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Ruling

Subject: Superannuation death benefits dependency

Question

Were you in an interdependency relationship with the deceased in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Financial year ended 30 June 2011

Financial year ended 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The deceased (your adult child) died in 2010.

The deceased had superannuation funds which have paid lump sum death benefits.

You received a percentage of the lump sum death benefits.

The deceased had lived their entire life with you and your spouse.

You provided food and clothing for the deceased.

You and your spouse shopped for groceries and did laundry for the deceased.

The deceased had use of the family car.

The deceased was covered by a family health care policy which was paid for by you and your spouse.

When the deceased did not have a driver's license, you provided transportation to work and other commitments.

The deceased performed household chores such as cleaning gutters, replacing light bulbs, and heavy lifting.

The deceased cooked their own meals.

You provided emotional support to the deceased, and vice versa.

You cared for the deceased when the deceased was unwell. The deceased also provided some care for you when you were unwell. The support and care was more than that which would be provided by a mere friend or flatmate.

You and your spouse managed the deceased's financial affairs and assisted with organising payments for university studies.

The deceased's wages were paid into a bank account held on trust by your spouse. Regular amounts were drawn from this account to assist with paying for food, telephone, internet, clothing and other living expenses.

You are retired and receive an annual pension.

Relevant legislative provisions

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 Subsection 302-200(3).

Income Tax Assessment Act 1997 Section 302-145.

Income Tax Assessment Act 1997 Subsection 302-145(2).

Income Tax Assessment Act 1997 Subsection 302-145(3).

Income Tax Assessment Regulations 1997 Regulation 302-200.01.

Reasons for decision

Superannuation death benefits

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 or not and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as:

(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.

Interdependency relationship

Section 302-200 of the ITAA 1997 states:

(1) Subject to subsection (3), 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.

(2) In addition, two 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 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 two persons have an interdependency relationship under this section; and

(b) circumstances in which two 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, 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 two 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; and

(b) 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.

In order for a taxpayer 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.

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 former regulation 8A of the ITR 1936, it was stated that:

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

Normally, a relationship between the parents and their children would not meet the requirement under subsection 302-200(1) of the ITAA 1997 because there would not be a mutual commitment to a shared life between the two. This is because 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.

The facts show that a close familial relationship existed between you and the deceased prior to, and at the time of, the deceased's death. This, however, does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation.

The facts show that your relationship with the deceased was a normal familial relationship for a young person living with their parents. The deceased was working and earning income. Due to the deceased's spending habits, your spouse managed the deceased's financial affairs, using the deceased's wages to pay for living expenses. You have provided a statutory declaration from a family friend stating that they believed the deceased had no plans to move out.

Whilst both you and the deceased may have intended to remain an important part of each other's lives, it is reasonable to assume that the relationship would have changed significantly over time. Although there was a close relationship, there is nothing decisively different from the situation you were in with the deceased and one where any young adult child may be living at home.

Therefore, it is considered that the relationship was one that a person would expect between a parent and their child, but it was not a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not 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 persons live together.

The facts show that you and the deceased were residing in the family home prior to and at the time of death.

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 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 (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.

Based on the facts presented the deceased contributed to the household expenses during the course of residing in the family home. However, the beneficiaries did provide some financial support in the form of free accommodation and use of the family car.

In this instance, the existence of financial assistance provided to the deceased is established and it is not necessary to look at the level of financial support provided, but merely to establish 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 discussed in similar terms in the case Dridi v. Fillmore [2001] NSWSC 319 (Dridi v. Fillmore). Master Macready stated, in regards to the term 'personal care', that:

108. In the present case there is no evidence, which would suggest that there was any personal care... The expression 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…

109. Accordingly, I am satisfied that there was no close personal relationship between the parties...

You and your spouse provided a certain amount of domestic care including washing of clothes and grocery shopping. Care and assistance was provided to the deceased if the deceased was ill, and vice versa. You have also provided evidence that the deceased's finances were managed through a trust account in your spouse's name.

There is an expectation, in ordinary circumstances, that parents would provide some amount of domestic support to their child. The facts you have provided are only indicative of normal domestic support that a parent and a child would provide each other in a family household.

There was no evidence provided that personal care of the type described in the SEM or in Dridi v. Fillmore was provided. In this respect it is noted that neither you nor the deceased had an illness or injury that required such care or emotional support.

Paragraph 302-200(1)(d) of the ITAA 1997 specifies that domestic support and personal care is to be provided by one or both parties to the relationship to the other. In this case, only domestic support has been provided.

On the facts provided, it is considered that the requirement has not been satisfied in this instance.

Application of subsection 302-200(2)

Essentially, this subsection ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one of both of them, they do not satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997, they will still be considered to have an interdependency relationship.

As you and the deceased lived together, this subsection does not apply.

Based on the facts of the case, it is clear that all of the requirements which are set out in subsection 302-200(1) of the ITAA 1997 have not been satisfied in this case. Therefore, it is considered that you and the deceased were not in an interdependency relationship.

Financial dependency

As it is considered that an interdependency relationship did not exist, the issue of whether you were financially dependant upon the deceased will be examined.

For you to be financially dependant upon the deceased it must be demonstrated that you were actually dependent upon the deceased for maintenance and support. It must be established that the level of financial support provided was substantial in that the deceased contributed all or a major amount of your financial support.

You receive an income and it is evident from the facts provided that you were not financially dependent on the deceased.

In conclusion, as you were not in an interdependency relationship with or financially dependant on the deceased, you are not a death benefits dependant under subsection 302-195(1) of the ITAA 1997.

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