Edited version of private advice

Authorisation Number: 1052233404854

Date of advice: 4 April 2024

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the beneficiary 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:

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances:

1.    The beneficiary is the adult child of the deceased.

2.    The deceased died on XX month 20XX, at the age of XX years.

3.    The deceased estate received a death benefit payment from the deceased's superannuation fund.

4.    You applied for a private ruling on XX month 20XX

5.    You provided the following documents in support of your application:

a.    Statutory Declaration from XX which states:

•         the Deceased was unwell in 20XX and tests discovered their heart function was poor

•         the Beneficiary moved in with Deceased, continuing their studies by correspondence

•         the Deceased was financially supporting the Beneficiary with university costs, car, health, food and home expenses

b.    Statutory declaration from the deceased which states:

•         between approximately month 20XX and early 20XX, the deceased suffered a series of XXX infections

•         In month 20XX, the deceased became severely unwell due to a XXX infection and was unable to perform domestic duties

•         In month 20XX, the deceased was diagnosed with a terminal illness

•         The deceased had limited support to assist with necessary day-to-day duties

•         The deceased also cared for the beneficiary from month 20XX to month 20XX by providing:

•         Financial support, including paying for:

o   food,

o   shelter,

o   clothing,

o   education and tuition expenses,

o   medical expenses,

o   motor vehicle expenses, including fuel, and

o   utilities

•         the beneficiary cared for the deceased from month 20XX to month 20XX by providing:

•         domestic support, including:

o   attending to household shopping/cooking,

o   undertaking all cleaning responsibilities, and

o   household assistance, including repairs.

•         personal care and assistance, including:

o   accompanying the deceased to medical appointments and surgery,

o   frequently driving the deceased to and from work,

o   assisting in showering, dressing, brushing and drying of hair,

o   assisting in filling medical scripts, and

o   obtaining sanitary products when required.

•         emotional support, including providing a constant source of support, companionship and comfort.

c.     Death Certificate for the deceased, dated XX month 20XX.

d.    Superannuation Lump Sum Payment Summary

e.    Medical certificate stating the beneficiary was financially dependent on the deceased in 20XX

f.      Bank statement for the deceased, with address of XX for the period of XX month 20XX to XX month 20XX inclusive which shows intermittent transactions made to the beneficiary's account.

g.    Bank statement for the deceased, addressed to XX for the period of XX month 20XX to XX month 20XX inclusive which shows intermittent transactions made to the beneficiary's account.

h.    Bank statement for the beneficiary, with address of XX for the period of XX month 20XX to XX month 20XX which shows credit transfers from account numbers XXXXXX, XXXXXX, XXXXXX and intermittent credit transfers from the deceased.

i.      Bank statement for the beneficiary, with address of XX for the period of XX month 20XX to XX month 20XX which shows credit transfers from account numbers XXXXXX, XXXXXX, XXXXXX and intermittent credit transfers from the deceased.

6. The beneficiary was not financially dependent on the deceased as the beneficiary received sufficient income from employment as an XX for XXX, XXX, XXX and XXX, providing income of $XX for the 20XX income year.

7.    The deceasedwas not financially dependent on the beneficiary as the deceased received sufficient income from employment as a XX for XX, providing income of $XX and $XX for the 20XX and 20XX income years, respectively.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Reasons for decision:

Issue: Death Benefits Dependant - Interdependency Relationship

Question: Was the beneficiary a death benefits dependent of the deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA1997), 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 beneficiary, as all of the requirements set out in the legislation have not been satisfied in this case.

2.    Therefore, the beneficiary is not a death benefits dependant 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 beneficiary is assessable income, taxed under section 302-145 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

1.    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.

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

3.    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.

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

5.    To meet the definition of a death benefits dependant, the Beneficiary must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

6.    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.

7.    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.

8.    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.

9.    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 duration of the relationship

b.    the ownership, use and acquisition of property

c.     the degree of mutual commitment to a shared life

d.    the reputation and public aspects of the relationship

e.    the degree of emotional support

f.      the extent to which the relationship is one of mere convenience

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

h.    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.

10.  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.

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

12.  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.

13.  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.

14.  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.

15.  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

16.  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.

17.  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.

18.  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).

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

20.  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

21.  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.

22.  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.

23.  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.

24.  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.

25.  The relationship between the beneficiary and the deceased was not over and above a normal family relationship between a parent and an adult child.

26.  No evidence has been provided to suggest a mutual commitment to a shared life existed between the beneficiary and the deceased.

27.  It was not the case that the beneficiary had always lived with the deceased and intended to always do so.

28.  While the parties had lived together for a short period of time at the time of the deceased's passing, the beneficiary had previously moved out of the family home, in order to attend to studies.

29.  Furthermore, according to statements made by the beneficiary, XXX moved back in with the deceased at the deceased's request. It was not the beneficiary's desire that XXX move back home at this time.

30.  Therefore, a close personal relationship did not exist between the beneficiary 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

31.  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.

32.  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.

33.  Prior to the deceased's death in month 20XX, the deceased and the beneficiary lived together, for a short period of time.

34.  Documentation provided, in the form of bank statements and utility notices, shows the deceased residing at XXXXX, XX XX 20XX, for a significant period of time, prior to their passing.

35.  A bank statement provided for the beneficiary, for the period of XX month 20XX to XX month 20XX, supports that the beneficiary resided at that same address, for at least that period.

36.  It is accepted that the parties lived together at the time of the deceased's passing.

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

Financial support

38.  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.

39.  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.

40.  From bank statements that have been provided, the beneficiary had sufficient income from employment to support themselves financially and was not financially dependent on the deceased to pay for their rent, bills, utilities, and everyday living expenses.

41.  The deceased had sufficient income from employment to support themselves financially and was not financially dependant on the beneficiary.

42.  However, 'financial support' does not equate with financial dependence. The level of financial support required does not have to be substantial.

43.  The provided bank statements show that the deceased made intermittent transfers to the beneficiary for living expenses, which included payments for fuel, food and clothing.

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

Domestic support and personal care

45.  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.

46.  Statements provided contend that the beneficiary provided the deceased with some level of domestic support and personal care, which included undertaking general household responsibilities and providing personal care assistance.

47.  Statements provided also contend that the beneficiary provided the deceased with significant emotional support and comfort.

48.  However, no evidence has been provided to support the above statements.

49.  Further, no documentation of any kind has been provided in relation to the deceased's condition, which would support that such care was required, nor any statements by a medical practitioner to detail what level of support would be required, or was in fact provided.

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

Conclusion

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

52.  As the beneficiary was not in an interdependency relationship with the deceased, the beneficiary is not a death benefits dependant as defined under section 302-195 of the ITAA 1997.