Senate

Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 Expanding the definition of dependant

Outline of chapter

2.1 Amendments 1 and 5 add Schedule 2 to the bill to expand the definition of 'dependant' in relation to the receipt and taxation of superannuation death benefits. The relevant definitions of dependant in the Income Tax Assessment Act 1936 (ITAA 1936), the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Retirement Savings Accounts Act 1997 (RSA Act) will be amended to include 'interdependency relationships'.

2.2 The definition of dependant in the ITAA 1936 has also been redrafted to improve readability.

Context of amendments

2.3 A trustee of a superannuation fund can pay a deceased member's benefits to either or both of the member's legal personal representative and/or one or more of the member's dependants. (If after making reasonable enquiries the trustee has not been able to locate a legal personal representative or dependant of the member, the trustee can pay the member's benefits to another individual.)

2.4 A death benefit received by a dependant, either directly from the trustee of the fund or via the deceased member's legal personal representative, is tax free up to the pension reasonable benefit limit of the member.

2.5 Prior to this amendment the definition of dependant included a spouse (and former spouse in the ITAA 1936) and child (under the age of 18 in the ITAA 1936) and any other person dependant on the person.

Summary of new law

2.6 The meaning of dependant will encompass a broader range of relationships by including interdependency relationships in the definition of dependant in all three Acts.

2.7 Both individuals involved in an interdependency relationship are dependants of the other and are eligible to receive their deceased partner's superannuation benefits tax free up to the deceased's pension reasonable benefit limit.

Comparison of key features of new law and current law

Detailed explanation of new law

Item 1

2.8 This item repeals the definition of dependant in subsection 27A(1) of the ITAA 1936 and replaces it with a definition of dependant that includes the term interdependency relationship in paragraph (b) of the definition.

2.9 The new definition has otherwise been redrafted to improve readability. This is a stylistic change and does not of itself change the meaning of the definition.

Item 2

2.10 Interdependency relationship is defined as having the meaning given by section 27AAB.

Item 3

2.11 Subsection 27AAB(1) provides that two persons have an interdependency relationship if they: have a close personal relationship; live together; one or each of them provides the other with financial support; and one or each of them provides the other with domestic support and personal care. If these conditions are met, then there is an interdependency relationship and each person is a dependant of the other.

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:

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the duration of the relationship;

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the degree of mutual commitment to a shared life;

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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.

2.16 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 activities. Personal care services may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

2.17 Subsection 27AAB(2) provides that if a close personal relationship exists but the other requirements of an interdependency relationship under subsection 27AAB(1) are not satisfied because of a physical, intellectual or psychiatric disability, then an interdependency relationship does exist.

2.18 The extent to which a person requires assistance with the activities of daily living would be an indication of the level of a person's disability.

2.19 Subsection 27AAB(3) prescribes that regulations may be made. The regulations may specify matters that are, or are not, to be taken into account in determining whether two people have an interdependency relationship. The regulations may also specify circumstances in which two people have, or do not have, an interdependency relationship.

2.20 The regulation making power is required in that it will allow more detailed guidance to be provided on the interpretation and application of the provisions. This will assist in providing a more flexible approach to dealing with a complex matter where all the circumstances simply cannot be anticipated.

Item 4

2.21 Interdependency relationship is defined in the RSA Act as having the meaning given by section 20A.

Item 5

2.22 This item inserts the term interdependency relationship into the definition of dependant in subsection 20(1) of the RSA Act.

Item 6

2.23 Section 20A of the RSA Act gives the meaning of interdependency relationship. This is identical to the meaning of interdependency relationship in section 27AAB inserted into the ITAA 1936.

Item 7

2.24 This item inserts the term interdependency relationship into the definition of dependant in subsection 10(1) of the SIS Act.

Item 8

2.25 Interdependency relationship is defined as having the meaning given by new section 10A of the SIS Act.

Item 9

2.26 Section 10A of the SIS Act gives the meaning of interdependency relationship. This is identical to the meaning of interdependency relationship in section 27AAB inserted into the ITAA 1936.

Application and transitional provisions

Item 10

2.27 The new definition of dependant in the ITAA 1936 applies to eligible termination payments made after Royal Assent.

2.28 The new definition of dependant in the SIS Act and the RSA Act applies to things done on or after Royal Assent. For example, if a trustee had already distributed a deceased member's benefits prior to Royal Assent, then a person who was not a dependant prior to Royal Assent is not a dependant for the purposes of the distribution of the deceased's benefits.