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Ruling

Subject: Superannuation death benefits - interdependency

Questions

1. Was Sibling 1 a 'death benefits dependant' of the Deceased at the time of death?

2. Was Sibling 2 a 'death benefits dependant' of the Deceased at the time of death?

Answers

1. No.

2. Yes.

This ruling applies for the following periods

1 July 2010 to 30 June 2012

The scheme commences on

1 July 2010

Relevant facts and circumstances

The Deceased was born in the 1970s.

The Deceased suffered from a specific illness whilst growing up and had a major operation in the mid 1990s and was diagnosed with another illness several years ago.

Due to the Deceased's medical condition, the Deceased started experiencing problems relating to the operation and became wheelchair bound and was unable to care for themself.

The Deceased passed away during the 2010-11 income year.

The Deceased had three siblings.

The sole beneficiaries of the Deceased's estate are Sibling 1 and Sibling 2 (your clients), the elder siblings of the Deceased.

At the time of death the Deceased was a member of several superannuation funds.

Two of the superannuation funds made a death benefit termination payment to the Deceased following their death. Both payments were made within 12 months of the Deceased's death.

Both Sibling 1 and Sibling 2 provided support and care to the deceased on an ongoing basis. The Deceased's medical condition meant that support was required in the Deceased's daily life. This support included accommodation, food, transport and personal management. Both siblings also attended to the Deceased's hygiene matters and provided financial contributions towards supplying oxygen bottles.

The living arrangements were as follows:

For a number of years Sibling 1 lived with the Deceased. This arrangement ceased several years ago.

For most of the 12 months prior to the Deceased's death, the Deceased lived with Sibling 3 (the Deceased's other sibling) at the Deceased's own unit during the week and lived at Sibling 2's house during the weekends with Sibling 1 visiting.

Even when the Deceased did not live with Sibling 2, Sibling 2 always maintained a bedroom at home for the Deceased's sole use.

Over a month prior to the Deceased's death the Deceased lived with Sibling 2 on Fridays, Saturdays, Sundays and Mondays and stayed with Sibling 3 on the remaining days of the week. Sibling 1 would visit but did not stay on most nights due to Sibling 1's irregular work hours.

For a period of all most two weeks prior to the date of the Deceased's death, all three siblings stayed with the deceased at the Deceased's unit.

The Deceased's will state that the assets are to be split equally between Sibling 1 and Sibling 2.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27AAB.

Income Tax Assessment Act 1997 Section 82-135.

Income Tax Assessment Act 1997 Section 302-195.

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 Paragraph 302-200(3)(a).

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

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

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

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

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

Income Tax Regulations 1997 Subregulation 302-200.02(2).

Income Tax Regulations 1997 Sub-subregulation 302-200.02(2)(b).

Summary of decision

Sibling 2 has satisfied all of the requirements to meet the definition of 'interdependency relationship'. Whilst Sibling 1 has satisfied the close personal relationship, financial support and domestic care and support requirements, however, Sibling 1 has not satisfied the living together requirement. Consequently it is considered that only Sibling 2 was in an interdependency relationship with the Deceased.

Accordingly, Sibling 2 is a death benefits dependant of the Deceased at the time of death.

Sibling 1 is not a death benefits dependant of the Deceased at the time of death as Sibling 1 did not have an interdependency relationship with the Deceased.

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 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.

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 persons spouse or former spouse; or

(b) the deceased persons 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

Under subsection 302-200(1) of the ITAA 1997 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.

Subsections 302-200(2) and (3) of the ITAA 1997 go on to state:

(2) In addition, 2 persons (whether or not related by family) also has 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) 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.

For the purposes of paragraph 302-200(3)(a), regulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) sets out matters that are to be taken into account in determining whether 2 persons have an interdependency relationship. These matters include (sub-subregulation 302-200.01(2)(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.

For a taxpayer to be able to claim that he/she has an interdependency relationship, all of the conditions in subsection 302-200(1) of the ITAA 1997, or alternately both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2), must be satisfied. 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 the conditions in 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 (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.

