Private ruling: Superannuation death benefits
Date of advice: 3 August 2017
Published: November 2017
Ruling period: Income year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the superannuation lump sum death benefit received by a person tax free in accordance with section 302-60 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: The Deceased died following an illness. The Beneficiary is a parent of the Deceased. The ongoing and progressive effects of the Deceased’s illness restricted the Deceased’s ability to perform everyday physical tasks and, as their health declined, they required ongoing care and support. The Deceased never married, had no spouse and no children. The Deceased lived with the Beneficiary. Eventually the Deceased became too ill to stay at the Beneficiary’s home and was moved to hospital where they passed away. The Beneficiary provided the Deceased with ongoing financial and domestic support and personal care including the following: ● paying medical and personal costs; ● helping them with showering, personal grooming, providing meals and administering medication; ● assisting with routine domestic tasks such as laundry, cleaning and shopping; ● transporting and accompanying to and from medical appointments; and ● providing companionship and emotional support. Due to the nature of their illness, the Deceased was regularly readmitted to hospital and stayed briefly in a hospice following surgery. The Beneficiary continued to provide this care and support when the Deceased was hospitalised or staying at the hospice. The Beneficiary has signed a Statutory Declaration stating that they were in an interdependency relationship with the Deceased at the time of the Deceased’s death. The Beneficiary received a lump sum payment (the Benefit) from the Deceased’s superannuation fund (the Fund). The payment consisted of a taxed element and an untaxed element.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-60 | Income Tax Assessment Act 1997 Section 302-195 | Income Tax Assessment Act 1997 Section 302-200 | Income Tax Assessment Regulations 1997 Regulation 302-200.01

Reasons for decision: Summary: The Beneficiary and the Deceased were in an interdependency relationship under section 302-200 of the ITAA 1997 just before the Deceased died. Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997. In accordance with section 302-60 of the ITAA 1997, a superannuation lump sum death benefit paid to a death benefits dependant is not assessable income and is not exempt income. That is, the Benefit is tax-free. | Detailed Reasoning - Detailed reasoning: Section 302-60 of the ITAA 1997 states: A *superannuation lump sum that you received because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income. *To find definitions of Asterisked terms, see the Dictionary, starting at section 995-1 Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant of a person who has died as: (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 just before he or she died. To conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an 'interdependency relationship’ with the Deceased. | Detailed Reasoning - What is an interdependency relationship?: Subsection 302-200(1) of the ITAA 1997 states that two persons (whether or not related by family) have an interdependency relationship 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(3) of the ITAA 1997 provides that matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under that section may be specified in the regulations. To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 1997 (ITAR 1997) states that in considering paragraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are all relevant circumstances of the relationship between the persons: (a) the duration of the relationship; and (b) the degree of mutual commitment to a shared life; and (c) the degree of emotional support; and (d) the extent to which the relationship is one of mere convenience; and (e) any evidence suggesting that the parties intend the relationship to be permanent. | Detailed Reasoning - Close personal relationship: Generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between a parent and child. This is because the relationship between a parent and child would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where unusual and exceptional circumstances exist, a relationship between a parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997. In this case, it is considered that the relationship between the Beneficiary and the Deceased was over and above that of a normal familial relationship and that a close personal relationship existed as required by paragraph 302-200(1)(a) of the ITAA 1997. The matters that indicate that the Beneficiary and the Deceased had a close personal relationship are: ● the relationship was not one of mere convenience; ● the Beneficiary provided significant financial support and domestic and emotional care to the Deceased at all times while they were living together and when the Deceased was in hospital and in a hospice; and ● the Beneficiary has provided a Statutory Declaration to the effect that the Beneficiary and the Deceased were in an interdependency relationship as defined in section 302-200 of the ITAA 1997. | Detailed Reasoning - Living together: At the time of their death, the Deceased was too unwell to continue living at the home of the Beneficiary and had to be readmitted to hospital. Despite this, it is considered that the Beneficiary and Deceased were living together as it would not be considered that the Deceased resided at the hospital. Accordingly, paragraph 302-200(1)(b) of the ITAA 1997 is satisfied. | Detailed Reasoning - Financial support: Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other. In this case, the Beneficiary provided the Deceased with significant financial support during their illness. Therefore, it is considered that the Beneficiary and the Deceased provided financial support to each other as required under paragraph 302-200(1)(c) of the ITAA 1997. | Detailed Reasoning - Domestic support and personal care: Domestic support and personal care will be of a frequent and ongoing nature. For example, domestic support services will consist of attention to the household shopping, cleaning, laundry and other 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. In this case, the Beneficiary provided domestic support and personal care to the Deceased on an ongoing basis. This consisted of the Beneficiary undertaking the household shopping, completing routine domestic tasks for the Deceased and providing the Deceased with personal care including showering, personal care and grooming. The Beneficiary continued to provide this support and care to the Deceased when the Deceased was admitted into hospital on multiple occasions and into a hospice. Based on the above, all of the requirements in section 302-200 of the ITAA 1997 are satisfied so the Beneficiary and the Deceased had an interdependency relationship. Consequently, as the Beneficiary is a death benefits dependant of the Deceased, the Benefit received from the Fund is not assessable income and is not exempt income in accordance with section 302-60 of the ITAA 1997. That is, the Benefit is tax free.