Private ruling: Death benefits
Date of advice: 26 September 2018
Published: November 2018
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the Beneficiaries ‘death benefits dependants’ of the Deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The Deceased died in 20XX. The Deceased’s superannuation fund paid a lump sum death benefit (the Benefit) to the Trustee of the estate in mth of YYY 20XX. The Deceased never married and separated from the partner in 20XX. The Deceased had XX children who are equally entitled to the Benefit (for the purpose of this private ruling, “the Beneficiaries” will refer to the Deceased’s first three children who were aged more than 18 years when the Deceased died). The Deceased had sole custody of the fourth child who was aged less than 18 years when the Deceased died. The Deceased was diagnosed with medical condition in 19XX. The ongoing and progressive effects of this illness meant that the Deceased was often unable to care for the youngest child or perform routine domestic tasks. As the Deceased’s medical condition continued to decline, the Deceased required ongoing care and emotional support. From 20XX – 20XX, the Beneficiaries shared the responsibility of providing the Deceased with ongoing care and support, including the following: ● Overseeing the provision of medical treatment to ensure that the Deceased was using the medication appropriately and attending doctor’s appointments; ● Attending to domestic duties such as cleaning, laundry, grocery shopping, meal preparation, paying bills and managing household finances; ● Caring for their underage sibling when the Deceased was unable to provide the appropriate level of adult supervision; and ● Providing the Deceased with companionship and emotional support. The Deceased provided the Beneficiaries with ongoing financial support, including the following: ● Providing funds for general living expenses such as groceries, travel expenses and household bills; ● Allowing the Beneficiaries to reside at the Deceased’s residence without charging rent or board. Each Beneficiary provided a signed a statutory declaration stating that they were in an interdependency relationship with, and/or financially dependent on, the Deceased just before the Deceased died.

Relevant legislative provisions: 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: An interdependency relationship, as defined in section 302-200 of the ITAA 1997, existed between the first two Beneficiaries and the Deceased just before the Deceased died. The third Beneficiary was a dependant of the Deceased in accordance with section 302-195(1)(d) of the ITAA 1997. Therefore, the Beneficiaries are ‘death benefits dependants’ of the Deceased pursuant to section 302-195 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: 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 find definitions of asterisked terms, see the Dictionary, starting at section 995-1. The Beneficiaries are the Deceased’s children and they are all over the age of 18, so paragraphs (a) and (b) of subsection 302-195(1) of the ITAA 1997 do not apply. Therefore, in order to conclude that the Beneficiaries are death benefits dependants of the Deceased, it must be established that the Beneficiaries were in an ‘interdependency relationship’ with the Deceased or that they were a ‘dependant’ of the Deceased just before the Deceased died. | 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 states that the regulations may specify the matters and circumstances that are, or are not, to be taken into account when determining whether two persons have an interdependency relationship. To that effect, regulation 302-200.1 of the Income Tax Assessment Regulations 1997 (ITAR 1997) sets out the matters that are to be taken into account when determining whether two persons have an interdependency relationship. In this case, the relevant considerations include: (i) the duration of the relationship; and (ii) the degree of mutual commitment to a shared life; and (iii) the degree of emotional support; and (iv) the extent to which the relationship is one of mere convenience; and (v) any evidence suggesting that the parties intended the relationship to be permanent. Paragraph 302-200.01(d) of the ITAR 1997 also allows the existence of a statutory declaration to be taken into account for the purpose of subsection 302-200(3) of the ITAA 1997. | 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, as in this case, 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. The relationship between the Beneficiaries and the Deceased was over and above that of a normal family relationship. It follows that a close personal relationship existed in accordance with paragraph 302-200(1)(a) of the ITAA 1997. The matters indicating that the Beneficiaries and the Deceased had a close personal relationship are: ● The Beneficiaries provided the Deceased with care and support for approximately five years; ● Two of the Beneficiaries lived with the Deceased, while the other lived close by and had implicit intentions to move back into the Deceased’s residence; ● While the parties lived together (or near each other), they provided each other with ongoing financial, domestic and emotional support; ● The parties behaviour indicates a mutual intention to continue their close personal relationship on a permanent basis; ● The Beneficiaries’ ongoing commitment to provide extensive care and emotional support to the Deceased, despite living separately at times, indicates that their relationship was not one of mere convenience. | Detailed Reasoning - Living together: The first Beneficiary was temporarily living overseas just before the Deceased died. However, she was an Australian resident for tax purposes and the Deceased’s residence continued to be her primary residential address throughout the relevant period. Therefore, the first Beneficiary was living with the Deceased at the time of her death in accordance with paragraph 302-200(1)(c) of the ITAA 1997. Paragraph 302-200(1)(c) of the ITAA 1997 is also satisfied in relation to the second Beneficiary because she was living with the Deceased when she died. The third Beneficiary moved out of the Deceased’s residence in 20XX and was living at a separate residential address when the Deceased died. Therefore, paragraph 302-200(1)(c) of the ITAA 1997 has not been satisfied in relation to the third Beneficiary. | Detailed Reasoning - Financial support: Paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this case because the Deceased provided the Beneficiaries with ongoing financial support to help them meet their day-to-day living expenses, including food and accommodation. | Detailed Reasoning - Domestic support and personal care: Domestic support and personal care must be of a frequent and ongoing nature. For example, domestic support services may consist of attention to household shopping, cleaning and laundry 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 Beneficiaries provided domestic support and personal care to the Deceased on an ongoing basis. This included household shopping, routine domestic tasks and providing the Deceased with personal care. This level of domestic support and personal care continued until the Deceased died. Based on the above, the first and second Beneficiaries satisfy the requirements of paragraphs 302-200(1)(a), (b), (c) and (d) of the ITAA 1997. Therefore, the first and second Beneficiaries are death benefits dependants pursuant to section 302-195 of the ITAA 1997 because they were in an interdependency relationship with the Deceased just before the Deceased died. | Detailed Reasoning - Financial dependency: In determining whether a person is a ‘dependant’, it is necessary to establish the nature of financial support that was provided to that person by the deceased. In the Victorian Supreme Court case of Fenton v. Batten [1949] ALR 69; [1948] VLR 422, Justice Fullager made the following comments regarding dependency: The word ‘dependant’ is, in a true sense a technical term. If the evidence established that the alleged ‘dependant’ relied on or relies on another as the source wholly or in part of his or her existence then dependence is established. Questions of ‘scale of living’ do not enter into the matter in the absence of some such statutory enactment. Handing down the decision in Malek v. Federal Commissioner of Taxation [1999] AATA 678, 42 ATR 1203, 99 ATC 2294, Senior Member Pascoe of the Administrative Appeals Tribunal (AAT) further clarified the meaning of the word dependant, stating: In my view, the question is not to be decided by counting up the dollars required to be spent on the necessities of life for [Mrs Malek], then calculating the proportion of those dollars provided by the [son] and regarding her as a dependant only if that proportion exceeds 50%...In my view, the relevant financial support is that required to maintain the persons normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard. The third Beneficiary received payments from Centrelink and was employed on a casual basis but this income was not enough to maintain a normal standard of living. Consequently, the third Beneficiary relied upon the regular and continuous contributions from the Deceased to pay for general living expenses. Therefore, the third Beneficiary was a ‘dependant’ of the Deceased just before the Deceased died pursuant to paragraph 302-195(1)(d) of the ITAA 1997. Therefore, the third beneficiary is also a death benefits dependant because she was a ‘dependant’ of the Deceased in accordance with paragraph 302-195(1)(d) of the ITAA 1997.