Edited version of private advice

Authorisation Number: 1052161795853

Date of advice: 3 October 2023

Ruling

Subject: Superannuation death benefit - interdependency relationship

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.

Question 3

Are the superannuation lump sum death benefits received by Beneficiary 1 during the 2023 income year excluded from their assessable income under section 302-60 of the ITAA 1997?

Answer

No.

Question 4

Are the superannuation lump sum death benefits received by Beneficiary 2 during the 2023 income year excluded from their assessable income under section 302-60 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commences on:

1 July 2022

Relevant facts and circumstances:

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

The Deceased died on xx/xx/2022.

The Deceased's estate received a death benefit payment from the Deceased's superannuation fund, on xx/xx 2023. The superannuation fund did not withhold tax from the death benefit payment.

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

•         The Deceased passed away intestate.

•         The only beneficiaries of the Deceased's estate are his mother and father.

•         The Deceased moved out of the Beneficiaries' home in late 2020, and commenced renting his own house at this time.

•         At this time, the Deceased held steady employment, and was able to meet his day-to-day living expenses, including rent, without requiring any assistance from the Beneficiaries.

•         In late 2021 and into early 2022, the Deceased began to distance himself from friends and family, and to exhibit symptoms of a mental condition.

•         As a direct result of this condition, the Deceased was hospitalised in February 2022, so that he could seek treatment.

•         Upon discharge, the Deceased moved back in with the Beneficiaries, so they could look after him and manage his condition through the correct use of medication.

•         The Beneficiaries did not charge the Deceased for any rent at this time.

•         The Beneficiaries paid for all household expenses, including all utility bills, food, and the mortgage.

•         The Deceased paid only for his personal expenses, such as his phone bill.

•         The Deceased was unable to work, or care for himself, during this period.

•         Beneficiary 1 (the Deceased's mother) took the Deceased to his medical appointments, and drove the Deceased to the pharmacy for the administering of his medication.

•         Beneficiary 1 frequently visited the Deceased in hospital, and provided him with necessary items such as toiletries and clothing.

•         Beneficiary 2 (the Deceased's father) was unable to visit the Deceased in hospital, due to suffering from a medical condition.

•         However, when the Deceased was home, and Beneficiary 1 was unavailable, Beneficiary 2 would monitor the Deceased and attend to his needs where he could.

•         While the Deceased was residing with the Beneficiaries, he had multiple hospital stays, as he would lapse into mental states which required around-the-clock care and treatment.

•         The Deceased returned to the Beneficiaries' home after each of these stays.

•         The final such occurrence was the day before the Deceased's passing.

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

•         The Deceased did not provide financial assistance to the Beneficiaries.

•         The Deceased and the Beneficiaries did not exchange funds.

•         Beneficiary 1 prepared and cooked meals for the Deceased and also performed domestic chores, such as the Deceased's laundry.

•         Both Beneficiaries admitted the Deceased to hospital when required.

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

•         Letters of Administration

•         Death Certificate

•         Bank Statement (Account 1)

•         Bank Statement (Account 2)

•         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

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 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 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 Beneficiaries are the parents 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:

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

o 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.

In this case, the Deceased had lived with the Beneficiaries for his entire life, up until late 2020, at which time he moved out, and rented his own home.

The Deceased held steady employment at this time, and was able to meet his expenses, without assistance from the Beneficiaries.

Provided bank statements show the regular weekly payment of salary and wages, substantial and regular expenditure on takeaway food and entertainment and very small, semi-regular transfers from the Beneficiaries.

These bank statements, when taken in combination with the statements made in the application, are evidence that, at this time, there was no mutual commitment to a shared life, with the relationship between the parties having very much evolved to a normal relationship between an independent adult child, and their parents.

This relationship subsequently only changed again, when a situation presented itself which was outside of the Deceased's control.

There was no desire on the part of the Deceased to return to the family home. It seems clear that this decision was forced by a deterioration in his mental state, and that, had this not occurred, he would have continued to live on his own.

From the limited evidence provided, it seems clear that the Deceased wished to maintain his independence, until such time as he was no longer capable of making such a decision. At that time, the decision was made for him by the Beneficiaries.

The situation has some parallels with the following example in the Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 262):

Daniel died at age 23, leaving behind a superannuation benefit of $30,000. Daniel was not married, nor did he have any children, and lived with his parents and younger brother in his parent's home.

Given that Daniel was 23, he and his parents had of course known each other for some time (subparagraph (1)(a)(i)). While both parties may have intended to remain an important part of each other's lives, it is reasonable to assume that the relationship would have changed significantly over time. That is neither Daniel, nor his parents, would have expected to be providing each other the same level of domestic support and personal care that they did prior to Daniel's death, for the next forty years, had he not died (subparagraphs (iv) and (viii)).

