Edited version of private ruling

Authorisation Number: 1011582625735

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Ruling

Subject: Superannuation death benefits - Interdependency relationship

Question:

Is the beneficiary of the deceased estate a death benefits dependant of the deceased in accordance with Subdivision 302-D of the Income tax Assessment Act 1997 (ITAA 1997)?

Advice/Answers:

Yes.

This ruling applies for the following period:

01 July 2009 to 30 June 2010

The scheme commenced on:

01 July 2009

Relevant facts and circumstances

The date of birth of the deceased is over 20 years ago.

You are the legal personal representative and executor of the deceased estate. You are a parent of the deceased and the sole beneficiary of the estate.

The deceased was diagnosed and treated for a medical condition.

The deceased was living with you in your home, (the family home). The deceased was working and contributing to the household expenses.

The deceased had moved back to the family home.

Later the deceased died from a medical condition. The deceased was over 20 years of age at the time of death.

A few years ago, the deceased first became increasingly unwell.

The severity of the illness meant that the deceased was bed-ridden for the majority of time from then onwards.

You reduced your work commitments in order to look after the deceased's needs.

As the deceased's condition deteriorated the deceased was admitted to a hospital.

Over the following few months the deceased undertook further medical treatment.

This was generally unsuccessful and the deceased returned to the family home to be under palliative care with you. It had been decided it would be would be more dignified for the deceased and the deceased would be happier staying at home than in a hospice or the like.

By this time the deceased was totally bed-ridden and although the deceased retained the majority of the deceased's mental faculties, it was impossible for the deceased to physically provide self care other than oral hygiene.

Alterations were made to your home to accommodate the deceased's needs.

Palliative care assistants attended to the deceased to assist you in turning the deceased and changing the bed linen and washing each day.

You continued working some hours per week and spent the balance of your time taking care of the deceased's daily needs until the deceased's death.

This care included, but was not limited to:

· Supervision of the deceased's daily medications

· The deceased's personal hygiene requirements

· Providing general emotional support

· Provision of all of the deceased's meals

· Arranging hospital/doctors visits, tests, scans et cetera as needed

· Attending to the deceased's banking, Centrelink and general administrative tasks.

The deceased contributed financial support through government entitlements (Centrelink).

The deceased provided emotional support, among other things, through the deceased's refusal to give in to the illness and in supporting you during your own issues with a medical illness.

At the time of the deceased's death you were both living together in the family home.

You were in receipt of a Carer's benefit from Centrelink to care for the deceased. A Centrelink statement has been provided confirming these fortnightly payments.

The deceased was a member of a superannuation fund (the Fund).

The Fund made a superannuation lump sum payment for a death benefit to the legal personal representative (LPR) of the estate of the deceased which included a tax free component and a taxable component: taxed element-free and untaxed element, with no tax withheld.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 302-10.

Income Tax Assessment Act 1997 Subsection 302-10(1).

Income Tax Assessment Act 1997 Subsection 302-10(2).

Income Tax Assessment Act 1997 Subsection 302-10(3).

Income Tax Assessment Act 1997 Section 302-60.

Income Tax Assessment Act 1997 Section 302-195.

Income Tax Assessment Act 1997 Subsection 302-195(1).

Income Tax Assessment Act 1997 Paragraph 302-195(1)(a).

Income Tax Assessment Act 1997 Paragraph 302-195(1)(b).

Income Tax Assessment Act 1997 Paragraph 302-195(1)(c).

Income Tax Assessment Act 1997 Paragraph 302-195(1)(d).

Income Tax Assessment Act 1997 Section 302-200.

Income Tax Assessment Act 1997 Subsection 302-200(1).

Income Tax Assessment Act 1997 Paragraph 302-200(1)(a).

Income Tax Assessment Act 1997 Paragraph 302-200(1)(b).

Income Tax Assessment Act 1997 Paragraph 302-200(1)(c).

Income Tax Assessment Act 1997 Paragraph 302-200(1)(d).

Income Tax Assessment Act 1997 Subsection 302-200(2).

Income Tax Assessment Act 1997 Paragraph 302-200(3)(a).

Income Tax Assessment Act 1997 Paragraph 302-200(3)(b).

Income Tax Assessment Act 1997 Section 307-5.

Income Tax Assessment Act 1997 Subsection 307-5(1).

Income Tax Assessment Act 1997 Subsection 307-5(4).

Income Tax Assessment Act 1997 Section 307-65.

Income Tax Assessment Act 1997 Section 307-70.

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1936 Section 27AAB.

Income Tax Assessment Act 1936 Subsection 101A(3).

Income Tax Assessment Regulations 1997 Regulation 302-200.01.

