Edited version of private advice

Authorisation Number: 1052119307083

Date of advice: 25 August 2023

Ruling

Subject: Interdependency - death benefits dependants

Question 1

With regard to your pay as you go (PAYG) withholding obligations in accordance with section 12-85 of Schedule 1 to the Taxation Administration Act 1953 (TAA), is Beneficiary A a death benefits dependant of the Deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), by virtue of being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997?

Answer 1

Yes

Question 2

Is Beneficiary B a death benefits dependant of the Deceased in accordance with section 302-195 of the ITAA 1997, by virtue of being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997?

Answer 2

Decline to rule

This ruling applies for the following period:

Year ended 30 June 2024

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

Beneficiary A is the daughter of the Deceased.

At the time of the Deceased's death, Beneficiary A was living with the Deceased.

Beneficiary A had been living rent free with the Deceased for 12 years prior to the Deceased's death.

Beneficiary A is in receipt of a disability pension.

At the time of the Deceased's death, Beneficiary A was studying at university and the Deceased paid for Beneficiary A's books, computer and items she required to complete her studies.

You have stated that at the time of the Deceased's death Beneficiary A could not have met her own financial commitments without the Deceased's assistance. The Deceased also paid for the Beneficiary's dental costs, groceries and at times paid for some items such as clothing.

Beneficiary A does not have any children or other financial dependants.

Beneficiary B is the son of the Deceased.

Beneficiary B was residing overseas. Prior to the Deceased's death, Beneficiary B moved back to live with the Deceased. Beneficiary B lived with the Deceased for about three months prior to the date of the Deceased's death.

You have provided a statutory declaration from Beneficiary B and from the Deceased's brother which declares that the Deceased was sending money to Beneficiary B before he passed away. No documentary evidence of these payments was provided.

You have stated that while living in Australia the Deceased provided money to Beneficiary B to help them with their living expenses, rental commitments and dental expenses. No documentary evidence of these payments was provided.

You state that Beneficiary B was financially dependent upon the Deceased as at the time of the Deceased's death.

Beneficiary B does not have children or any financial dependants.

You have stated that the Deceased had provided both Beneficiary A and Beneficiary B with financial support each a fortnight for their whole adult lives. No documentary evidence of these payments was provided.

The Deceased he was suffering from a terminal illness. You state that the Deceased was diagnosed about three months before he died and went into rapid decline. For part of this time, he was bedridden and could not care for themselves. Beneficiary A and Beneficiary B provided them with household assistance, emotional support and comfort.

You have stated that both Beneficiary A and Beneficiary B provided household assistance to the Deceased in the form of:

•                     cooking meals for the Deceased

•                     attending to the Deceased's gardening including lawn mowing and pruning

•                     undertaking repairs and maintenance to the Deceased's property such as painting interior walls of the property, cleaning of the Deceased's property's gutters

•                     general cleaning such as dusting, mopping the floors, bathroom/toilet cleaning, cleaning/drying dishes

•                     attending to the Deceased's laundry

•                     paving out the front of the Deceased's property and concreting at the back of the Deceased's property.

In addition, you have stated that both Beneficiary A and Beneficiary B provided emotional support and comfort to the Deceased by:

•                     spending time with the Deceased

•                     speaking with the Deceased and comforting them regarding their medical issues/illness including counselling the Deceased regarding the same

•                     interacting with the Deceased including playing board games to improve their depressed mood

•                     attending to obtaining the Deceased's favourite foods for them from the shops

•                     spending significant time by the Deceased's bedside when in hospital undergoing palliative care, watching movies together and reading the Bible with them.

The Deceased's estate received superannuation death benefits from their superannuation fund. Beneficiary A and Beneficiary B are beneficiaries of the death benefit payments.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-10

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 302-200

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 section 302-200.02

Taxation Administration Act 1953 section 12-85

Taxation Administration Act 1953 section 357-105

Reasons for decision

Question 1

Summary

An interdependency relationship existed between the Deceased and Beneficiary A. Therefore, Beneficiary A is a death benefits dependants of the Deceased.

