Edited version of private advice

Authorisation Number: 1052125262948

Date of advice: 22 June 2023

Ruling

Subject:Superannuation death benefits dependant

Question 1:

Was the Beneficiary 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:

Yes

Question 2

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

Answer:

Yes

This ruling applies for the following periods:

Year ended 30 June 2022

Year ending 30 June 2023

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

The Deceased passed away in the 2020-21 income year without a will.

The Beneficiary is the adult child of the Deceased.

The Beneficiary is over 18 years of age.

The Deceased was diagnosed with a medical condition in the 2020-21 income year.

The Deceased provided the Beneficiary with domestic support (including meal preparation, household shopping, cleaning and laundry) and emotional support and comfort.

While the Beneficiary and the Deceased live together, they provided each other with moral and emotional support and comfort, and they planned to continue to reside together and support one another.

The Beneficiary has always lived with the Deceased.

The Beneficiary was financially dependent on the Deceased. The Deceased allowed the Beneficiary to remain living in the family home at significantly reduced rent.

Prior to the Deceased's death, the Beneficiary provided financial support to the Deceased. The Beneficiary contributed to the Deceased's living costs. The Beneficiary paid for household expenses. The Beneficiary also paid for modifications to be made to the family home for the Deceased's comfort and convalescence during the Deceased's last living months.

Following the Deceased's diagnosis, the Beneficiary provided personal care and assistance to the Deceased including:

•         preparation of meals, feeding, showering and personal hygiene, and house cleaning.

•         transport and accompaniment to doctor, hospital and treatment appointments.

The Beneficiary provided significant, intensive and ongoing care and emotional support to the Deceased through reassurance, support and counselling. This was amplified on the Beneficiary's part as the Beneficiary was the only other occupant of the family home.

The Beneficiary and the Deceased had a strong mutual commitment to having a shared life, in that they ate meals together, they attended social gatherings together, took holidays together, and socialised outside the family home together.

The Beneficiary provided the following supporting documents:

•         a copy of their bank account activity showing payment for rent to the Deceased on a weekly basis.

•         a copy of bank statement showing transactions household expenses and weekly payment for rent to the Deceased.

•         a copy of the PAYG payment summary - Superannuation lump sum - income year ended 30 June 2022.

Relevant legislative provisions

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 Assessment (1997 Act) Regulations 2021 Section 302-200.01

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

Reasons for decision

Summary:

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

Consequently, the taxable component of the superannuation lump sum death benefit to be paid to the Beneficiary is not assessable income or exempt income.

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 the Beneficiary is the adult child of the Deceased, paragraphs 302 195(1)(a) and (b) of the ITAA 1997 do not apply. 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' 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 1997 (ITAR 1997) 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 1997.

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

The Beneficiary provided significant care and support to the Deceased throughout their illness. The Beneficiary 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 the Beneficiary and the Deceased had a close personal relationship before the Deceased's death

Therefore, 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 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, the Beneficiary and the Deceased lived together and they planned to continue to reside together and support one another.

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 Beneficiary provided the Deceased with financial support. Prior to the Deceased's death, the Deceased was not employed so the Beneficiary provided financial support to the Deceased. The Beneficiary contributed to the Deceased's living costs in addition to their own. The Beneficiary paid for household expenses by way of grocery shopping. The Beneficiary also paid for modifications to be made to the family home for the Deceased's comfort and convalescence during the Deceased's last living month.

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.

Following the Deceased's diagnosis, the Beneficiary provided personal care and assistance to the Deceased including:

•         preparation of meals, feeding, showering and personal hygiene, and house cleaning.

•         transport and accompaniment to doctor, hospital and treatment appointments.

The Beneficiary provided significant, intensive and ongoing care and emotional support to the Deceased through reassurance, support and counselling. This was amplified on the Beneficiary's part as the Beneficiary was the only other occupant of the family home.

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.

Consequently, per section 302-60 of the ITAA1997 the superannuation lump sum that the Beneficiary receives because of the death of the Deceased is not assessable income and is not exempt income.