Edited version of private advice

Authorisation Number: 1052150139585

Date of advice: 14 August 2023

Ruling

Subject: Superannuation death benefit - interdependency

Question 1:

Was Beneficiary 1 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 Beneficiary 2 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.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commences on:

DD MM 2022

Relevant facts and circumstances:

Beneficiary 1 and Beneficiary 2 (collectively, 'the Beneficiaries') are the adult children of the Deceased.

The Deceased died on DD MM 2021.

Beneficiary 1 was born on DD MM 1992 and was therefore older than 18 years when the Deceased died.

Beneficiary 2 was born on DD MM 1993 and was therefore older than 18 years when the Deceased died.

The Deceased's estate received a death benefit payment from the Deceased's superannuation fund, on DD MM 2022. The superannuation fund did not withhold tax from the death benefit payment.

You applied for a private ruling.

In support of your application, you made the following statements:

•                     In 2015, the Deceased was diagnosed with a serious medical condition.

•                     The Deceased had been terminally ill for a period prior to their death.

•                     During this period, he was unable to eat, bathe or toilet, by themself.

•                     During this period, he was in the full-time care of their two carers, and Beneficiary 1.

•                     Beneficiary 1 lived with the Deceased in a rental property from DD MM 2017 to the date of death, where he provided ongoing care.

•                     Beneficiary 2 moved to a property some 200 metres away from the property shared by the Deceased and Beneficiary 1, in order to be close enough to provide additional care for the Deceased's daily needs.

•                     In addition to assisting the Deceased with tasks such as cutting their food, opening doors, and helping him drink, Beneficiary 2 overhauled the electrical systems in the house by installing new lighting fixtures, power controls, motorised blinds, a motorised bed, grab bars for the shower, and a toilet with a higher seat.

You have summarised the assistance provided to the Deceased by the Beneficiaries as follows:

•                     Co-habitation and the payment of rent

•                     Payment of utilities

•                     Purchasing of food and sundry household items

•                     Assistance with cash flow

•                     Ongoing personal care, both in and outside of the Deceased's domicile, either 'on-call' or 'on-duty'

In response to a request for further information to support your application, you advised the following:

•                     The only financial support provided (either by the Beneficiaries to the Deceased, or vice versa) was the sharing of utility and other household bills with Beneficiary 1 at the Deceased's property.

•                     The only documentary evidence provided in relation to financial support are the signed first and final lease agreements (DD MM 2017 to DD MM 2018 and DD MM 2021 to DD MM 2022 respectively) already provided with the application.

•                     There exist no other documents to support the statements made in relation to financial support.

In support of your application, you have provided the following documentation:

•                     Letters of Administration with the Will annexed

•                     Written account of assistance and support (Beneficiary 2 - unsigned)

•                     Original lease agreement for the period DD MM 2017 to DD MM 2018

•                     Final lease agreement for the period DD MM 2021 to DD MM 2022

•                     PAYG Payment Summary - superannuation lump sum - Payment summary for year ending 30 June 2023

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 (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 as defined under section 302-200 of the ITAA 1997 did not exist between the Deceased and either Beneficiary 1 or Beneficiary 2 (the Beneficiaries), as all of the requirements set out in the legislation have not been satisfied in this case.

Therefore, the Beneficiaries are not death benefits dependants of the Deceased as defined in section 302-195 of the ITAA 1997.

Consequently, the taxable component of the superannuation lump sum death benefits to be paid to the Beneficiaries is assessable income, taxed under section 302-145 of the ITAA 1997.

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 Beneficiaries are the adult children 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 Beneficiaries were 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 Beneficiaries 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):

•                     the duration of the relationship

•                     the ownership, use and acquisition of property

•                     the degree of mutual commitment to a shared life

•                     the reputation and public aspects of the relationship

•                     the degree of emotional support

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

•                     any evidence that the parties intend the relationship to be permanent; and

•                     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:

•                     they have a close personal relationship; and

•                     they do not satisfy one or more of the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

-        they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

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

The matters that indicate the Beneficiaries and the Deceased had a close personal relationship before the Deceased's death are:

•                     The Beneficiaries provided significant care and support to the Deceased throughout their illness, regardless of whether they were living together or separately. The Beneficiaries provided the Deceased with intensive care and ongoing emotional and domestic support.

