Private ruling: Death benefits dependant
Date of advice: 4 April 2019
Published: May 2019
Ruling period: Income year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Did an interdependency relationship exist between the Deceased and the Beneficiary under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Did a relationship of financial dependency exist between the Deceased and the Beneficiary under section 302-200 of the Income Tax Assessment Act 1997 ? | A2: Decline to Rule

Relevant facts and circumstances: In 2018, the Deceased passed away. The Deceased was a member of a self-managed superannuation fund (the SMSF). Following his death, a superannuation death benefit was paid to the deceased estate. The Deceased and the Beneficiary lived together in the family home at the time of the Deceased’s death. The Beneficiary had been living there for approximately six years and had no intention of moving out. The Beneficiary suffered from brain cancer and suffered a brain injury as a result of surgery. He also suffered from severe anxiety and depression following his diagnosis and the subsequent death of his mother from cancer. He was unable to sustain full-time employment due to his illness, although he occasionally engaged in casual employment. Therefore, the Deceased allowed the Beneficiary to live in his home rent-free. The Deceased paid electricity, gas, water and council rates, most of the groceries and most of the Beneficiary’s medical bills. The Deceased paid the Beneficiary an allowance every month, to be used for occasional groceries and food, minor medical bills and other personal expenses. The Deceased undertook domestic duties on behalf of the Beneficiary, such as cleaning the house, bathroom, kitchen and keeping the living room tidy. Due to the Beneficiary’s severe mental health issues, the Deceased provided the Beneficiary with significant emotional support and personal care, and was a constant source of consolation and encouragement. The Deceased accompanied the Beneficiary to medical appointments during his cancer treatment and recovery. The Deceased had no spouse or children.

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 All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: An interdependency relationship as defined under subsection 302-200(1) existed between the Deceased and your client 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 Your client 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. Accordingly, all of the conditions in subsection 302-200(1) 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), 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) of the ITAA 1997. 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 of the ITAA 1997 and regulation 302-200.02 of the ITAR 1997. 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 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. flatmates), 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) 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. 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 son of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. Your client lived with the Deceased in the family home, had done so for approximately six years, and had no plans to vacate the home. Your client and the Deceased clearly remained an important part of each other’s lives and were committed to a shared life together. The Beneficiary suffered from ill health as a result of cancer and a subsequent brain injury. He also suffered from mental health issues including depression and anxiety. The Beneficiary was unable to work full time and was financially reliant on the Deceased, and was depended on the Deceased for emotional support. It is considered that due to the tragic personal circumstances in this case, including the Beneficiary’s cancer diagnosis and the subsequent death of his mother from cancer, 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) of the ITAA 1997 has been satisfied in this case. | Detailed Reasoning - Cohabitation:: The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that two persons live together. Prior to and at the time of the Deceased's death, the Deceased and your client were living together in the family home. Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance. | 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. 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 Deceased allowed the Beneficiary to live in his home rent-free. The Deceased paid electricity, gas, water and council rates, most of the groceries and most of the Beneficiary’s medical bills. The Deceased paid the Beneficiary an allowance every month, to be used for occasional groceries and food, minor medical bills and other personal expenses. It is clear that the Deceased 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) of the ITAA 1997 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) 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. From the facts presented, the Deceased provided the Beneficiary with significant emotional support and personal care, and was a constant source of consolation and encouragement. The Deceased accompanied the Beneficiary to medical appointments during his cancer treatment and recovery. Therefore on the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 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 of the ITAA 1997. | Detailed Reasoning - Question 2: You have asked us to rule on whether the Beneficiary was financially dependent on the Deceased under section 302-195(1)(d). The Commissioner may decline to make a private ruling if making the ruling would not have any practical consequences for you. In this instance, the Commissioner has already ruled that the Beneficiary is a death benefits dependant as defined under section 302-195(1)(c); that is, the Beneficiary was in an interdependency relationship with the Deceased. Therefore, it is unnecessary to consider whether the Beneficiary was a financial dependant of the Deceased under section 302-195(1)(d).