Income Tax Assessment Regulations 1997 Subregulation 302-200.01(1).

Income Tax Assessment Regulations 1997 Subregulation 302-200.01(2).

Income Tax Regulations 1936 Regulation 8.

Reasons for decision

Summary of decision

As the beneficiary of the deceased estate you are considered to have been in a interdependency relationship with the deceased prior to and at the date of death. Therefore you are a death benefits dependant of the deceased.

As the executor of the estate you can pay the full amount of the superannuation death benefit as a non assessable non exempt death benefit to yourself.

Detailed reasoning

Superannuation death benefits paid to a trustee of a deceased estate

For superannuation death benefits paid after 1 July 2007, subsection 995-1(1) of the ITAA 1997 states that a 'superannuation death benefit' has the meaning given by section 307-5 of the ITAA 1997.

A superannuation death benefit is defined in subsection 307-5(4) of the ITAA 1997 as being a payment described in Column 3 of the table in subsection 307-5(1) of the ITAA 1997. That is:

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

A superannuation death benefit must be paid as either:

· a superannuation lump sum; or

· a superannuation income stream.

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 deceased died and the benefit was paid to the estate from, the superannuation fund during the relevant income year because the deceased was a fund member. Hence the payment is a superannuation benefit within the meaning of Column 3 of Item 1 of the table in subsection 307-5(1) of the ITAA 1997 and a superannuation death benefit as defined in subsection 307-5(4) of the ITAA 1997.

As the superannuation death benefit is not a superannuation income stream, it is a superannuation lump sum within the meaning of section 307-65 of the ITAA 1997. As the payment was made after 1 July 2007, the provisions of Division 302 of the ITAA 1997apply to each benefit.

Application of section 302-10 of the ITAA 1997

Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the trustee (or executor) of the deceased estate. Subsection 302-10(1) of the ITAA 1997states:

This section applies to you if:

(a) you are the trustee of a deceased estate; and

(b) you receive a superannuation death benefit in your capacity as trustee.

As the payment was a superannuation death benefit received by you in your capacity as executor of the estate, section 302-10 of the ITAA 1997 will apply.

Application of subsections 302-10(2)and 302-10(3) of the ITAA 1997

Subsection 302-10(2) of the ITAA 1997 states:

To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

Under subsection 302-10(2) of the ITAA 1997 where a dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the trustee of the estate will be subject to tax on that part of the benefit paid or to be paid to the dependant as if it were paid to a dependant of the deceased. However the dependant is not presently entitled to this superannuation death benefit at this time and the benefit therefore does not form part of his or her assessable income.

Subsection 302-10(3) of the ITAA 1997 states:

To the extent that 1 or more beneficiaries of the estate who were not death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

Under subsection 302-10(3) of the ITAA 1997 where a non-dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the trustee will be subject to tax on that part of the benefit paid or to be paid to the non-dependant as if it were paid to a non-dependant of the deceased.

Similarly, the non-dependant is not presently entitled to this superannuation death benefit at this time and the benefit therefore does not form part of his or her assessable income.

Application of subsection 101A(3) of the ITAA 1936

Subsection 101A(3) of the Income Tax Assessment Act 1936 (ITAA 1936) states:

To avoid doubt, if in the year of income an amount is included in the assessable income of a deceased taxpayer under Division 82 or 302 of the Income Tax Assessment Act 1997 in respect of a payment received by the trustee of the estate of the deceased taxpayer, that amount shall be included in the assessable income of that year of income of the trust estate.

Subsection 101A(3) of the ITAA 1936 brings into the assessable income of the trust estate the amount of a superannuation death benefit received after the death of a taxpayer that is included in the assessable income of a deceased taxpayer under Division 302 of the ITAA 1997.

For the purposes of these taxation arrangements it is necessary to determine whether the beneficiary is a death benefits dependant of the deceased.

'Death Benefits Dependant' in relation to the Superannuation Death Benefit

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.

You are a parent of the deceased. Therefore, neither paragraph 302-195(1)(a) nor paragraph 302-195(1)(b) of the ITAA 1997 is relevant.

Rather death benefits dependency must be established in accordance with either paragraph 302-195(1)(c) of the ITAA 1997 (interdependency relationship), or paragraph 302-195(1)(d) of the ITAA 1997 (which would include financial dependency).

Interdependency relationship

For superannuation death benefits made after 30 June 2007, the term 'interdependency relationship' is defined in section 302-200 of the ITAA 1997, which has replaced former section 27AAB of the of the ITAA 1936.

Section 302-200 of the ITAA 1997 states:

(1) Subject to subsection (3), for the purposes of this Subdivision, 2 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.

