Edited version of private advice

Authorisation Number: 1052212242321

Date of advice: 26 February 2024

Ruling

Subject: Superannuation death benefit - interdependency

Question

Was the Beneficiary a death benefits dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

xx/xx 2023

Relevant facts and circumstances

The Beneficiary is the parent of the Deceased.

The Deceased passed away on xx/xx 20xx.

The Deceased's estate received a death benefit payment from the Deceased's superannuation fund on xx/xx 20xx.

The Beneficiary is the legal personal representative, and the only nominated beneficiary, of the Estate.

The Beneficiary applied for a private ruling on xx/xx 20xx.

In support of the application, the Beneficiary provided the documentation listed below:

•         A statement from the Beneficiary regarding the nature of the relationship between the Deceased and the Beneficiary.

•         Copy of death certificate for the Deceased.

•         Copies of the Beneficiary's License, Medicare and Pension card. The Pension card shows her address.

•         Copy of the Deceased's NDIS profile outlining her goals, support system, disability plan and the nature of the relationship between the Deceased and the Beneficiary.

•         Statutory Declaration from the Deceased's daughter regarding the nature of the relationship between the Deceased and the Beneficiary.

•         Letter from the Deceased's doctor, confirming the Beneficiary and the Deceased lived together for some years prior to the Deceased's passing. The letter also states that it was the doctor's understanding that the Beneficiary assisted the Deceased with domestic duties and personal care when she (the Deceased) was unwell.

•         Letter from the local pharmacy regarding the nature of the relationship between the Deceased and the Beneficiary.

•         Statement from a community Elder regarding the nature of the relationship between the Deceased and the Beneficiary.

•         Letter and PAYG Payment Summary - superannuation lump sum, from the Deceased's superannuation fund, confirming the payment of the Deceased's superannuation entitlements.

•         Health Discharge Summaries from 2015, 2019 and 2022.

•         Community health summaries from 2019 and 2020.

•         Bank statements for the Deceased, covering the period 21 May to 21 November 2022.

•         Letter from the local pharmacy confirming that the Beneficiary on occasion made cash payments for the Deceased's non-subsidised medication.

In support of the application, the Beneficiary made the following statements:

•         The Deceased was unwell for a couple of years with a formal diagnosis from 20xx. She was diagnosed with medical conditions.

•         The Deceased suffered from seizures, anxiety and depression and used alcohol as a means of coping which became substance abuse over time. As a result, the Deceased was left with physical and intellectual limitations, requiring around-the-clock care from the Beneficiary.

•         The Deceased did not have capacity to complete day-to day-tasks, including personal and domestic care. The Deceased had to rely on others and was heavily dependent to move around physically, given she was not stable on her feet and would tire easily.

•         The Beneficiary was not financially dependent on the Deceased as the Beneficiary received sufficient financial support through her age pension benefit, which was $xx,xxx for the 2023 income year.

•         The Deceased was financially dependent on the Beneficiary to an extent, although the Deceased received financial support through her disability support pension benefit, which was $xx,xxx for the 2022 income year. She previously received New Start and Jobseeker pensions.

•         The Beneficiary cared for the Deceased from 20xx to xx/xx 20xx when the Deceased passed away, by providing:

o   financial support, including paying for their general living expenses of food, clothes, medical expenses, providing a home for the Deceased to live in with very minimal rent to pay and very minimal money contributed towards groceries and utilities.

o   domestic support, including attending to all household chores including the washing, mopping, sweeping, ironing, and cleaning as the Deceased would tire easily, cooking healthy meals three times a day and taking the Deceased for errands.

o   personal care and assistance, including organising and rescheduling medical appointments, and appointments with other services such as Centrelink and NDIS, completing paper work for these appointments, organising medical tests and handling test results, ensuring all services the Deceased utilised (home nurses, social workers) were available for home calls, collecting medication and other items the Deceased required, assisting with daily tasks of showering, washing, dressing, and cleaning up after accidents.

o   emotional support, including providing moral support, being there for the Deceased, and consoling them when accidents happened.

