Private ruling: Superannuation death benefits - interdependency
Date of advice: 8 January 2018
Published: May 2018
Ruling period: Income year ended 30 June 2014 | Income year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Was the Beneficiary a death benefits dependant of the Deceased as defined in section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: The Deceased died during the 2013-14 income year as a result of a serious disease. Late in the 2013-14 income year a superannuation lump sum death benefit (Benefit 1) which comprised wholly of a taxable component taxed element was paid to the Estate of the Deceased. In the 2014-15 income year another superannuation fund paid a superannuation death benefit (Benefit 2) to the Trustee of the Deceased Estate. The payment comprised of a Taxable component – (taxed element) and a Tax free component. The Beneficiary is a relative of the Deceased and the executor of the Deceased’s Will (the Will). The Will, which was signed by the Deceased earlier in the 2013-14 income year shows the Beneficiary’s residence (Address X) as being at a location different to that of the Deceased. Between the 2004-05 and 2009-10 income years the Beneficiary and the Deceased resided together at Address Y. From the 2009-10 income year until the date of death, the Deceased lived at another address (Address Z) and resided independently there until one month prior to death. From the 2009-10 income year until one month prior to the Deceased’s death in the 2013-14 income year, the Beneficiary resided at Address X. During this period the Beneficiary visited the Deceased twice daily to provide the Deceased with assistance. A month prior to the Deceased’s death the Beneficiary moved into the Deceased’s home at Address Z to care for the Deceased on a full-time basis. After the Deceased’s death, the Beneficiary returned to Address X. In the years leading up to death, the Deceased was disabled. The Deceased could not walk or care for themselves. You state that the Beneficiary provided the Deceased with ongoing domestic support, emotional and financial support including: ● Household chores ● Shopping ● Cleaning ● Laundry ● Assistance with showering ● Emotional comfort ● Paying for food and living expenses At the time of death, the Deceased was receiving WorkCover payments. You state that the Beneficiary provided all financial support with funds obtained from the Beneficiary’s employment. The Beneficiary did not receive a Carer’s pension. No joint assets were held between the Beneficiary and the Deceased.

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 | Income Tax Assessment Regulations 1997 Regulation 302 - 200.02

Reasons for decision: Summary: An interdependency relationship as defined under section 302-200 of the ITAA 1997 did not exist between the Deceased and the Beneficiary prior to or at the time of the Deceased’s death, therefore, the Beneficiary was not a death benefits dependant of the Deceased. Consequently, the superannuation death benefits are assessable and subject to taxation. | Detailed Reasoning - Detailed reasoning: Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person who receives the superannuation death benefit is a dependant of the deceased or not and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit. Where a person receives a lump sum superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income (section 302-60). Where a person receives a lump sum superannuation death benefit and that person was a non-dependant of the deceased, then the taxable component of the lump sum is assessable income (section 302-145). 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. As the Beneficiary is not a spouse or child of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable in this case. Paragraph 302-195(d) of the ITAA 1997 requires that the relevant person [the Beneficiary] be a ‘dependant’ of the Deceased. The definition of death benefits dependant in paragraph 302-195(1)(d) does not stipulate the nature or degree of dependency, but it is generally accepted that this refers to financial dependence. However, in this case, it is argued that it was the Beneficiary who provided financial support to the Deceased. Accordingly, paragraph 302-195(d) is not satisfied. Consequently, the Beneficiary must satisfy paragraph 302-195(1)(c) of the ITAA 1997. That is, the Beneficiary must show that they were in an interdependency relationship with the Deceased just before the Deceased died. | Detailed Reasoning - Interdependency relationship: Section 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 in determining whether two persons have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997. In accordance with regulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) matters that are to be taken into account in determining whether two persons have an interdependency relationship are all of the circumstances of the relationship between the persons, including (as far as relevant): ● the duration of the relationship; and ● the ownership, use and acquisition of property; and ● the degree of mutual commitment to a shared life; and ● the degree of emotional support; and ● the extent to which the relationship is one of mere convenience Regulation 302-200.02 of the ITAR 1997 sets out the circumstances in which two persons have, or do not have, an interdependency relationship under section 302-200 of the ITAA 1997 and provides that interdependency relationship exists where: ● two persons satisfy the requirements of paragraphs 302-200(1)(a) to (c) and one, or each of them, provides the other with support and care of a type and quality normally provided in a close personal relationship rather than by a friend or flatmate (for example, significant care provided for the other person when they are unwell or suffering emotionally). C lose personal relationship’ The expression ‘close personal relationship’ is not defined in the ITAA 1997 or ITAR 1997. 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 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 this particular case, a close familial relationship existed between the Beneficiary and the Deceased as demonstrated through the ongoing financial, personal and emotional support provided by the Beneficiary to the Deceased during the years. It is noted that the Beneficiary had cohabitated with the Deceased from the 2004-05 to 2009-10 income years after which the Beneficiary resumed residence at Address X. Further, the facts show that from the 2009-10 income year until one month before death, the Deceased continued to live alone at Address Z and the Beneficiary continued to reside at Address X. Though the facts show there was a strong bond between the Beneficiary and the Deceased it is considered the type of close personal relationship as envisaged by the legislation did not exist between the Deceased and the Beneficiary. It is considered that the relationship in this case was not one of a mutual commitment to a shared life but one of caring family members who led lives independent each of other as indicated by: ● the Deceased and Beneficiary having resided at separate residences for approximately the last four and a half years (excluding the month prior to the Deceased’s death) ● the Deceased and Beneficiary held no joint assets ● the Beneficiary was not in receipt of a Carer’s pension or allowance. Whilst it is noted that the Beneficiary did stay with the Deceased for the last month of life, when care was required on a full-time basis, it is considered that this does not in itself indicate an intention to take up residence indefinitely or commit to a shared life. Rather, it is an action one would normally in cases where a family member requires care due to serious illness or is near death. In view of the above, it is considered that the Beneficiary and the Deceased did not have a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997. | Detailed Reasoning - Living together:: The second requirement for an interdependency relationship is specified in paragraph 302-200(1)(b) of the ITAA 1997, and requires that two parties live together. The facts show that the Beneficiary and the Deceased resided at the Deceased’s residence, Address Z, at the time of the Deceased’s death. 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) of the ITAA 1997 is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other. According to the evidence provided, it is accepted that the Beneficiary provided the Deceased with financial support during the course of their relationship, including paying for food and other living expenses. 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:: 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 Beneficiary clearly provided domestic support and personal care to the Deceased on an ongoing basis. The Beneficiary attended to general housekeeping, laundry and shopping. In addition the Beneficiary also assisted the Deceased with mobility and bathing, thereby attending to the physical and emotional support of the Deceased. Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance. As the Beneficiary did satisfy the close personal relationship requirement in paragraph 302-200(1)(a) of the ITAA 1997 it follows that the Beneficiary is not a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997. | Detailed Reasoning - The taxation treatment of a superannuation death benefit paid to a trustee of a deceased estate: A superannuation death benefit may be received by a person acting as a trustee of a deceased estate. The taxation arrangements that apply to superannuation death benefits are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate. Where a person who is not a death benefits dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent (section 302-10 of the ITAA 1997). In the present case, as the Beneficiary is not considered to be a death benefits dependant of the deceased, the superannuation death benefits are assessable and subject to taxation. The Trustee of the deceased estate (the Estate) will need to ensure the relevant income tax returns of the Estate reflect the correct taxation treatment of the superannuation death benefits that are or have been distributed to the Beneficiary as a non-dependant of the Deceased.