Edited version of private advice

Authorisation Number: 1052182205181

Date of advice: 8 February 2024

Ruling

Subject: Superannuation death benefit - interdependency

Question

Were the Beneficiaries death benefits dependants 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:

Income year ending 30 June 2022

This scheme commences on:

1 July 2021

Relevant facts and circumstances:

1.    The Beneficiaries are the parents of the Deceased.

2.    The Deceased was born in the 19XX income year.

3.    The Deceased died in the 20XX income year.

4.    In a provided email, the Deceased's superannuation provider advised that they had identified no dependants of the Deceased, and that they wished to seek discharge of the benefit amount through the Estate.

5.    In the 20XX-XX income year, the Beneficiaries, as the legal personal representatives of the Deceased, received the above death benefit payment. No tax was withheld from this payment.

6.    Both the Beneficiaries and the Deceased resided together (the Residence), at the time of the Deceased's passing.

7.    The Deceased was employed by the Beneficiaries' business (the Company).

8.    The Deceased owned land at a nearby address (the Other Property).

9.    A statement from the Beneficiaries regarding their relationship with the Deceased was provided with the application for a private ruling. Excerpts from this statement include:

a.    The Deceased assisted the Beneficiaries to a significant degree with domestic support, including washing the family car, maintaining the backyard and garden of the Residence, and cooking food for the family. The Deceased also assisted the Beneficiaries with household information technology (IT) support.

b.    The Beneficiaries and the Deceased shared household costs including groceries, phone bills and electricity bills for the Residence.

c.     The Deceased performed the following functions for the Company:

                                          i.    Operated trucks and other vehicles

                                         ii.    Serviced and maintained machinery

                                        iii.    Analysed plans

                                       iv.    Sourced supplies and materials

                                         v.    Assisted with IT support.

d.    The Deceased's role within the Company was significant to the degree that the Beneficiaries have closed the Company as they are no longer able to operate it without the Deceased.

10.  You provided a statement concerning the Other Property. Excerpts from this statement are as follows:

a.    The Deceased intended for the other property to be an investment property.

b.    The Deceased constructed a shed on the other property for use by the Company.

c.     The house on the other property was approximately half-completed at the time of the Deceased's passing.

11.  You provided a further statement from the Beneficiaries which details their relationship with the Deceased. Excerpts from this statement are as follows:

a.    The Deceased and Beneficiaries provided each other with emotional support, including ongoing emotional support provided by both parties to each other regarding the passing of a close family member prior to the passing of the Deceased.

b.    The Deceased lived with the Beneficiaries their whole life, with the exception of a nine-month period where the Deceased attended studies at a university. The stress associated with living away from their parents affected the Deceased, causing them to leave their studies to return home to the Beneficiaries.

c.     The Deceased then commenced a two-year diploma in 20XX, on a correspondence basis, so that they could reside with the Beneficiaries.

d.    The Deceased suffered from a medical condition and required treatment and medication as a result. This medication was not subsidised, and the Beneficiaries paid for this medication. The Beneficiaries assisted the Deceased with travelling to and from appointments for this, and also provided rehabilitation and home care. The Beneficiaries also organised and paid for relevant testing machines for the Deceased.

e.    The Deceased's parent was required to attend hospital for surgery on two occasions in 20XX, which required crutches and subsequent long periods of recovery where they were unable to go out to buy groceries, or carry out the household washing, cleaning, and other household maintenance. The Deceased undertook these tasks for the household during this time in support of the Beneficiaries.

f.      Prior to being employed by the Beneficiaries, the Deceased worked on the construction of highways for approximately XX months. The Deceased left this role in order to provide assistance to the Beneficiaries. The Deceased's income was reduced by approximately 61%.

g.    The Other Property was used as storage for tools, equipment and vehicles used by the Company.

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:

Question:

Were the Beneficiaries death benefits dependants 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?

Summary:

1.    An interdependency relationship as defined under section 302-200 of the ITAA 1997 did not exist between the Deceased and the Beneficiaries, as all of the requirements set out in the legislation have not been satisfied in this case.

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

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

Detailed reasoning

Meaning of death benefits dependant

1.    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.

