Private ruling: Death benefit dependant - interdependency relationship
Date of advice: 2 May 2018
Published: July 2018
Ruling period: Income year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the Beneficiary a death benefit dependant of the deceased and the resulting superannuation death benefit payment tax-free? | A1: Yes. | Q2: Are amounts of the death benefit received and paid on behalf of the Beneficiary by a deceased estate also considered tax free? | A2: Yes.

Relevant facts and circumstances: ● The deceased passed away in the 2017-18 income year. ● The only asset of the estate was a benefit payment by the superannuation fund. ● At the direction of the Beneficiary the estate paid a liability. There was a small surplus remaining. ● The Beneficiary believed that there is an adult inter dependency relationship between them and the deceased as: ● The Beneficiary provided ongoing support, including financial support ● The Beneficiary monitored the deceased’s illness, ● The deceased continuing living at home You have stated you believe the surplus of the estate (which is essentially super monies) should be able to pass to you tax free as adult dependents. You have provided evidence of an illness suffered by the deceased.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 302-195 | Income Tax Assessment Act 1997 section 302-200 | Income Tax Assessment Act 1997 subsection 302-200(1) | Income Tax Assessment Act 1997 subsection 302-200(2)(d) | Income Tax Regulations 1997 subregulation 302-200.01(2) Summary | 1. It is considered that the Beneficiary was a death benefit dependant of the deceased as the Beneficiary and the deceased had an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997). | 2. Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person/s intended to benefit from the estate.

Reasons for decision: Detailed Reasoning - Death benefits dependant: Section 302-195 of the ITAA 1997 defines ‘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, and from the facts provided, the relevant definition which needs to be examined is that in paragraph 302-195(c) of the ITAA 1997, that is, whether you were in an interdependency relationship with the deceased. | Detailed Reasoning - Interdependency relationship: Section 302-200(1) of the ITAA 1997 states: 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. Under subsection 302-200(2) of the ITAA 1997 two people who have a close personal relationship but cannot satisfy all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, may still have an interdependency relationship. All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2)(c), of the ITAA 1997 must be satisfied for a person to be in an interdependency relationship with another person. To assist in determining whether two persons have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 states that the regulations may specify the matters that are, or are not, to be taken into account. In addition, paragraph 302-200(3)(b) states that the regulations may specify the circumstances in which two persons have, or do not have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997. Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) provides the matters that are to be taken into account in determining whether two persons have an interdependency relationship. | Detailed Reasoning - Close personal relationship: The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997. It states that 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 inserted former section 27AAB of the 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. In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted regulation 8A of the Income Tax Regulations 1936 , it is stated that: Generally speaking, it is not expected that children will be in an interdependency relationship with their parents. A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. However, the facts of this case show that the relationship between the deceased and the Beneficiary was more than that of a normal family relationship with an adult child residing at home. The deceased always lived at home. The Beneficiary showed an ongoing commitment to the deceased’s support and well-being as well as financial support throughout the time the deceased lived at home continuing up to the deceased’s death. In the light of the above evidence, it is accepted that a close personal relationship existed between the Beneficiary and the deceased, as envisaged by paragraph 302-200(1)(a) of the ITAA 1997. | Detailed Reasoning - Cohabitation: The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA1997. It states that two persons have an interdependency relationship, under this section, if they live together. The deceased lived at home so had a strong dependency on the Beneficiary and so this requirement has been met. | Detailed Reasoning - Financial support: The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, and states that one or each of these two persons provides the other with financial support. Unlike the situation prior to 1 July 2004 where financial dependency (substantial support) needs to be satisfied, financial support under paragraph 302-200(1)(c) is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other. The deceased provided support for the Beneficiary and was provided back in kind. Therefore the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has been met. | Detailed Reasoning - Domestic support and personal care: The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, 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. Although the deceased contributed to the operation of the household preparing meals and house maintenance this is not sufficient to meet the requirements. Therefore the requirement of domestic support and personal care under paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied. However, the deceased was suffering from a relevant illness which required significant domestic support from the Beneficiary. Therefore it is considered that the requirement specified in paragraph 302-200(2)(c) has been satisfied and subsequently an interdependency relationship between the Beneficiary and the deceased existed. | Detailed Reasoning - Payments for your benefit or at your direction or request: Subsection 307-15(1) of the SISA applies for the purposes of: This section applies for the purposes of: (a) determining whether a payment is a superannuation benefit ; and (b) determining whether a *superannuation benefit is made to you, or received by you. 307-15(2) A payment is treated as being made to you, or received by you, if it is made: (a) for your benefit; or (b) to another person or to an entity at your direction or request. | Detailed Reasoning - Conclusion: Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person/s intended to benefit from the estate. Subsection 307-15(2) of the ITAA 1997 outlines that a payment is treated as being paid to a beneficiary, even if it is made to another entity on your behalf. Therefore, there is no requirement for the estate to withhold tax on the payment made on behalf of the dependant Beneficiary. The amounts ultimately distributed from the estate will not be taxable where it is paid on behalf of death benefit Beneficiary.