The Beneficiary lived with the Deceased from 20xx up until 19 January 20xx, when the Deceased passed away.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-145

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02

Reasons for decision

Summary

An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiary, as all of the requirements set out in the legislation have been satisfied in this case.

Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiary is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

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 that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as:

a.    A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream, as defined in section 307-70 of the ITAA 1997.

The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 of the ITAA 1997.

Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997. Subsection 302-195(1) of the ITAA 1997 defines a 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 the parent of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable.

The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

The Beneficiary was not financially dependent on the Deceased person and therefore, paragraph 302-195(1)(d) of the ITAA 1997 is not applicable.

To meet the definition of a death benefits dependant, the Beneficiary must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Under subsection 302-200(1) of the ITAA 1997, an interdependency relationship is defined as:

Two persons (whether or not related by family) have an interdependency relationship under this section 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(2) of the ITAA 1997 states:

In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:

a.    they have a close personal relationship; and

b.    they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

c.     the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.

To assist in determining whether two people have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 provides that the regulations may specify the matters that are or are not to be taken into account.

Subsection 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account. These matters are all of the circumstances of the relationship between the persons, including (where relevant):

a.    the duration of the relationship

b.    the ownership, use and acquisition of property

c.     the degree of mutual commitment to a shared life

d.    the care and support of children

e.    the reputation and public aspects of the relationship

f.      the degree of emotional support

g.    the extent to which the relationship is one of mere convenience

h.    any evidence that the parties intend the relationship to be permanent; and

i.      the existence of a statutory declaration signed by one of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was in an interdependency relationship with the other person.

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two people have, or do not have an interdependency relationship.

Section 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

Subsection 302-200.02(2) of the ITAR 2021 provides that an interdependency relationship exists between two people where:

a.    they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997; and

b.    one or both 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 mere friend or flatmate, for example one person provides significant care for the other person when they are unwell or suffering emotionally.

Subsections 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

a.    they have a close personal relationship; and

b.    they do not satisfy one or more of the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

                                  i.    they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

                                 ii.    one (or both) of them suffers from a disability.

Subsection 302-200.02(5) of the ITAR 2021 states that two persons do not have an interdependency relationship if one of them provides domestic support and personal care to the other:

a.    under an employment contract or a contract for services; or

b.    on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively, subsection 302-200(2) of the ITAA 1997, or one of the tests in section 302-200.02 of the ITAR 2021 must be satisfied for a person to be in an interdependency relationship with another person. We deal with each condition in turn, to establish if an interdependency relationship existed.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that the two persons (whether or not related by family) must have a close personal relationship.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and section 302-200.02 of the ITAR 2021.

A detailed explanation of subsection 302-200(1) of the ITAA 1997 is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004, which states:

a.    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.

b.    Indicators of a close personal relationship may include:

                                  i.    the duration of the relationship;

                                 ii.    the degree of mutual commitment to a shared life;

                                iii.    the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged).

The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist.

People who share accommodation for convenience (such as flatmates) or people who provide care as part of an employment relationship or on behalf of a charity are not intended to fall within the definition of a close personal relationship. The matters that indicate the Beneficiary and the Deceased had a close personal relationship before the Deceased's death are:

a.    The Beneficiary provided constant and significant care and support to the Deceased throughout her illness. The Beneficiary provided the Deceased with intensive and ongoing emotional, domestic and financial support. This level of care exceeded the care and comfort that would usually be provided by a parent to an adult child. They had an exceptionally close relationship.

b.    The Beneficiary and the Deceased had lived together for several years. The Deceased continued to be significantly dependent on the Beneficiary for ongoing care and support, which she would have most likely required for the remainder of her life. The Deceased had no intention to ever move out of the Beneficiary's home. They would have continued to live together if the Deceased were still alive.

c.     The Deceased relied on the Beneficiary for menial day-to-day tasks such as assisting with personal hygiene, showering, preparing food, chores, and organising appointments (with medical teams, Centrelink, NDIS, support workers and other support networks). Without the Beneficiary's support, the Deceased would not have been able to manage all that was required to be done with household chores, remembering to eat, and keeping up with medications.

d.    The Beneficiary would ensure the Deceased was emotionally stable by ensuring she had a routine with constant breaks from her personal and medical appointments, such as watching movies at lunch.

e.    The Deceased's medical team and Elders in the community saw the constant support the Beneficiary provided the Deceased and often expressed how well the Deceased was looked after.