2.    A superannuation death benefit is defined in section 307-5(1) 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.

3.    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.

4.    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.

5.    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.

6.    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.

7.    As the Deceased is the adult child of the Beneficiaries, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable.

8.    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.

9.    The Beneficiaries were not financially dependent on the Deceased person and therefore, paragraph 302-195(1)(d) of the ITAA 1997 is not applicable.

10.  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

11.  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.

12.  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.

13.  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.

14.  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):

a.    the ownership, use and acquisition of property

b.    the degree of mutual commitment to a shared life

c.     the reputation and public aspects of the relationship

d.    the degree of emotional support

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

f.      any evidence that the parties intend the relationship to be permanent.

15.  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.

16.  Section 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

17.  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.

18.  Subsections 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

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 ITAA 1997 because:

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

                                         ii.    one (or both) of them suffers from a disability.

19.  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.

20.  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

21.  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.

22.  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.

23.  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).

24.  The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist.

25.  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

26.  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.

27.  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.

28.  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.

29.  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.

30.  While statements made by the Beneficiaries suggest that the relationship between them and the Deceased was close, it was not over and above the normal family relationship between a parent and an adult child.

31.  It is not considered that evidence has been provided to support that there was a mutual commitment to a shared life.

32.  Further, statements made in relation to the Other Property cast significant doubt upon this.

33.  You stated that the Deceased signed a contract with a home builder during 20XX, and that the house was approximately 50% complete at the time of the Deceased's passing.

34.  You have further stated that it was uncertain whether the Deceased would reside in the Other Property upon its completion.

35.  You further stated that the Deceased had an intention to maintain the mutual commitment to a shared life, irrespective of future living arrangements.

36.  It is clear from the above statements that, at a minimum, there is a reasonable degree of uncertainty that the Deceased would have continued to live with the Beneficiaries. It certainly cannot be said with any certainty that he would have.

37.  It is not considered that a mutual commitment to a shared life can exist when there is such uncertainty about the living arrangements in the very near future.

38.  There is no evidence to suggest that the parties would have continued to live together for the foreseeable future, and it is not considered that mutual commitment to a shared life has been demonstrated.

39.  Therefore, a close personal relationship 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

40.  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.

41.  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.

42.  The Beneficiaries have stated that, prior to the Deceased's death, they lived with the Deceased, and that they had lived together for the entirety of the Deceased's life, with the exception of a nine-month period in 20XX when the Deceased left the family home to live on a university campus in order to pursue their studies.

43.  The Letters of Administration provided in support of the application show the same address for both the Beneficiaries and the Deceased.

44.  Tax Office records show the Beneficiaries and the Deceased residing at this same address at the time of the Deceased's passing.

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

Financial support

46.  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.

47.  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.

48.  The Beneficiaries have stated that they and the Deceased provided each other with financial support in the form of sharing costs for groceries and utility bills.

49.  They have also stated that they paid for the Deceased's medication and treatments for their medical condition, as well as for other medical expenses.

50.  However, no documentation has been provided to substantiate these statements, and it has been advised that no such documentation will be provided. We cannot be satisfied that financial support was provided.

51.  Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has not been satisfied.

Domestic support and personal care

52.  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.

53.  The Beneficiaries have made the following statements in relation to domestic support and personal care:

a.    the Deceased assisted with household cleaning and maintenance, including the physical act of shopping, or acquiring items for the Residence.

b.    The Deceased provided one of the Beneficiaries with care and support during hospitalisation for surgery on two different occasions.

c.     The Deceased provided this care on a higher level when the other Beneficiary was away from home.

d.    The Deceased also provided the Beneficiaries with computer and IT-related assistance.

54.  In addition, it has been stated that the Beneficiaries and the Deceased provided each other with significant emotional support and comfort.

55.  No documentation has been provided to substantiate these statements, and it has been advised that no such documentation will be provided. We cannot be satisfied that domestic support and personal care has been provided.

56.  Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied.

Conclusion

57.  As all of the requirements in section 302-200 of the ITAA 1997 have not been satisfied, the Deceased and Beneficiaries were not in an interdependency relationship in the period just before the Deceased's death.

58.  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.