(2) In addition, 2 person (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 there requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

(c) the reason they do not satisfy the other requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability;

(3) The regulations may specify:

(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.

The regulations referred to above is regulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997). This regulation, which replaced former regulation 8A of the Income Tax Regulations 1936 (ITR 1936), states:

(1) For paragraph 302-200(3)(a) of the Act, this regulation sets out matters that are to be taken into account in determining whether 2 persons have an interdependency relationship.

(2) The matters are:

(a) all of the circumstances of the relationship between the persons, including (where relevant):

(i) the duration of the relationship; and

(ii) whether or not a sexual relationship exists; and

(iii) the ownership, use and acquisition of property; and

(iv) the degree of mutual commitment to a shared life; and

(v) the care and support of children; and

(vi) the reputation and public aspects of the relationship; and

(vii) the degree of emotional support; and

(viii) the extent to which the relationship is one of mere convenience; and

(ix) any evidence suggesting that the parties intend the relationship to be permanent.

In order for a person to be able to claim that he/she has an interdependency relationship all of the conditions listed in subsection 302-200(1) of the ITAA 1997 must be satisfied. Alternatively, the conditions listed in subsection 302-200(2) of the ITAA 1997 must be met.

It is proposed to deal with each condition in turn.

Close personal relationship:

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

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 inserted former section 27AAB of the ITAA 1936. In discussing the meaning of close personal relationship the SEM 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.

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.

In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the ITR 1936, it stated that:

Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents would be expected to change significantly over time. It would be expected that the adult child would eventually move out and secure independence from their parents.

In this case, you are the parent of the deceased. Clearly a familial relationship existed prior to, and at the time of the deceased's death. You both provided support and assistance to each other, during your time together.

Given that the deceased was over 20 years old at the time of the deceased's death, you both had of course known each other for some time. The facts also show that the relationship between the deceased and yourself was a normal familial relationship for a person living with their parents.

Whilst you both may have intended to remain an important part of each others lives, it is reasonable to assume that the relationship would have changed significantly over time.

Normally, a relationship such as this would not meet the requirement under subsection 302-200(1) of the ITAA 1997. However, it is clear that the relationship which involved a demonstrated commitment to the emotional support and well-being between yourself and the deceased existed. The care and support provided for each other by yourself and the deceased is more than that provided in a usual familial relationship.

This is supported by the fact that the deceased had returned to live with you and provided support for you when you had medical issues. In addition, you provided care and support to the deceased when the deceased was undergoing medical treatment. You cared for the deceased when the deceased initially became bed-ridden and after the treatment when the deceased returned home rather than go to a hospice. You even had home alterations completed to accommodate the needs of the deceased.

The relationship between you and the deceased is more than one of mere convenience. Therefore, it is accepted that a close personal relationship existed between you and the deceased as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997.

Living together:

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that two persons live together.

The third edition of the Macquarie Dictionary (2000 multimedia edition) in its definition of 'live' lists:

24. live together, ... cohabit.

The Macquarie Dictionary defines 'cohabit' as:

2. to dwell or reside in company or in the same place.

The Macquarie Dictionary further defines 'dwell' as:

1. to abide as a permanent resident.

The facts show that the deceased was living with you in the family home and had not resided elsewhere for some time.

In this case, as the deceased passed away while living with you, it is considered that you both did live together.

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

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.

Unlike the situation prior to 1 July 2004 where financial dependency (substantial support) needs to be satisfied, 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.

It is clear from the facts presented that the deceased provided you with some financial support whilst living at the family home before the deceased passed away. However, you also provided the deceased with substantial assistance.

In this instance, both the existence and the level of financial assistance provided by both parties to each other is established and it is not necessary to look at the level of financial support provided, but merely to established that such support existed.

Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this instance.

Domestic support and personal care:

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, and 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:

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 term personal care is also discussed in the NSW Supreme Court case Dridi v. Fillmore [2001] NSWSC 319. Master Macready stated, in regards to the term 'domestic support and personal care', that:

The expression [personal care] seems to be directed to a different level of reality such as assistance with mobility, personal hygiene and physical comfort. Such activities obviously however will include an element of emotional support…

The facts show that you provided a substantial amount of domestic support and personal care during the deceased's illness. This included attendance at medical appointments and the hospital.

This significant level of palliative care provided by you was deemed sufficient for Centerlink to grant a carer's payment to you in order to devote time to the care for the deceased.

On the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

Conclusion:

From the facts presented, it is clear that all of the requirements which are set out in subsection 302-200(1) of the ITAA 1997 have been satisfied in this case. Therefore, it is considered that an interdependency relationship existed between you and the deceased. Consequently, you would be considered a death benefits dependant of the deceased.

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