Therefore, a close personal relationship existed between the Beneficiary and the Deceased, and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states that two interdependent persons (whether or not related by family) live together.

The term 'live' is not defined in the ITAA 1997 or accompanying regulations. According to the Macquarie Dictionary, the term 'live' means to dwell or reside. The term 'reside' is defined as the action of dwelling in a particular place permanently or for a considerable time. In the context of paragraph 302-200(1)(b) of the ITAA 1997, the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together.

The Beneficiary states that the Deceased moved back in with her in 2014.

A Health Discharge Summary from September 2015 lists the Deceased's address at that time as Address A. All later correspondence provided, from March 2019 onwards (and including the Death Certificate) lists the Deceased's address as Address B.

This corresponds with the Deceased's address details in Tax Office records, which record Address B from xx/xx 2019.

Although Tax Office records show the Beneficiary's address as Address A to the current date, the Beneficiary's pension card shows her address, on a card expiring xx/xx 2023, as Address B. The Beneficiary's correspondence of xx/xx 2023, from the Deceased's superannuation fund, also shows Address B, as does the Death Certificate.

The Deceased's application for an NDIS pension (undated) states 'I live with my mum.'

A letter from the Deceased's doctor, also states that the Beneficiary and the Deceased lived together for 'the past few years' prior to the Deceased's passing.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this case.

Financial support

The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, which 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.

The Beneficiary has stated that:

a.    Prior to the Deceased commencing receipt of the disability pension in xx/xx 2021, the Beneficiary took care of the majority of the Deceased's expenses.

b.    After the Deceased began receiving her pension, she continued to be financially dependent on the Beneficiary to pay for the majority of her everyday expenses, including food, and medical items.

c.     The Beneficiary provided the Deceased with cash for the above expenses, as well as with accommodation and meals, with the Deceased paying minimal rent, and contributing only $100-$200 fortnightly towards groceries and utilities.

While no evidence has been provided to support the above statements, the pharmacist at the Deceased's local pharmacy has confirmed that the Beneficiary, on occasion, when necessary, paid in cash for non-subsidised medication for the Deceased.

Therefore, the Beneficiary provided the Deceased with a degree of financial support during the final years of the Deceased's life.

Consequently, paragraph 302-200(1)(c) has been satisfied.

Domestic support and personal care

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, which states that one or each of these two persons provides the other with domestic support and personal care. In discussing the meaning of domestic support and personal care, paragraph 2.16 of the SEM states:

a.    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.

The Beneficiary has stated that they provided the Deceased with domestic support in the form of preparing food, washing, mopping, sweeping and ironing.

The Beneficiary has stated that they provided personal care in the form of assisting with personal hygiene (showering, cleaning up after accidents), as well as dressing, providing reminders to take medication, and managing all appointments for the Deceased.

In addition, the Beneficiary has stated that they provided the Deceased with emotional and moral support.

It is clear from the documentation provided, including particularly the Health Discharge Summaries, that the Deceased had significant ongoing health problems which would have necessitated assistance with both domestic and personal tasks, particularly due to a reduction in mobility.

In addition, statements have been provided from both the Deceased's doctor and pharmacist, in regards to the level of care and support.

The letter from the pharmacist at the Deceased's local pharmacy confirms that the Beneficiary was the main carer and support person for the Deceased.

Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied.

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 have been satisfied, the Deceased and Beneficiary were in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary was in an interdependency relationship with the Deceased, the Beneficiary is a death benefits dependant as defined under section 302-195 of the ITAA 1997.

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