Private ruling: Taxation of superannuation death benefits- interdependency
Date of advice: 24 March 2017
Published: August 2017
Ruling period: Income year ending 30 June 2017.
Date scheme commenced: 1 July 2016

Ruling: Q1: Is a person (the Beneficiary) a death benefits dependant of a person who has died (the Deceased) in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997) by virtue of being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997 just before they died? | A1: Yes.

Relevant facts and circumstances: The Beneficiary is a parent of the Deceased. The Beneficiary suffers from multiple illnesses. The ongoing and progressive effects of these illnesses restricted the Deceased's ability to perform everyday physical tasks and, as their health declined, they required ongoing care and support. The Beneficiary was in receipt of an invalidity pension. The Deceased lived with the Beneficiary for a period of time leading up to the Deceased's death. During this time the Deceased had changed their living address to the Beneficiary's property and provided ongoing care to the Beneficiary. Prior to their death, the Deceased was in the process of becoming the Beneficiary's legal carer. The Deceased had registered the Beneficiary's address as their legal address and intended to build a dwelling on the property. The Deceased provided the Beneficiary with ongoing financial and domestic support and personal care, including the following: ● contributing to living expenses such as household bills, car bills and building materials for the property; ● assisting the Beneficiary with routine domestic tasks such as the laundry, the household cleaning and the shopping; ● caring for the Beneficiary by accompanying them to and from doctor's appointments, assisting them with moving around the home and providing the Beneficiary with meals when incapacitated by their illness; ● assisting with the management and running the Beneficiary's property; and ● providing the Beneficiary with emotional support as they struggled to cope with their illnesses. The Beneficiary provided the Deceased with ongoing financial support and personal care including: ● contributing to living expenses such as household bills, car bills and building materials for the property; and ● providing emotional support to the Deceased in the aftermath of the breakdown of a relationship. The Beneficiary received a death benefits payment from the superannuation fund of which the Deceased was a member.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-195 | Income Tax Assessment Act 1997 Section 302-140 | Income Tax Assessment Act 1997 Section 302-145 | Income Tax Assessment Regulation 1997 regulation 302-200.01

Reasons for decision: Summary: An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiary 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. Therefore, in accordance with section 302-60 of the ITAA 1997, the benefit received by the Beneficiary from the Fund 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 receive 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 find definitions of asterisked terms, see the Dictionary, starting at 995-1. As the Deceased is a child of the Beneficiary aged over 18, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, 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 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 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, including (in this case): (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, 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. In this case, it is considered that the relationship between the Beneficiary and the Deceased was over and above that of a normal family 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 behaviour of the parties indicates that the relationship was likely to be permanent. The Deceased was in the process of becoming the Beneficiary's legal carer, and had planned to construct a dwelling on the Beneficiary's property; ● they provided each other with ongoing financial, domestic and emotional support; and ● there is nothing to indicate that the relationship was one of mere convenience. | Detailed Reasoning - Living together: The Deceased and the Beneficiary were living together at the time of the Deceased's death. | 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. The facts indicate that the Beneficiary and the Deceased shared all household bills, car bills and expenses associated with building materials for fixing damaged property. | Detailed Reasoning - Domestic support and personal care: Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attention 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. In this case, the Deceased provided domestic support and personal care to the Beneficiary on an ongoing basis. This consisted of the Deceased undertaking routine domestic tasks for the Beneficiary including the shopping, laundry and household cleaning as well as assisting with the management of a large property. The Deceased also provided the Beneficiary with personal care such as accompanying the Beneficiary to medical appointments, assisting the Beneficiary to move around the home and providing meals for the Beneficiary when the Beneficiary was incapacitated by their illness. Based on the above, the Beneficiary meets all the requirements of an interdependency relationship for the purposes of section 300-200 of the ITAA 1997. Therefore the Beneficiary is a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997. Consequently, it is not necessary to consider whether the Beneficiary is a 'dependant' of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997. As the Beneficiary is a death benefits dependant of the Deceased, the Benefit received from the Fund is not assessable and is not exempt income in accordance with section 302-60 of the ITAA 1997. That is, the Benefit is tax free.