Edited version of Private Advice

Authorisation Number: 1052298845488

Date of advice: 23 September 2024

Ruling

Subject: Superannuation death benefit

Question:

Is 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 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances:

The Beneficiary is the parent of the Deceased.

The Beneficiary's usual place of residence is X XXXX XX State A XXXX

The Deceased died on XX July XXXX, at the age of XX.

The Beneficiary received a death benefit payment from the Deceased's superannuation fund, to the amount of $XXX,XXX.XX.

The Beneficiary applied for a private ruling on X February 20XX.

In support of the application, the Beneficiary provided the documentation listed below:

a)            Copy of death certificate for the Deceased, showing principal place of residence.

b)            Extract of State A health discharge summary for the Deceased outlining the Deceased's illness dated XX February 20XX

a.            Flight itineraries for the Beneficiary and the Deceased departing XXXX and arriving in XXXX dated XX March 20XX, payment with credit card ending in XXXX.

c)            Trust account receipt dated XX July 20XX, showing final payment of rent for rental property for the Deceased.

d)            An electricity and gas bill for in the name of the Deceased for the rental property.

e)            A letter from the Deceased's superannuation fund, dated XX January 20XX, reflecting final payout figure to the Beneficiary of $XXX,XXX.XX.

f)            A letter of administration dated XX November 20XX from the Supreme Court of State A was awarded to the Deceased's parents.

In support of the application, the Beneficiary made the following statements:

a)            The Deceased had a medical relapse in XXXXX 20XX and after discharge from the medical centre, the Deceased decided to return to XXXX.

b)            It was agreed between both Beneficiary and the Deceased, that the Beneficiary would travel to XXXX to the Deceased's rental, to care for the Deceased. The Deceased purchased both plane tickets.

c)            The Deceased maintained payment of all utilities of the property at the rental property.

d)            The Deceased paid for most of the food, while the Beneficiary maintained most of the domestic duties.

In response to a request for further information, you provided the following supporting documents:

a)            Your bank statement for account ending #XXXX for the period X October XXXX to XX September XXXX showing everyday expenses in XXXX and XXXX.

b)            XXXXXX Bank statement for account ending in #XXXX for the Beneficiary for the period XX January 20XX to XX July 20XX showing everyday expenses during your stay with the Deceased.

c)            Your bank statement for account ending in # for the periods X October 20XX to XX March 20XX and X April 20XX to XX September 20XX showing everyday expenses during your stay with the Deceased.

d)            Bank statement for the Deceased from #XXX account for the period of XX July 20XX to X September 20XX. With a highlighted transaction dated X February 20XX from this account to the Deceased's other account recorded as 'XXX XXX' for $XX,XXX.

e)            Account statement for account ending in #XXX for the Deceased for the period X February 20XX to X August 20XX, which shows everyday expenses and salary from employment. Payment of rent, subscriptions, and utilities in XXXXX.

f)            Account statement for account ending in #XXXX for the Deceased for the period X August 20XX to X February 20XX which shows everyday expenses and salary from employment. Payment of rent, subscriptions, and utilities in XXXXX.

In 20XX the Deceased became ill the Deceased was diagnosed with an illness and required several hospitalisations.

In February 20XX, the Deceased made the decision to return to XXXX and return to work. It was agreed between the Beneficiary and the Deceased that the Beneficiary would accompany the Deceased to XXXX to help with transition back to work.

The Beneficiary has stated in an email on XX August 20XX, that they stayed with the Deceased at the Deceased's rental property for the period X March 20XX to XX July 20XX.

The Beneficiary cared for the Deceased from February 20XX to July 20XX by providing

a)            domestic support, including attending to cleaning, washing and some food preparations

b)            personal care and assistance

c)            emotional support, including providing comfort.

Relevant legislative provisions:

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

Reasons for decision:

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 Beneficiary is the parent 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 Beneficiary was 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 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

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):

a.            the ownership, use and acquisition of property

b.            the degree of mutual commitment to a shared life

c.            the degree of emotional support

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

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

f.            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:

a.            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:

             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.

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.

To establish if there is an interdependency relationship with the Beneficiary and the Deceased, all of the conditions in subsection 302-200(1) of the ITAA 1997 must be satisfied.

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.

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

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

a.            The Beneficiary provided significant care and support to the Deceased when the Deceased was sick. However, the significant care and support were not expected to be ongoing. It was agreed between both parties that this was up until the Deceased was feeling better. This level of care did not exceed the care and comfort that would usually be provided by a parent to an adult child.

b.            The Beneficiary and the Deceased lived together for a period of 5 months, if not for the Deceased's illness, the Beneficiary would have remained in their home with their spouse in Brisbane. The Beneficiary would not have continued to live together if the Deceased were still alive. This indicates that the Beneficiary and the Deceased did not have a mutual commitment to a shared life.

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

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, the Beneficiary and the Deceased agreed for the Beneficiary to stay with the Deceased until such time that the Deceased's illness was more manageable. The Beneficiary maintained their home in another state, and intended to return to that residence. The Beneficiary stayed at the Deceased's property for the period X March 20XX to XX August 20XX.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not 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.

The bank statement from the bank indicates that the Beneficiary provided financial support during their stay with the Deceased.

Therefore, one of you provided other financial support during the final months of the Deceased life.

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

From the facts presented, the Beneficiary has stated that they provided the Deceased with domestic care including, cleaning, washing and meal preparation.

In addition, the Beneficiary 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

Not all of the requirements in section 302-200 of the ITAA 1997 have 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 benefits dependant as defined under section 302-195 of the ITAA 1997.

The taxable component of the superannuation lump sum death benefit paid to the Beneficiary is assessable income.