficiary is not a death benefits dependant as defined under section 302-195 (1)(c) of the ITAA 1997.

Question: 2

Summary:

The Beneficiary is not considered to be a financial dependent of the Deceased.

Therefore, the Beneficiary is not a death benefits dependant of the Deceased as defined in section 302-195 (1)(d) 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:

Section 302-60 of the ITAA 1997 provides that a superannuation lump sum death benefit received by a dependant of the deceased is not assessable income and is not exempt income.

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant of the person who has died as:

(a)  the deceased person's spouse or former spouse; or

(b)  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.

The definition under paragraph 302-195(1)(d) of the ITAA 1997 is inclusive and therefore includes a person who is considered a dependant within the ordinary meaning of the term as noted in established case law. The Macquarie Dictionary defines 'dependant' as a person to whom one contributes all or a major amount of necessary financial support.

There are a number of case law decisions that specify what is required to establish financial dependency. Specifically, the definition of dependency was addressed and interpreted in the High Court case of Kauri Timber Co (Tasmania) Pty Ltd v. Reeman (1973) 47 ALIR 184 (Kauri Timber); Gibbs J in speaking to previous cases on the issue of dependency stated that:

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

Further, in Kauri Timber, at page 189, it was stated that the question of dependency is governed by factual and not theoretical considerations.

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:

"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 relied on the other for what is required for their ordinary living."

Senior Member Pascoe in Re Malek v Federal Commissioner of Taxation [1999] AATA 678 (Malek) in providing his view on the meaning of dependence stated:

"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 the matter of Malek the Tribunal made reference to the earlier authority of Simmons v White (1899) 1 QB 1005 and the statement from Romer LJ who stated that dependants:

"must be dependants in the proper sense of the work, and not merely persons who derive a benefit from the earnings of the deceased."

Further, in Malek, the evidence provided demonstrated that the deceased was responsible for the mortgage repayments, maintenance and other expenses of the residence in which both the deceased and the dependant lived. The Tribunal considered that the amounts provided by the deceased was significant.

The Federal Court upheld a decision of the Superannuation Complaints Tribunal in Harris v Trustee Commonwealth Superannuation Scheme (2006) 151 FCR 169 that a separated spouse was not wholly or substantially dependent on a deceased member for the purpose of receiving a superannuation benefit. In that case the separated spouse had an annual income of $26,000 and received $100 per fortnight from her separated husband at the time of his death. The Federal Court agreed that a finding that this level of support did not amount to substantial financial dependency was fair and reasonable.

The matter of Fenton v Batten [1948] VLR 422 considered partial dependency. In that case the definition of 'protected person' in the relevant regulations included a female partially dependent upon a discharged member of the Forces, as well as being partly dependent upon a pension payable in the consequence of the death of a person who had been a member of the Forces. Partially or partly dependant is not concept within section 302-195 of the ITAA which relies on the ordinary meaning of dependant being a person who is wholly or substantially dependant.

To establish financial dependence, there needs to be regular, continuous and substantial contributions made from the deceased to the dependant individual, and the dependant individual needs to be reliant upon these contributions to meet their normal living expenses.

The Beneficiary has estimated that the Deceased contributed nearly $XXX weekly towards the Beneficiary's normal living expenses.

The Deceased paid for the Beneficiary's recurrent grocery expenses, telephone, Internet and maintenance utility expenses, and transportation costs, being both one-off rideshare services and the continued usage and servicing of the family cars. These expenses have been met from at least 20XX onwards.

The Beneficiary was able to meet their rent and mortgage payments, and the bulk of their utility payments, without the financial support of the Deceased.

Therefore, there has been regular, continuous and substantial contributions from the Deceased to the Beneficiary for a significant period of time, and the bulk of the Beneficiary's normal living expenses were either partially or completely paid for by the Deceased.

Therefore, it could be determined that the Beneficiary was financially dependent upon the Deceased under section 302-195(d) of the ITAA 1997.