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Edited version of private advice
Authorisation Number: 1052096075384
Date of advice: 29 March 2023
Ruling
Subject: Death benefits dependant
Question
Is the Beneficiary a death benefits dependant of the Deceased in accordance with section302-195 of the Income Tax Assessment Act 1997 (ITAA1997?
Answer
No.
This ruling applies for the following period:
30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
The Deceased suffered a very severe stroke in 20XX where he spent six months in hospital and was discharged in later in the year.
After discharge from the hospital, the Deceased continued to reside in his own home.
On discharge from the hospital, the Deceased was also provided with a package of care.
You stated that the Deceased was cognitively and physically challenged as a consequence of the stroke and could not be relied on to manage his own affairs.
After the above incident, the Beneficiary was appointed the Beneficiary as administrator of the Deceased's affairs.
The Beneficiary is the Deceased's sibling.
The Beneficiary managed the Deceased's affairs including:
• negotiating the Deceased's care package
• repairs and maintenance of the Deceased's property
• lodgement of annual tax returns
• ordering and delivering weekly meals and medical needs
• assisting with Centrelink forms and enquiries
• Financial management - banking, rates, utilities, pharmacy and everyday bills.
• contact point for the Deceased's superannuation fund as they were in receipt of a pension.
• purchase of clothing, shoes and household linen
• replacement of household items - TV, washing machine, vacuum cleaner and refrigerator.
The Beneficiary resided one and a half hours away from the Deceased's residence.
A letter from a doctor dated in 20XX provides that the Deceased has been suffering from increasing cognitive decline over the past few years and it has become apparent that the Deceased is requiring more and more services, becoming more confused and is not coping at home alone. The doctor provided that it would be in the Deceased's best interest if he received 24 hour care at a nursing home.
A letter from the Deceased's Aged Care Providers states:
• the Beneficiary would visit the Deceased on a weekly basis ensuring the Deceased's wellbeing
• the Beneficiary accompanied the Deceased to all of his medical appointments on a frequent basis
• the Beneficiary attended to further personal care requirements and additional home duties, including home maintenance
• the Deceased would also often stay at the Beneficiary's place on weekends and remain longer periods during Christmas and Easter holiday times
• the Deceased would not have been able to remain living in his own home independently in the community had it not been for the Beneficiary's support
• the ongoing care, advocacy and support from the Beneficiary continued until the Deceased went into respite at a nursing home.
The Deceased was moved to a care facility, in the 20XX-XX income year.
The Beneficiary did not receive any financial support from the Deceased.
The Deceased subsequently passed away in the 20XX-XX income year.
A Superannuation Lump Sum - Payment Summary for year ending 30 June 20XX indicates a payment was made in the 20XX-XX income year and comprised of a tax free component and a taxed element.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 302
Income Tax Assessment Act 1997 Section 302-60
Income Tax Assessment Act 1997 Section 302-195
Income Tax Assessment Act 1997 Section 302-200
Income Tax Regulations 1997 Regulation 302-200.01(2)
Income Tax Regulations 1997 Regulation 302-200.02(2)
Reasons for decision
Summary
The Beneficiary was not a death benefits dependant of the Deceased in the period prior to and at time of the Deceased's death.
Detailed reasoning
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 or non-dependant of the deceased and whether the benefit is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.
In accordance with section 302-60 of the ITAA 1997, where a person receives a superannuation lump sum death benefit and that person was a 'death benefits dependant' of the deceased, it is not assessable income and is not exempt income.
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. Section 302-195 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 Deceased's sibling, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case. Therefore, to determine whether the Beneficiary is a death benefits dependant of the Deceased, we need to consider whether they had an 'interdependency relationship' with the Deceased under paragraph 302-195(1)(c) of the ITAA 1997, or they were a 'dependant' of the deceased under paragraph 302-195(1)(d) of the ITAA 1997 just before the Deceased died.
Interdependency relationship
The term 'interdependency relationship' is defined in section 302-200 of the ITAA 1997 which states:
(1) Two persons (whether or note related by family) have an 'interdependency relationship' 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(3) of the ITAA 1997 states that the regulations may specify the matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.
In accordance with regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITAR 1997), matters that are to be taken into account in determining whether two persons have an interdependency relations include, where relevant, the following:
(i) the duration of the relationship; and
(ii) whether or not a sexual relationship exists; and
(iii) the ownership, use and acquisition of property; and
(iv) the degree of mutual commitment to a shared life; and
(v) the care and support of children; and
(vi) the reputation and public aspects of the relationship; and
(vii) the degree of emotional support; and
(viii) the extent to which the relationship is one of mere convenience; and
(ix) any evidence suggesting that the parties intend the relationship to be permanent;
Regulation 302-200.02(2) of the ITAR 1997 states that two persons have an interdependency relationship if:
(a) they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the Act; and
(b) 1 or each 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.
