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Ruling

Subject: Superannuation death benefit - dependency

Question 1

Did an interdependency relationship exist between your client (the beneficiary) and their child (the deceased), in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

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

Your client, received a superannuation lump sum death benefit in the 2012 financial year, as a non-dependant.

Your client's child, (the deceased), died overseas.

The deceased was single, who had never married or had any children.

The deceased lived at home with your client and that was their permanent address for at least the last six years.

All of the deceased's personal belongings were at their parent's home.

The deceased's nature of employment often required working away for three weeks and returning home for one week.

When required, the deceased would take emergency leave to return home and help look after your client if ill, as well as take them to medical appointments. The deceased also provided emotional support to your client, especially when needing guidance and support to deal with family issues.

There were also many times when your client would provide physical care and emotional support to the deceased, especially during periods of illness.

The deceased also provided financial assistance to your client while residing there, in the form of purchasing a car for your client and contributing towards phone, electricity and grocery costs, as well as paying for an operation and an overseas trip.

There were several periods in the 2008-09, 2009-10 and 2010-11 financial years in which the deceased was unemployed.

During periods of unemployment, the deceased lived at home with your client.

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 1997 Regulation 8A

Income Tax Regulations 1997 Regulation 302-200.01(2).

Reasons for decision

Detailed reasoning

Superannuation death benefits

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

Where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income.

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 your client does not satisfy paragraphs (a) or (b) of the above definition, paragraphs (c) and (d) of section 302-195 need to be considered.

Interdependency relationship

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

The term 'interdependency relationship' is defined in section 302-200 of the ITAA 1997. Section 302-200 of the ITAA 1997 states:

(1) 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.

(2) 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.

(3) ...

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

To assist in determining whether two 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.

Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) states the matters to be taken into account are as follows:

(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.

It is proposed to deal with each of the conditions in 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, which 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. 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):

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, 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.

However, in this particular case, even though the deceased is an adult child of the beneficiary, the facts show that a close familial relationship existed between your client and the deceased.

The deceased was single, and had never been married or had any children. In the period before the deceased's death, the deceased did not have a partner and was not involved in a relationship for several years prior to their death. The deceased resided with your client for at least the last six years and contributed financially towards your client's household expenses. Your client in turn, would do their laundry, prepare meals, and undertake cleaning and other domestic duties where necessary.

When your client required physical care due to health issues or emotional support (for example, in dealing with family issues), the deceased would take emergency leave and fly home to help support your client physically and emotionally.

During periods when the deceased was hospitalised, or unwell, your client would take care of them physically and emotionally. In particular, the level of emotional support provided by your client during these times provided the deceased with a significant level of emotional and psychological security, often assisting them to move through the effects of their illness.

Your client also states in their response that if the deceased had a problem they would only talk to your client about it and no one else. Your client on many occasions would provide emotional support to the deceased during the periods they were suffering from their illness as well as monitoring their health and wellbeing. The deceased was dependent on the beneficiary emotionally and that care was provided on a continuing permanent basis, at a minimum for the last six years. The level of care and assistance provided by each other, to one another, is regarded to be over and above what would be expected in a normal parent / adult child relationship.

Such a level of care reflects a close personal relationship. It is therefore reasonable to assume that given the circumstances of the relationship, the relationship between the two would not have changed significantly in the future.

On the basis of the details provided by your client, it is considered that a relationship over and above the usual familial relationship existed between the deceased and your client, prior to, and at the time of the deceased's death. The deceased was dependant on your client and was clearly not going to leave home as would be customary for a young adult. The deceased resided with your client for at least the last six years. This relationship went beyond that of a parent and self-sufficient child. The facts show that there was a mutual commitment to a shared life between the beneficiary and the deceased prior to and at the time of the deceased's death.

Therefore, it is accepted that your client satisfies the type of close personal relationship that existed between the deceased and your client, as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997.

Cohabitation

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

The facts show that your client and the deceased were residing together at the time of the deceased's death. It is noted that the deceased resided with your client permanently, at the same address, for at least the last three years.

Therefore the requirement specified in paragraph 302-200(1)(b) 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 the 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 provided your client with financial assistance in the form of money towards the purchase of a car and associated car expenses, phone and electricity costs, groceries, as well as contributing towards your client's operation and overseas trip. Your client has stated that they needed and relied on the financial assistance provided by the deceased.

In this instance, the existence of financial assistance provided by the deceased to your client has been established and therefore paragraph 302-200(1)(c) of the ITAA 1997 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, 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 facts indicate that when the deceased would return from working away, your client would do their laundry, prepare meals, clean their room and if they was sick, look after them. There was also a period when your client was hospitalised and the deceased purchased necessary clothing for your client's hospital confinement and on release, assisted with administering medication, preparation of meals and running the household. In addition, the deceased would also take your client to medical appointments when necessary.

In this respect, domestic support has been provided to the deceased by your client.

As discussed previously, the details provided by your client show that your client and the deceased served as primary emotional support for each other, especially during periods in which the deceased was hospitalised, or suffering with illness. Dealing with the deceased's illness in particular, required a significant level of support and care. In addition, the deceased would also often call home to talk to your client when they worked away and would return home to help when your client needed emotional support in dealing with family issues.

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 your client provided the deceased with significant personal care services in the period before they died.

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.

The deceased is in an interdependency relationship with the taxpayer

From the facts presented, it is considered that an interdependency relationship in accordance with subsection 302-200(1) of the ITAA 1997 existed between your client and the deceased in the period just before their death.

Therefore, your client is considered to be a dependant of the deceased within the definition of death benefits dependant in section 302-195 of the ITAA 1997.

Application of subsection 302-200(2)

Essentially, this subsection ensures that two persons will also have an interdependency relationship where two people have a close personal relationship, and do not satisfy one or more of the requirements of an interdependency relationship in paragraphs (1)(b), (c) and (d) if either or both of them suffer from a physical, intellectual or psychiatric disability.

However, since all the requirements of subsection 302-200(1) of the ITAA 1997 have been met, as mentioned above, consideration of subsection 302-200(2) is not necessary in this instance.

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