The facts show that both Sibling 1 and Sibling 2 are siblings of the Deceased. Both siblings either visited or lived with the Deceased on a regular basis at differing times during the lifetime of the Deceased. Clearly a close familial relationship existed between both siblings and the Deceased prior to, and at the time of, the Deceased's death.

The next issue to consider is whether the relationship between both siblings and the Deceased was one that involved a demonstrated and ongoing mutual commitment to a shared life.

It is noted that whilst neither sibling had any joint assets with the Deceased, both siblings provided the Deceased with emotional and financial support and companionship and that the Deceased had an ongoing relationship with both siblings. For example, it is noted that Sibling 2 included the Deceased in many family activities such as movie nights.

In respect of emotional support, the facts show that both siblings provided the Deceased with a significant degree of support, regardless of whether they were living together or separately.

It is clear that both siblings demonstrated an ongoing commitment to the emotional support and well-being of the Deceased. From the facts provided it is likely that both siblings would have continued to contribute to the physical and emotional wellbeing of the Deceased and provide the Deceased with constant care and support for as long as was required.

Therefore, it is considered that overall the relationship between the Deceased and both siblings is of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together:

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

The Macquarie Dictionary Online in its definition of the word 'live' lists:

24. live together, … cohabit.

The Macquarie Dictionary Online defines 'cohabit' as:

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

The Macquarie Dictionary Online further defines 'dwell' as:

1. to abide as a permanent resident.

Prior to death, the Deceased was living with Sibling 2 between Friday and Monday and with Sibling 3 between Tuesday and Friday. Sibling 1 would pay regular visits to the Deceased. At the time of death, the Deceased was living at their own unit with all three siblings in attendance.

From the facts provided, it can be argued that Sibling 2 has satisfied the living together requirement with the Deceased just before the Deceased's death. This is evidenced through the formal arrangements which were put in place whereby the Deceased would live with Sibling 2 during certain days of the week.

On the contrary, whilst Sibling 1 lived with the Deceased several years prior to the date of death, this did not occur just before death. Furthermore, whilst Sibling 1 occasionally visited the Deceased and slept over at the other siblings' homes, this does not constitute 'living together' with the Deceased. Sibling 1's irregular work hours also prevented Sibling 1 from being able to live together with the Deceased.

Consequently, it is considered that whilst paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied by Sibling 2 in this instance. However, Sibling 1 has not satisfied this requirement.

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.

The facts show that prior to the Deceased's death in the 2010-11 income year, both Sibling 1 and Sibling 2 provided the Deceased with extensive financial support for numerous aspects of the Deceased's life, including holidays, accommodation, food, and health facilities.

Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied by both siblings 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.

Paragraph 302-200.02(2)(b) of the Income Tax Regulations 1997 states:

· 1 or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.

· Both siblings provided domestic support and personal care to the deceased on an ongoing basis. the Deceased's serious medical condition meant that the Deceased required support in the Deceased's daily life which included food, transport, oxygen monitoring and personal management.

· Both siblings also attended to the Deceased's health matters including ensuring the Deceased had a sufficient supply of oxygen bottles and that any areas in the Deceased's unit which required repairs were quickly addressed.

Therefore 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.

Interdependency relationship

From the facts presented, it is clear that all of the requirements which are set out in section 302-200 of the ITAA 1997 have been satisfied by Sibling 2 in this case. Consequently it is considered that the Deceased and Sibling 2 were in an interdependency relationship at the time of death.

However, not all requirements which are set out in section 302-200 of the ITAA 1997 have been satisfied by Sibling 1 as there is insufficient evidence to suggest that Sibling 1 consistently lived together with the Deceased in the period just before the Deceased's death. Consequently it is considered that the Deceased and Sibling 1 were not in an interdependency relationship at the time of death.

Conclusion

Sibling 2 is a death benefits dependent of the Deceased at the time of death as all of the requirements which are set out in section 302-200 of the ITAA 1997 have been satisfied.

Sibling 1 has satisfied the close relationship, financial support and domestic care and support requirements. However, the living together requirement has not been satisfied. Consequently, Sibling 1 is not a death benefits dependent of the Deceased at the time of death as Sibling 1 is not considered to have been in an interdependency relationship with the Deceased.

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