•                     This level of care exceeded the care and comfort that would usually be provided by friends or flatmates. They had an exceptionally close relationship. Further details of their care arrangements are provided below, under Domestic Support and Care.

•                     Documentation has been provided to suggest that Beneficiary 1 and the Deceased lived together for a period of at least 3 years prior to the Deceased's death. Beneficiary 2 did not live with the Deceased, but stated that he moved in order to be closer to the Deceased, in order to provide a greater level of care and support.

•                     The Deceased continued to be significantly dependent on the Beneficiaries for ongoing care and support for the remainder of the Deceased's life. It seems clear that Beneficiary 1 had no intention to move for the duration of the Deceased's illness. They would have continued to live together if the Deceased were still alive. Similarly, Beneficiary 2 showed a strong commitment to sharing their life with the Deceased to a large degree.

Therefore, a close personal relationship existed between the Beneficiaries 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.

Prior to the Deceased's death, Beneficiary 1 and the Deceased lived together, for a period of more than three years. Beneficiary 2 did not live with the Deceased at any point during this time.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied for Beneficiary 1, but not for Beneficiary 2, in this case.

Subsection 302-200.02(3) of the ITAR 2021 provides relief in that two persons still have an interdependency relationship under the conditions that:

(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 Act; and

(c)           the reason they do not satisfy those requirements is that they are temporarily living apart. For example, because one of them is temporarily working overseas or is in gaol.

From the facts presented, the Deceased and Beneficiary 2 were not temporarily living apart at the time of the Deceased's death. Rather, they had not lived together for a number of years, and there is no indication that there was a reason for living apart which was beyond the control of either party.

Subsection 302-200(2) of the ITAA 1997 ensures that where two people have a close personal relationship but cannot satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) or (d) of the ITAA 1997 because one or both of them has a physical, intellectual or psychiatric disability, they are still considered to have an interdependency relationship.

From the facts presented, there is no indication that the Deceased and Beneficiary 2 were unable to live together due to either party having a disability of any kind. Rather, not living together appears to have been a conscious decision.

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.

You have stated that financial support was provided by the Beneficiaries to the Deceased (rather than by the Deceased to the Beneficiaries).

You have advised that the Beneficiaries supported the Deceased financially as follows:

•                     Payment of rent

•                     Payment of utilities

•                     Purchasing of food and household sundry items

•                     Assistance with cash flow

When we requested further details in regard to financial support, either provided by, or to, the Deceased, you advised that the only financial support was the sharing of utility and other household bills for Beneficiary 1 at the property he shared with the Deceased.

This would seem to suggest that Beneficiary 2 neither provided any financial support from, nor provided any to, the Deceased.

You also responded to our request for supporting documents such as bills, expenses, and purchases that the Beneficiaries made for the Deceased by advising that no such documents were able to be provided.

The Deceased appeared to have had sufficient income from their employment, up until at least 20YY, to have been able to support themself financially, and does not appear to have been financially dependent on the Beneficiaries to pay for their essential living and medical expenses.

It cannot be confirmed that either the Beneficiaries or 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 not 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.

You have stated that the Beneficiaries provided ongoing care to the Deceased, both in and out of the home, and that both were either on call, or 'on-duty' in caring for the Deceased at all times.

No details have been provided about the domestic support or personal care provided by Beneficiary 1, other than a reference to a statement purportedly made by him, to the effect that he cared for the Deceased in the mornings, and evenings, when the NDIS carer was not there.

Beneficiary 2 has provided an unsigned statement, providing details about the care and support provided by him, including:

•                     Cutting food

•                     Opening doors

•                     Helping with drinking

•                     Bathing

•                     Using the toilet

•                     Getting into bed

•                     Cleaning

•                     Dressing

•                     Managing medications

•                     Monitoring health

Beneficiary 2 also advised that he made modifications to the Deceased's home, to ensure the Deceased was able to live more independently.

While no documentation has been provided to support the statements made in relation to domestic support and personal care, it is accepted that such documentation would likely be difficult to obtain, and that both Beneficiaries were activity involved in providing domestic support and personal care to the Deceased.

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

As the Beneficiaries were not in an interdependency relationship with the Deceased, the Beneficiaries are not death benefits dependants as defined under section 302-195 of the ITAA 1997.