Edited version of private advice

Authorisation Number: 1052272529250

Date of advice: 18 September 2024

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the Beneficiary a death benefits dependant of the Deceased person 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(2) of the ITAA 1997?

Answer

No.

This ruling applies for the following periods:

Income year ending 30 June 2022

Income year ending 30 June 2023

The scheme commences on:

1 July 2021

Relevant facts and circumstances:

1.    The Beneficiary is the child of the Deceased person.

1.    The Deceased died September 20xx (Date of Death).

2.    The Beneficiary was born 19xx was therefore older than 18 years when the Deceased died.

3.    The Beneficiary received a death benefit payment from the Deceased's superannuation fund. The superannuation fund withheld tax from the death benefit payment.

4.    The Deceased was divorced, and the Beneficiary was the only child of the Deceased and lived with the Deceased throughout their schooling in xxxx (in the family home).

5.    The Beneficiary was at university in XXXX when the Deceased first became ill.

6.    The Beneficiary was dependent on the Deceased financially for their basic living necessities leading up to their illness.

7.    As the Deceased suffered a sudden brain aneurysm on xx/0x/20xx and was left in a vegetative state from xx/0620xx onwards, the Beneficiary the provided some care for the Deceased.

8.    The Deceased spent their time initially in XXXX Hospital, then transferred to XXXX Hospital (Newcastle). The Deceased also moved into XXXX Rehabilitation Centre (XXX) post operation and then back to XXXXX Hospital from month 20xx to month 20xx.

9.    The period relevant to the private ruling, the Beneficiary lived between family home in XXXX and their student accommodation in XXXX to match where their parent was treated.

10.  In month 20xx, after a number of medical procedures, it was deemed that the Deceased would require 24-hour care for the rest of their life.

11.  On xx month 20xx, the Deceased moved into a nursing home.

12.  The Beneficiary advised XX was looking into selling the family home to purchase a ground floor dwelling with specific needs.

13.  The following statements have been made to support that the Beneficiary was financially dependent on the Deceased:

Close personal relationship:

•         The Deceased was the parent of the sole Beneficiary.

•         The Beneficiary moved out of the family home in XXXX to attend university in XXX (due to distance).

•         The Beneficiary often returned home throughout their studies during the breaks.

•         After the Deceased became sick in month 20xx, the Beneficiary was appointed the same by XXX Civil and Administrative Tribunal as the Deceased's only guardian and therefore, making all the financial and medical decision on the Deceased's behalf.

•         Throughout the Deceased's illness, the Beneficiary lived between the family home and XXX to complete their studies.

•         At the time of Deceased's death, the Beneficiary stated they were in the process of making arrangements to live with the Deceased full time and engage a carer via NDIS to look after the Deceased.

Live together:

•         The Deceased was divorced, and the Beneficiary was the only child of the Deceased.

•         The Beneficiary lived with the Deceased throughout their schooling (in the family home).

•         The Beneficiary was not living with the Deceased at the time of death as the Deceased was temporarily living in a nursing home due to their medical illness.

•         The Beneficiary was living between the family home in XXXX and XXX to complete their university degree.

•         When the Deceased passed away the Beneficiary had successfully completed the NDIS application and had been granted a plan which involved the Deceased moving into a new family home with the Beneficiary so that XX could coordinate and assist in their parent's 24hour care.

•         The Beneficiary stated XX had an intention to live with the Deceased long-term as XX was in the process of selling the family home (3^rd floor apartment) with the view of being a fulltime carer and provide assistance with ongoing support and coordination for their parent requirement.

Provide each other with financial support:

•         Prior to their parent's illness the Beneficiary was partially supported by the Deceased when XX moved to XXX for their studies and fully upon return trips home.

•         After their mother's illness, the Beneficiary often lived in the family home when coordinating the Deceased's care in XXX hospital or visiting XX. The Beneficiary utilized the car, fuel, and registration to commute between XXX and XXX. The Beneficiary also coordinated the payment of all the bills etc along with the engagement of professionals to assist with NDIS, Centrelink disability applications, insurance applications etc.

•         On xx/month/20xx, the Beneficiary was also appointed the sole medical and financial carer for the Deceased by the NSW Trustee and Guardian Board.

