Edited version of your private ruling

Authorisation Number: 1012428319366

Ruling

Subject: Death benefits - 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 period:

For the year ended 30 June 2013

The scheme commences on:

1 July 2012.

Relevant facts and circumstances

You are the parent of the deceased.

The deceased died in the recent year, leaving an estate.

The deceased was aged over 40 years and did not have a spouse or children.

You and your spouse are entitled to a beneficial interest of the deceased's estate (the Estate).

The deceased's superannuation benefits with the superannuation provider are to be paid to the Estate as superannuation death benefits.

You have advised that there have been no death benefit payments to date but there is an inclination to proceed in due course to seek a release of the funds.

You included the following in your ruling application:

You and your spouse had a number of children who were raised on the family home/farm.

The deceased was living away from the family but they had decided definitively in a certain year that they wanted to return to live permanently on the family farm.

The deceased was living predominantly in other locations for several years sometimes due to work projects.

The deceased moved to another location for work and also to be closer to your family and to progress the process of moving back to live at your family farm and construct a home on the property.

It was the deceased's intention to build their own home on your family property and also to assist you to manage the farm.

In a recent year the deceased sought legal advice about relevant environmental and planning laws that may relate to the construction of an additional dwelling or single dwelling on the property.

The advice received was that it was likely that a single dwelling only could be built on the property or possibly it could include the construction of a small cottage as well.

The deceased had not been able to decide the course of action as it was their dream to build a home on the property and the deceased had paid for a road to the location to accommodate a dwelling.

The deceased attended at the family home/farm regularly in order to assist with its ongoing maintenance and management and to attend to chores for you, and also to share in close family time.

You were diagnosed with an illness in a recent year.

You had appointed your spouse as your power of attorney because of your incapacity.

The deceased was pivotal in supporting you and your spouse emotionally and psychologically in this regard.

In the recent year the deceased would visit the farm frequently.

In a subsequent year for some months the deceased would visit the farm almost each alternate weekend and your spouse would visit the deceased once a month.

Your spouse had always been dependent on the deceased's intense emotional support in relation to the needs associated with caring for you and also the physical support in regards to management and caretaking of the family farm.

The deceased was instigating to relocate back to reside in the family home in the recent year onwards.

Your spouse was unable to accommodate this move given you relied on your spouse to care for you because of your illness and the confines of the family home. However, it was still the deceased's intention to build their own home in years to come or at least an expansion of the family home.

The farm had fallen into disrepair over the years mainly due to your ill health and the deceased had a long term goal of fixing up the farm so that work could commence to make it a fully functional farming property. The deceased was very keen to one day operate livestock and crops.

The deceased would attend to various jobs on each visit to the farm as you were unable to do the same and this included but was not limited to maintenance jobs on the farm and residence, looking after the cattle and other animals on the property.

The deceased would pay for any supplies/materials required in regards to the above and also gave your spouse respite with the caring for you.

During your spouse's visits with the deceased, your spouse also attended to the deceased's laundry on most occasions as well as repair of clothes, cooking, cleaning and general shopping which your spouse paid for. Things only amplified in this regard after the deceased was diagnosed with a serious illness in a recent year.

It was stated in your ruling application that by this time, you had little capacity to recognise your children.

After the diagnosis, the deceased became unable to relocate back to the family home due to ongoing medical needs that were required to be accommodated and attended to in the city of residence.

After that the deceased returned to the family home/farm sporadically due to health needs but still about every other weekend.

Other than periods in hospital, the deceased was normally residing at the residential home in the city.

Treatment of the deceased commenced in the recent year.

The deceased nonetheless continued to return to the farm nearly on each alternate weekend to stay and was dependent on the intense domestic support, personal care; and the love and affection of your spouse and siblings.

Your spouse also periodically visited the deceased in the city during this period.

Due to personal health requirements the deceased needed many herbal supplements and a special juicing machine which your spouse purchased. All these items were to provide the same food and supplements when the deceased was at the farm.

Updating the kitchen to purely organic was also an increase financial strain which your spouse was happy to do for the deceased's comfort and health benefit.

Following treatments the deceased could no longer eat or drink the necessary juices with supplements due to side effects of treatments.