Examples of care normally provided in a close personal relationship rather than by a friend or flatmate
1. Significant care provided for the other person when he or she is unwell.
2. Significant care provided for the other person when he or she is suffering emotionally
Close personal relationship
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. In discussing the meaning of 'close personal relationship' the SEM, as far as relevant, states:
2.12 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.
In this case, a close personal relationship existed between the Beneficiary and the Deceased at the time of the Deceased's death. This was demonstrated in a number of ways including the following:
§ the Beneficiary provided the Deceased with ongoing emotional support; and
§ the Beneficiary provided the Deceased with care when they were unwell.
Therefore, it is accepted that a close personal relationship existed between the Beneficiary and the Deceased as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.
Living together:
The Deceased and the Beneficiary did not live together. Therefore the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been satisfied in this instance.
Financial support:
Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.
In this case, the Beneficiary did not receive any financial support from the Deceased.
Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has not been satisfied in this instance.
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.
The Beneficiary managed the Deceased's affairs including:
• negotiating the Deceased's care package
• repairs and maintenance of the Deceased's property
• lodgement of annual tax returns
• ordering and delivering weekly meals and medical needs
• assisting with Centrelink forms and enquiries
• Financial management - banking, rates, utilities, pharmacy and everyday bills.
• contact point for the Deceased's superannuation fund as they were in receipt of a pension.
• purchase of clothing, shoes and household linen
• replacement of household items - TV, washing machine, vacuum cleaner and refrigerator.
Further, a letter from the Deceased's Aged Care Providers states:
• the Beneficiary would visit the Deceased on a weekly basis ensuring the Deceased's wellbeing
• the Beneficiary accompanied the Deceased to all of his medical appointments on a frequent basis
• the Beneficiary attended to further personal care requirements and additional home duties, including home maintenance
• the Deceased would also often stay at the Beneficiary's place on weekends and remain longer periods during Christmas and Easter holiday times
• the Deceased would not have been able to remain living in his own home independently in the community had it not been for the Beneficiary's support.
Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.
However, as not all conditions of subsection 302-200(1) of the ITAA 1997 have been satisfied, the Beneficiary and the Deceased did not have an interdependency relationship under section 302-200 of the ITAA 1997 just before the Deceased died.
Financial Dependency
Where a person does not meet the definition of death benefits dependant in paragraph 302-195(1)(a), paragraph 302-195(1)(b) or paragraph 302-195(1)(c) of the ITAA 1997, the death benefits dependency of the person must be established in accordance with paragraph 302-195(1)(d) of the ITAA 1997.
For the Beneficiary to be considered to be a death benefits dependant of the Deceased, it is necessary to examine whether the Beneficiary was financially dependent upon the Deceased.
According to The Macquarie Dictionary (2001, revised 3rd edition, The Macquarie Library Pty Ltd NSW and [Multimedia], version 5.0.0, 1/10/2001) one meaning of the term dependant is:
a person to whom one contributes all or a major amount of necessary financial support.
In The Butterworths Australian Legal Dictionary (1997, Reed International Books Australia Pty Ltd trading as Butterworths) a dependant is defined as being:
a person who depends on another, wholly or substantially, for his or her survival, maintenance or financial support.
In both of these dictionary definitions the emphasis is on the fact that the financial support or maintenance is substantial.
The courts have also placed an emphasis on the fact that the financial support or maintenance had to be substantial. In determining whether a person is a dependant, the courts have found that it was necessary to establish the actual level of financial support that was provided to that person by the deceased. This is because dependence was assessed on the basis of the actual fact of dependence or reliance on the earnings of another for support. The courts have also held that being a dependant referred to a financial dependency, to an extent that one person relied on another to maintain their normal standard of living. This issue is a question of fact.
It is the Commissioner's view that dependence occurs where a person is wholly or substantially maintained financially by another person. In this context, where the level of financial support provided to a person is substantial then that person can be regarded as a dependant. Where a person's income is sufficient to cover their basic needs, they will not normally be considered to be financially dependant on another.
As noted above, the Beneficiary did not receive any financial support from the Deceased.
Therefore, prior to and at the time of the Deceased's death, the Beneficiary was not a death benefits dependant of the Deceased within the meaning of paragraph 302-195(1)(d) of the ITAA 1997.
The Beneficiary was not a death benefits dependant of the Deceased in the period prior to and at time of the Deceased's death in accordance with section 302-195 of the ITAA 1997.