One or each of them provides the other with domestic support and personal care:

•         The Deceased suffered from a subarachnoid haemorrhage (bleeding in the brain) on the xx/xx/20xx and became completely dependent on others for basic personal care, including but not limited to toileting, eating, drinking etc. From this point onwards the Deceased required 24 hours care and assistance and was in hospital care. The Beneficiary being the only child became the sole guardian to the Deceased.

•         On xx/xx/20xx, the Beneficiary was also appointed the sole medical and financial carer for the Deceased by the NSW Trustee and Guardian Board.

14. The following documentation was provided in support of the ruling application:

•         Deceased's death certificate

•         Copy of driver's licence for Deceased's.

•         Copy of driver's license for the Beneficiary.

•         Deceased's Marriage certificate.

•         Deceased's Divorce certificate.

•         Change of name the Deceased.

•         Beneficiary 's Statutory declaration

•         NDIS plan for Deceased.

•         Aged care confirmation and estimated costs

•         Guardianship order

•         Financial management order

•         Letter of Administration- Estate of Deceased.

•         Confirmation of xxxx Super Fund and Insurance Funds for the Deceased.

15. In response to requests for documentation, the following was provided:

•         Assistive technology general assessment completed form to provide the Deceased with a new wheel chair.

•         (1) attachments with NDIS plan approval for funding, (2) super funds closing balance of $XXX as of the 30/6/20xx, (3) Guardianship to XXXX already provided before.

•         Advising the Beneficiary was in conversation with the real estate agent (xxxx at HEM in xxxx) in person to sell the 3rd floor unit. No evidence has been provided to support that the conversation took place.

•         Email exchange between the Beneficiary and a family liaison officer / PT support coordinator which shows the Beneficiary's intention to avoid permanency in the aged care system for their parent.

•         Further email between (Beneficiary) and (aged care provider) in 20xx that indicates their intention to shift the Deceased into an aged care facility short term with the goal of moving XX into private care. The Deceased supported the Beneficiary's intention but stating XX planned to store the Deceased's personal items in the meantime, sell the unit, buy another more suitable place and renovating it to appropriately suit the Deceased's needs.

Relevant legislative provisions:

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:

2.    An interdependency relationship as defined under section 302-200(2) 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.

3.    Therefore, the Beneficiary is not a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

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

9.    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.

10.  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

11.  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.

12.  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.

13.  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).

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

15.  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.

16.  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.

17.  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.

18.  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.

19.  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.

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

21.  The matters that indicate the Beneficiary and the Deceased did not have a close personal relationship before the Deceased's death are:

a.    Beneficiary provided care and support to the Deceased throughout their illness, regardless of whether they were living together or separately. The Beneficiary provided the Deceased with ongoing emotional support. This level of care did not exceed the care and comfort that would usually be provided by a parent to an adult child. They did not have an exceptionally close relationship. Further details of their care arrangements are provided below.

b.    The Beneficiary and the Deceased have not lived together since the Deceased became disabled since 20/6/2019. Due to their disability, the Deceased continued to be significantly dependent on the Beneficiary for ongoing care and support, for the remainder of the Deceased's life. The Beneficiary moved out of the family's home. They would not have continued to live together if the Deceased were still alive. They did not have a strong mutual commitment to having a shared life.

c.     Prior to his mother's illness the Beneficiary was partially supported by the Deceased when he moved to Newcastle for his studies therefore also had become partially financially independent.

22.  Therefore, a close personal relationship did not exist between the Beneficiary and the Deceased and the first requirement specified in paragraph 302-200(2)(a) of the ITAA 1997 has not been satisfied in this case.

Disability

23.  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 has a physical, intellectual or psychiatric disability, they are still considered to have an interdependency relationship.

24.  From the facts presented, the reason why theDeceased and the Beneficiary did not meet the close personal relationship is that, while they showed the intention of the close personal relationship, the substantiated evidence to show they were living together or that they had a want for a shared life was not provided. The Beneficiary did not reside with the Deceased, not only due to the Deceased suffering from severe ongoing illnesses that prevented them from living together until the Deceased's death but also the Beneficiaries studies which shows the increase in independency of the Beneficiary.

Conclusion

25.  As all of the requirements in Subregulation 302-200.02(2) of the ITAR 2021 have not been satisfied, the Deceased and Beneficiary were not in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary was not in an interdependency relationship with the Deceased, the Beneficiary is not a death benefit dependant.