He did not own the house, nor was he a mortgagee (subparagraph (iii)).

While Daniel sometimes cooked dinner for his younger brother and provided other care and support to him, it was no more than would generally be expected of an older sibling and was far less than the care and support that his parents provided (subparagraph (v)).

Friends, neighbours and associates of Daniel and his parents all considered that the relationship between Daniel and his parents was a reasonably normal, healthy, relationship for a young man living with his parents. They attended family functions together and occasionally attended functions organised by each other's friends. For example, when Daniel's longtime friend was married, Daniel's parents were alsoinvited to attend.However, generally speaking, they did not socialise together (subparagraph (vi)).

When his mother's close friend died three months prior to Daniel's death, he provided emotional support to his mother, however, it was Daniel's father who took time off work and who cancelled social and sporting engagements in order to be with her and provide support (subparagraph (vii)).

It would be reasonable to expect that Daniel would have moved out of his parent's home at some stage. That is, it was convenient (and possibly expected) on a number of fronts for Daniel as a young adult to live with his parents, including financially, domestically and emotionally. However, while it was never specifically discussed, it was generally accepted that he would move out eventually (subparagraphs (viii) and (ix)).

Based on the facts of this case, Daniel and his parents were not in an interdependency relationship.

In the situation here, it is even more clear that the Deceased and his parents were not in an interdependency relationship, as in this case the Deceased actually did make the decision to move out of the family home. There was no mutual commitment to a shared life, and an expectation that the independent relationship would have continued permanently, were it not for a specific event.

From the evidence provided, the Deceased would (and did) choose independence.

The relationship between the Beneficiaries and the Deceased was not over and above a normal family relationship between a parent and an adult child.

The limited evidence, and the statements made, suggest that the relationship is more one of convenience or necessity, rather than one of interdependency.

Therefore, a close personal relationship (for the purposes of being a death benefits dependant for tax purposes) did not exist between the Beneficiaries and the Deceased, and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not 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.

According to statements made in the application, the Deceased moved out of the Beneficiaries' home in late 2020, only returning following a period of hospitalisation in early 2022.

The Deceased therefore had lived with the Beneficiaries for approximately 30 years prior to a period of somewhat more than a year away, before returning to the family home somewhat less than two months prior to his death.

According to statements made, this stay was interrupted by a number of further hospital stays, of unclear frequency and duration, culminating in the Deceased returning to the Beneficiaries' home very shortly before his death.

The Beneficiaries' residential address is present on the bank statements provided, in the name of the Deceased.

The facts support that the Deceased was residing at the family home with the Beneficiaries, in the period immediately preceding his death. Consequently, it is considered that 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.

You have stated that, during the short period the Deceased lived with the Beneficiaries, financial support was provided by the Beneficiaries to the Deceased, as follows:

•         Not charging any rent

•         Paying for all household expenses, including all utility bills and food

You stated that, during this period, the Deceased paid only for his 'personal expenses', including his phone bill.

In response to a request for further information, you specifically stated that the Deceased did not provide the Beneficiaries with any financial support, and that no funds were exchanged between the parties.

As evidence to support your statements regarding financial support, you provided copies of bank statements for two of the Deceased's accounts, which cover the period he was living with the Beneficiaries.

The statements show a number of transfers from the Deceased to the Beneficiaries, totalling $x,xxx, between xx and xx February 2022.

Though it is not clear what these payments are for, it would seem to contradict your statement that the Deceased did not provide the Beneficiaries with any financial support. It is not clear whether these transfers were intended to compensate the Beneficiaries for increased household expenses, or were potentially a contribution intended to be a form of rent or board.

While the bank statements show the last payment of salary and wages being made on xx February 2022, due to his inability to work at this time, the Deceased appeared to have had sufficient income from his employment, up until this time, to have been able to support himself financially.

The Deceased does not appear to have been financially dependent on the Beneficiaries to pay for his essential living and medical expenses.

However, 'financial support' does not equate with financial dependence. The level of financial support required does not have to be substantial. It is accepted that a level of financial support was present in the relationship, just before the Deceased died.

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

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.

In statements made in support of the application, it was advised that:

•         Beneficiary 1 took the Deceased to his medical appointments, and drove the Deceased to the pharmacy every morning and night for the administering of his medication.

•         Beneficiary 1 also visited the Deceased in hospital, and provided the Deceased with necessary items, including toiletries and clothing.

•         Beneficiary 2, who was unable to visit the Deceased in hospital, due to his own medical condition, monitored the Deceased when he was home, and attended to his needs, where possible.

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 actively 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.

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.