Detailed reasoning

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 Beneficiary A is an adult child of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that Beneficiary A is a death benefits dependants of the Deceased, it must be established that Beneficiary A had an 'interdependency relationship' with 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(3) of the ITAA 1997 provides that regulations may specify:

(a)          matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship; and

(b)          circumstances in which 2 persons have, or do not have, an interdependency relationship

To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 2021 (ITAR) states that in considering paragraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are (in this case):

•                     the duration of the relationship; and

•                     the ownership use and acquisition of property; and

•                     the degree of mutual commitment to a shared life; and

•                     the degree of emotional support; and

•                     the extent to which the relationship is one of mere convenience; and

•                     any evidence suggesting that the parties intend the relationship to be permanent.

Close personal relationship

A close personal relationship is generally one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. Indicators of a close personal relationship may include the duration of the relationship and the degree of mutual commitment to a shared life.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR.

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 inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). In discussing the meaning of close personal relationship the SEM 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.

2.13 Indicators of a close personal relationship may include:

the duration of the relationship;

the degree of mutual commitment to a shared life;

the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged).

2.14 The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist.

2.15 It is not intended that people who share accommodation for convenience (e.g. flatmates), or people who provide care as part of an employment relationship or on behalf of a charity should fall within the definition of close personal relationship.

In the Explanatory Statement to the Income Tax Amendment Regulations 2005 (No.7) which inserted Regulation 8A into the ITR 1936, it stated that:

'It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

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

As stated above, the intention of the law is that a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents 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.

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

Beneficiary A provided significant care and support to the Deceased throughout their illness. Beneficiary A provided the Deceased with intensive and ongoing emotional and domestic support. This level of care exceeded the care and comfort that would usually be provided by an adult child to a parent. The matters that indicate Beneficiary A and the Deceased had a close personal relationship before the Deceased's death.

Therefore, a close personal relationship existed between Beneficiary A and the Deceased as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

Living together

The phrase 'live together' 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.

Therefore, as paragraph 302-200(1)(b) of the ITAA 1997 requires that the persons live together, it is considered in the context of the provision, that the living arrangements must have some degree of permanency.

In determining if the persons live together it is relevant to have regard to 'the degree of mutual commitment to a shared life' and 'any evidence suggesting that the parties intend the relationship to be permanent'.

In this instance, Beneficiary A and the Deceased lived together for 12 years up until the date of death. 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 (not necessarily substantial) of financial support was provided by one person (or each of them) to the other, for example providing support for a person's household and/or medical expenses.

From the facts presented, the Deceased provided Beneficiary A with financial support during the period they lived together, in which time Beneficiary A was on a disability pension. At the time of the Deceased's death, Beneficiary A was financially dependent upon the Deceased. You state that Beneficiary A could not have met her own financial commitments without the Deceased's assistance.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied.

Domestic support and personal care

Domestic support and person 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.

Beneficiary A provided domestic support and personal care to the Deceased including gardening, cleaning gutters, cleaning around the house, doing laundry, and cooking meals.

Beneficiary A provided emotional support to the Deceased, including spending time with the Deceased, speaking with the Deceased and comforting them regarding their medical issues/illness including counselling the Deceased regarding the same, spending significant time by the Deceased's bedside when in hospital undergoing palliative care.

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

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

1.    Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

2.    Subsequently, it is the responsibility of the legal personal representative to withhold any superannuation death benefits tax from the deceased estate before it is distributed. Where death benefits are paid by the estate to a 'death benefits dependant', no tax will be payable. If, however, any part of the superannuation death benefit is payable under the Will or on intestacy to a beneficiary who does not fall within that definition, the legal personal representative will be responsible for withholding tax from the superannuation death benefit in accordance with section 12-85 of Schedule 1 to the TAA.

Question 2

Section 357-105 of schedule 1 to the TAA provides that a private ruling does not have to be given where the Commissioner considers that taxpayer has provided insufficient information within a reasonable time, and a request has been made.

We will not make a private ruling in relation to your request about whether Beneficiary B is a death benefits dependant of the Deceased.

This is because we have not received the information we need in relation to documentary evidence showing financial support that the Deceased provided to Beneficiary B which we requested from you.