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Ruling

Subject: Interdependency relationship

Question

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

Answer

No.

This ruling applies for the following periods:

For the year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are the parent of the deceased. The deceased died unexpectedly in a recent year.

You supplied comprehensive details of your personal and working relationships with your child.

You advised us of your taxable income for the 2009-10 and 2010-11 income years.

You received two superannuation lump sums during the 2011-12 income year from the trustee of the deceased estate in respect of the deceased's superannuation entitlements in two superannuation funds

Prior to receiving the lump sums, you completed statements indicating you were not financially dependent or interdependent on the deceased at the time of death.

However, you have subsequently advised that you were affected by the deceased's death at the time of signing the statements and had no understanding of the outcome that would result from your actions.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27AAB.

Income Tax Assessment Act 1997 Ch3-Pt3-30-Div302.

Income Tax Assessment Act 1997 Section 302-195.

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 Regulations 1936 Regulation 8A.

Reasons for decision

Summary

You were not in an interdependency relationship with the deceased prior to or at the time of their death as defined under section 302-200 of the ITAA 1997, therefore, you are not a death benefits dependant of the deceased. Consequently, the superannuation death benefits are assessable and subject to taxation.

Detailed reasoning

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation arrangements that apply to the payment of superannuation death benefits.

These arrangements depend on whether the person who 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.

Where a person receives a lump sum superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income (section 302-60).

Where a person receives a lump sum superannuation death benefit and that person was a non-dependant of the deceased, then the taxable component of the lump sum is assessable income (section 302-145).

Section 302-195 of the ITAA 1997 defines 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 you cannot qualify under paragraphs (a), (b) or (d) of the above definition, paragraph (c) section 302-195 needs to be examined.

Interdependency relationship

Paragraph 302-195(c) of the definition of death benefits dependant in the ITAA 1997 refers to an interdependency relationship.

Under subsection 302-200(1) 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.

Section 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.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2), of the ITAA 1997 must be satisfied for a person to be in an interdependency relationship with another person.

To assist in determining whether 2 persons have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 states that the regulations may specify the matters that are, or are not, to be taken into account.

In addition, paragraph 302-200(3)(b) states that the regulations may specify the circumstances in which 2 persons have, or do not have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

It is proposed to deal with each condition of subsection 302-200(1) of the ITAA 1997 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) Bill 2004 which inserted former section 27AAB of the ITAA 1936. This section dealt with interdependency relationships prior to 1 July 2007. 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 (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 the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted former regulation 8A of 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.

However, the relationship between parents and their adult children 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 particular case, you and the deceased were a parent and adult child who obviously had a close familial relationship. You provided emotional support to each other particularly since your divorce from the deceased's parent in 200X and during the time when the deceased was unemployed.

While you both 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.

Whilst it is accepted that the deceased resided with you on the family farm and performed daily tasks to ensure the farm remained viable, the situation is such that there is nothing decisively different from the situation where a young adult child may be living at home while working.

In this case, it is considered that the relationship between yourself and the deceased was one that a person would expect between a parent and their adult child. It was not a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997 and therefore, this requirement has not been satisfied.

Cohabitation:

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 the deceased resided on the family farm with you out of necessity and they were required to perform the daily tasks on the farm to ensure it remained viable. Therefore, they were unable to choose to reside with the other parent on a full-time basis at their residence.

Whilst this is a matter of fact, the deceased also chose to stay with the other parent on a regular basis to provide financial, domestic and physical support because of their ill-health.

The deceased resided with the other parent on a regular weekly basis during the two years prior to the deceased's death. During a regular week, the deceased would stay at the other parents residence for three to four nights. Sometimes this increased to four to five nights each week as the deceased prefer to stay at their residence which was situated closer to the deceased's place of employment.

Therefore the requirement specified in paragraph 302-200(1)(b) has not 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.

Financial support under paragraph 302-200(1)(c) 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 contributed an equal share to the household expenses and assisted with the household chores while residing with you on the family farm.

However, this is no different to the normal expectation that two persons sharing a mutual living arrangement would also share equally in household expenses such as groceries, food items and utilities.

Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been not 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 the New South Wales Supreme Court in 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 the deceased provided emotional support to both parents following from the divorce in 200X. The deceased spent time with both parents.

You also provided the deceased with emotional support during a time of unemployment and depression. However this mutual support is no more than what would be expected between a parent and an adult child in a close familial relationship.

Consistent both with the ordinary meaning of the words 'domestic support and personal care' in the context of paragraph 302-200(1)(d) of the ITAA 1997, and with the meaning of these words as discussed in paragraph 2.16 of the SEM, it is considered that you and the deceased did not provide each other with significant 'domestic support and personal care' in the context of those requirements.

On the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied in this instance.

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 not been satisfied in this case. Consequently it is considered that you and the deceased did not have an interdependency relationship prior to or at the time of death.

Therefore you are not considered to be a dependant of the deceased within the definition of death benefits dependant in section 302-195 of the ITAA 1997.

The taxation treatment of a superannuation death benefit paid to a trustee of a deceased estate

A superannuation death benefit may be received by a person acting as a trustee of a deceased estate. The taxation arrangements that apply to superannuation death benefits are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

Where a person who is not a death benefits dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent (section 302-10 of the ITAA 1997).

In the present case, as you are not considered to be a death benefits dependant of the deceased, the superannuation death benefits are assessable and subject to taxation.

From the information provided, as you have already received the distribution of the superannuation death benefits from the trustee of the deceased estate (the Estate), the trustee will need to ensure the relevant income tax return of the Estate reflects the correct taxation treatment of the superannuation death benefits that was distributed to you as a non-dependant of the deceased.

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