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Ruling

Subject: Death benefit ETP - dependant

Is the lump sum received from your deceased parent's superannuation fund in the year ended 30 June 2006 included in assessable income?

Yes.

This ruling applies for the following period

30 June 2006

The scheme commenced on

1 July 2005

Relevant facts and circumstances

Your parent worked in the Commonwealth Public Service and was a member of the Public Sector Superannuation Scheme (PSS) administered by Comsuper.

Your parent died.

Just before your parent's death, your sister was living with her.

Over many years, although not always living together, your parent, sister and yourself had a very dependant relationship and supported each other emotionally and financially.

You were paid a death benefit eligible termination payment (ETP) from Comsuper (through your solicitor) representing your share of your parent's superannuation.

For the year ended 30 June 2004 your gross 'Salary or Wages' from your employment was over $60,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 27A(1)

Income Tax Assessment Act 1997 Section 27AAA

Income Tax Assessment Act 1997 Subsection 27AAB(1)

Reasons for decision

Summary

You do not meet the requirements of subsection 27A(1) or 27AAB(1) of the Income Tax Assessment Act 1997 (ITAA 1936) to be considered a 'dependent' of your parent. This means the death benefit ETP received from Comsuper is correctly included in your assessable income for the year ended 30 June 2006.

Detailed reasoning

As the death benefit eligible termination payment (ETP) was received in the financial year ended 30 June 2006, the applicable legislation for this payment is section 27AAA of the ITAA 1936.

Basically, for a death benefit ETP to be tax free in the hands of the recipient, the recipient must be a 'dependant' of the deceased. The term 'dependant' is defined in subsection 27A(1) of the ITAA 1936. This states a dependant of a person includes:

Clearly, you do not meet the definition of 'dependant' as set out in points one and two of the above paragraph. However, as this is an inclusive definition, the term is also interpreted according to its normal meaning.

Dictionary definitions of 'dependant' make reference to substantial financial support. The fact 'dependency' involves substantial financial support or maintenance is supported by passages in the Explanatory Memorandum to the Income Tax Assessment Amendment Bill (No.3) 1984 which introduced the term into the ITAA. The determination of financial dependency then becomes a question of fact.

You were employed for the full 2003-04 financial year earning over $60,000 in gross 'salary or wages'. This amount indicates you were not reliant on your parent for financial support and you were financially independent. Accordingly, you are not a 'dependant' under this part of the definition.

In accordance with point three from above, a person who had an 'interdependency relationship' with the deceased will meet the definition of 'dependant'. Subsection 27AAB(1) of the ITAA 1936 states:

In order for a person to be able to claim that he or she has an interdependency relationship, he or she must satisfy each of the four conditions in subsection 27AAB(1) of the ITAA 1936.

It is proposed to deal with each condition in turn.

The first requirement to be met states the two persons (whether or not related by family) must have a close personal relationship.

It is considered 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.

Indicators of a close personal relationship may include:

The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist.

It is not intended that people who share accommodation for convenience (for example 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.

In addition, it is not expected that adult children will be in an interdependency relationship with their parents. A close personal relationship as specified in paragraph 27AAB(1)(a) of the ITAA 1936 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. Also, the relationship between parents and their adult children would be expected to change significantly over time. It would be expected the adult child would eventually move out and secure independence from their parents.

From the facts of this case, it would appear you had secured independence from your parent. You were living and working in one location while your parent was living and working in another location. For these reasons, you do not satisfy the first requirement specified in paragraph 27AAB(1)(a) of the ITAA 1936.

To meet the definition of 'interdependency relationship' all four of the requirements of subsection 27AAB(1) of the ITAA 1936 must be satisfied. As you have not satisfied the first requirement there is no need to consider the remaining three requirements. However, it should be noted the second requirement (that is, living together) is also not satisfied for the reasons mentioned in the previous paragraph.

In conclusion, you do not meet the requirements of subsection 27A(1) or 27AAB(1) of the ITAA 1936 to be considered a 'dependent' of your parent. This means the death benefit ETP received from Comsuper is correctly included in your assessable income for the year ended 30 June 2006.

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