Private ruling: Death benefits
Date of advice: 22 October 2020
Published: December 2020
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Was the Beneficiary a death benefits dependant as defined in section 302-195 of the Income Tax Assessment Act 1997 of the Deceased? | A1: Yes

Relevant facts and circumstances: The Beneficiary is the daughter of the Deceased. The Deceased passed away on late 20XX due to complications arising from medical condition that occurred in early 20XX. A copy of the death certificate has been provided. The Beneficiary undertook her university degree from early 20XX to late 20XX, graduating in early 20XX, After early 20XX, the Beneficiary began working part time to allow her to care for the Deceased. Documentation has been provided to show the Beneficiary's income in the 20XX, 20XX and 20XX income years. As a result of the Deceased's medical condition in early 20XX, he suffered a decreased mental capacity and required full time support. The Deceased was single, so this task fell largely to the Beneficiary. The Beneficiary's university study was full time but had limited hours onsite during the final year (20XX) and the Beneficiary was able to organise a schedule around the needs of the Deceased. The Beneficiary worked part time while at university. The Beneficiary was the Deceased's primary carer and medical enduring power of attorney from when the Deceased became ill in early 20XX until the Deceased passed away in late 20XX. Given the Deceased's decreased mental capacity, this was a significant responsibility and involved supporting him in any way that was required. This included organising and driving him to and from medical/hospital/GP appointments, driving him to and helping with grocery and other shopping plus other activities he was involved in (men's sheds etc), household jobs (cleaning, laundry) and helping care for the Beneficiary's younger brother (the Deceased's son). Due to the Deceased's incapacitation, a Trustee was appointed to manage his financial affairs and decision making. The Trustee made weekly payments to the Beneficiary to assist her in meeting her financial obligations and living expenses. She was reliant on this support in order to meet her financial needs. In addition, the Trustee provided the Beneficiary with additional financial assistance as required. Documentation has been provided to support this. The Deceased and the Beneficiary were not eligible for any financial assistance from the government due to the assets of the Deceased. The Beneficiary resided with the Deceased until early 20XX, when the Deceased moved to a nursing home. At this time, the Beneficiary moved into a rental property in order to be close to the nursing home. Documentation has been provided from the nursing home that supports the level of care provided by the Beneficiary. The Beneficiary sought full time employment after the Deceased's death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-10 | Income Tax Assessment Act 1997 Subsection 302-195(1) | Income Tax Assessment Act 1997 Paragraph 302-195(1)(c) | Income Tax Assessment Act 1997 Subsection 302-200(1) | Income Tax Assessment Act 1997 Paragraph 302-200(1)(a) | Income Tax Assessment Act 1997 Paragraph 302-200(1)(b) | Income Tax Assessment Act 1997 Paragraph 302-200(1)(c) | Income Tax Assessment Act 1997 Paragraph 302-200(1)(d) | Income Tax Assessment Act 1997 Subsection 302-200(2) | Income Tax Assessment Act 1997 Paragraph 302-200(3)(a) | Income Tax Assessment Regulations 1997 Subregulation 302-200.01(2) | Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision: Summary: An interdependency relationship as defined under subsection 302-200(1) existed between the Deceased and the Beneficiary just before the Deceased died. Therefore, in relation to the death benefit paid to the estate of the Deceased, your client is considered a death benefits dependant of the Deceased as defined in subsection 302-195(1). | Detailed Reasoning - Superannuation death benefits paid to the trustee of a deceased estate: A payment made by a superannuation fund to a deceased estate after the death of the deceased is assessed as a death benefit under section 302-10. The taxation arrangements that apply to this superannuation death benefit are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate. For example, where a dependant of the deceased receives part, or all of, a superannuation death benefit and has benefited, or is expected to benefit, the trustee will not be subject to tax on that part of the benefit paid to the dependant as if it were paid to a dependant of the deceased. | Detailed Reasoning - Death benefits dependant: Subsection 302-195(1) 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. In this case, the facts show that for the purposes of subsection 302-195(1) the relevant provision that needs to be satisfied is paragraph 302-195(1)(c). That is, an interdependency relationship needs to be established between the Deceased and the Beneficiary just before the Deceased passed away. | Detailed Reasoning - Interdependency relationship: Under subsection 302-200(1) 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. Section 302-200(2) 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 persons have an interdependency relationship, paragraph 302-200(3)(a), states that the regulations may specify the matters that are, or are not, to be taken into account. Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the matters to be taken into account are as follows: (a) all of the circumstances of the relationship between the persons, including (where relevant): (i) the duration of the relationship; and (ii) whether or not a sexual relationship exists; and (iii) the ownership, use and acquisition of property; and (iv) the degree of mutual commitment to a shared life; and (v) the care and support of children; and (vi) the reputation and public aspects of the relationship; and (vii) the degree of emotional support; and (viii) the extent to which the relationship is one of mere convenience; and (ix) any evidence suggesting that the parties intend the relationship to be permanent. | Detailed Reasoning - Close personal relationship: The first requirement to be met is specified in paragraph 302-200(1)(a). It states that 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 and regulation 302-200.02 of the ITAR 1997. A detailed explanation of subsection 302-200(1) is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 which inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). In discussing the meaning of close personal relationship, the SEM states: 2.12 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. 2.13 Indicators of a close personal relationship may include: the duration of the relationship; the degree of mutual commitment to a shared life; the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged). 2.14 The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist. 2.15 It is not intended that people who share accommodation for convenience (e.g. flat mates), or people who provide care as part of an employment relationship or on behalf of a charity should fall within the definition of close personal relationship. In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the ITR 1936, it stated that: 'It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings. Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.' As stated above, the intention of the law is that a close personal relationship as specified in subsection 302-200(1) would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents 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. In this case, the Beneficiary is the daughter of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. The Beneficiary lived with the Deceased in the family home prior to the Deceased's relocation to a nursing home. The Beneficiary undertook part-time work in order to care for the Deceased. When the Deceased's condition deteriorated, it became necessary for him to move to a nursing home, and the Beneficiary moved to a rental property in order to be close to the Deceased at this time. Your client and the Deceased clearly remained an important part of each other's lives and were committed to a shared life together. The Deceased suffered from ill health as a result of his medical condition. The Beneficiary was unable to work full time and was financially reliant on the payments from the Trustee of the Deceased financial affairs, It is considered that due to the tragic personal circumstances in this case, including the Deceased's incapacitation and ongoing illness, the relationship between the Deceased and the Beneficiary was above and beyond what would be expected for a parent and child. Overall the relationship between them is of the type envisioned by the legislation. Accordingly, the first requirement specified in paragraph 302-200(1)(a) has been satisfied in this case. | Detailed Reasoning - Cohabitation:: The second requirement to be met is specified in paragraph 302-200(1)(b), and states that two persons live together. Prior to May 20XX, the Deceased and the Beneficiary were living together in the family home, along with the Deceased's younger son. At the time of the Deceased's death, the Deceased was residing in a nursing home, and the Beneficiary lived in a rental property nearby, in order to be closer to the Deceased and assist him with his care. While the Deceased and the Beneficiary were not living together at the time of the Deceased's death, this was only due to the ongoing physical and intellectual disability of the Deceased, and his need for full-time care. Consequently, it is considered that paragraph 302-200(1)(b) has been satisfied in this instance. | Detailed Reasoning - Financial support:: The third requirement to be met is specified in paragraph 302-200(1)(c), and states that one or each of these two persons provides the other with financial support. Financial support under paragraph 302-200(1)(c) 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 state that the Beneficiary received a weekly allowance of $200 from the Deceased's trustee. The Trustee also made ad hoc payments in order to assist the Beneficiary with her living expenses. Documentation has been provided to support this. It is clear that the Deceased, via his Trustee, provided the Beneficiary with financial support during the last years of the Deceased's life. Consequently, it is considered that paragraph 302-200(1)(c) has been satisfied in this instance. | Detailed Reasoning - Domestic support and personal care:: The fourth requirement to be met is specified in paragraph 302-200(1)(d), and 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: 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 Deceased provided the Beneficiary with significant emotional support and personal care. The Beneficiary was the deceased principle carer and accompanied the Deceased to medical appointments during the Deceased's illness. When the Deceased and the Beneficiary lived together, the Beneficiary was responsible for household chores, including grocery shopping, and caring for the younger sibling (the Deceased son). She continued to support the Deceased emotionally and assist him with his care during the final months of his life, when he was residing in a nursing home. This has been confirmed in the copies of documentation supplied by the nursing home. Therefore, on the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) has been satisfied in this instance. | Detailed Reasoning - Conclusion: As your client was in an interdependency relationship with the Deceased, just before their death, your client is a death benefits dependant as defined under section 302-195.