Edited version of private advice

Authorisation Number: 1052085016911

Date of advice: 9 February 2023

Ruling

Subject: Superannuation death benefit dependant

Question 1:

Is the Beneficiary a death benefits dependant of the Deceased for the purposes of section 302-195 of the Income Tax Assessment Act 1997 (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:

The Deceased died in February 20XX.

The Beneficiary is the sibling of the Deceased.

The Deceased had no spouse or children when they died.

The Beneficiary and the Deceased lived together at the same address between 19XX to 20XX.

During the time they were living together, the Deceased contributed to basic living costs such as food and electricity. The Deceased never contributed to other household running costs such as rent/mortgage, water, telephone or rates.

In late 20XX the Deceased was moved into a full-time care facility until the time of their death.

Despite being in a care facility, the Beneficiary continuously took them to various health related appointments.

The Beneficiary has a Power of Attorney to act on behalf of the Deceased for financial and business matter.

The Beneficiary provided documents to support the Deceased address.

The Beneficiary provided a copy of the PAYG payment summary - Superannuation lump sum.

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 Act 1997 Section 307-5

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Act 1997 Section 307-70

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:

Meaning of death benefits dependant

Division 302 of the Income Tax Assessment Act 1997 (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.

The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 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 sibling of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an 'interdependency relationship' the Deceased, or that they were a dependant' of the Deceased just before the Deceased died.

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 reputation and public aspects of the relationship

(e)  the degree of emotional support; and

(f)    any evidence that the parties intend the relationship to be permanent

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.

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.

The matters that indicate the Beneficiary and the Deceased had a close personal relationship before the Deceased's death as per subsection 302-200.01(2) of the ITAA 2021 are:

(a)  The Beneficiary and the Deceased lived at the same residence since 19XX onwards so a period of over X years prior to the Deceased's passing. Beneficiary provided significant care and support to the Deceased since they arrived in Australia and throughout their illness. The Beneficiary 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 sibling to another sibling. They had an exceptionally close relationship. Further details of their care arrangements are provided below, under Financial Support and Domestic Support and Care.

(b)  The Deceased moved into the Beneficiary's home since they came to Australia in 19XX. The Deceased continued to be significantly dependent on the Beneficiary for ongoing care and support, for the remainder of the Deceased's life. In late 20XX the Deceased was moved into a full-time care facility until the time of their death in early 20XX. Despite being in a care facility, the Beneficiary and the Deceased still maintained an interdependency relationship with the Deceased relying on the Beneficiary for continuing support including taking the Deceased to various medical appointments, as well as being their Guardian and Power of Attorney. They had a strong mutual commitment to having a shared life.

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.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together until late 20XX when the Deceased moved into a full-time Care facility due to ill health until they passed away. The Beneficiary still looked after their medical care plan and took the Deceased to medical appointments.

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

The Beneficiary provided the Deceased rent-free accommodation, paid utility bills and paid for transport to the Deceased's medical appointments when unable to attend.

From the facts presented, the Beneficiary had sufficient income from employment to support themself financially and was not financially dependent on the Deceased. The Deceased contributing to basic living costs such as food and electricity.

Therefore, the Beneficiary and the Deceased provided each other with financial support during the final years of the Deceased's 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 Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 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.

The Beneficiary has stated that they provided the Deceased with significant assistance in the form of providing rent free accommodation, paid utility bills, booking and attending medical appointments and attending to shopping. The support was constant and on-going for the time they lived together and when the Deceased moved into full-time care facility.

In addition, the Beneficiary provided the Deceased 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 Subsection 302-195(1)(c) of the ITAA 1997 is satisfied, there is no need to further consider Subsection 302-195(1)(d) of the ITAA 1997. 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.