On visits to the family farm, your spouse and a sibling provided assistance in administering nutrition.

Early in the subsequent year the deceased made the decision to go through with necessary surgery and once the final stages of treatment were completed, to return to live at the farm.

This period was physically and emotionally draining for the deceased.

After difficult surgery and being released from hospital the deceased returned to the city residence but was too weak to travel so your spouse arranged a rotation schedule for friends and family each day to support them.

The deceased came to stay on the family farm but was not well and in pain, and soon after was admitted to hospital.

In accordance with medical advice, you were admitted to a respite centre where you now reside permanently.

It was stated in your application that you had no knowledge of the deceased's operation due to your condition.

The deceased was admitted to Palliative care with a prognosis of having approximately 3 weeks to live.

While in Palliative care the nurses and doctors began plans to transfer the deceased to the farm as there was nothing more the medical community could do.

The deceased stayed at the farm for a short period where they were cared for by your spouse and siblings and passed away in a hospital shortly after

The following was also included in your private ruling:

A copy of your Power of Attorney (POA) wherein you nominated your spouse as your POA because of your incapacity.

A copy of the deceased's superannuation entitlements from the superannuation provider.

A statutory declaration from the authorised person for your ruling application which supported the information that you have provided in addition to the following:

The deceased had been in a long term relationship which ended a few years previously.

In the recent year legal advice was sought about the potential of constructing a home on the family property which was likely to be difficult (due to zoning issues) to construct some premises on the property, although there may have been a potential to construct a small cottage in addition to the family home.

There were various issues that came into play with the decision making process including your deteriorating health.

The deceased was mindful that you might be admitted to a nursing home and if this was the case it was more probable to construct the large family home to accommodate your spouse therein and the deceased's own intended family.

The interim plan was to live with parents and to set about raising the savings and then finance over the years to progress the above.

Even after the illness diagnosis, the deceased continued to relay this desire and in particular to look after your spouse and share a close family life on the family property.

Relevant legislative provisions

Income Tax Assessment Act 1936 former section 27AAB.

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

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Section 302-145.

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 former Regulation 8A.

Reasons for decision

Summary

You were not in an interdependency relationship with the deceased as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997), therefore, you are not a death benefits dependant of the deceased for the purposes of section 302-10 of the ITAA 1997.

Consequently, the taxable component of superannuation death benefits received are subject to taxation.

Detailed reasoning

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.

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 302-60).

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) he 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) of section 302-195 needs to be examined.

Interdependency relationship

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

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) must be satisfied for a person to be in an interdependency relationship with another person.

Under subsection 302-200(2) two people who have a close personal relationship but who cannot satisfy all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, may still have an interdependency relationship.

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 section 302-200.

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 Income Tax Assessment Act 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:

o the duration of the relationship;

o the degree of mutual commitment to a shared life;

o 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 Explanatory Statement (ES) to the Income Tax Amendment Regulations 2005 (No. 7) (the Regulations) which inserted former regulation 8A of the Income Tax Regulations 1936, stated that the purpose of the Regulations was to specify matters that are, or are not, to be taken into account in determining whether two people have an interdependency relationship. An extract of the ES to the Regulations is as follows:

Sub regulation 8A(1) lists a number of matters that are to be taken into account when determining whether two people have an interdependency relationship, or whether two people had an interdependency relationship immediately before the death of one of them.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

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 even though each may have intended to remain an important part of each others' lives. It would be expected that the adult child would eventually move out and secure independence from their parents.

The deceased was age over 40 and was your adult child who had lived independently away from the family home for a period of time prior to death.

From the facts, we are advised that the interim plan had been to live with parents, to set about raising the savings and finance over the years to progress the plan to build their own separate residence on the family property. Although the deceased was also motivated by a desire to help with the family farm, it is clear from the facts that it was primarily also to raise a family of their own in a separate dwelling on the ridge of the family property.

You also experienced an extended period of health issues as a consequence of your onset of your illness over a number of years. You had been diagnosed with this illness in a particular year. Your illness had deteriorated and by the time the deceased was diagnosed with serious illness some months later you had little capacity to recognise your children.

The deceased continued with visits to the family/home on weekends when able to and provided emotional support to your spouse. This was because your spouse needed to care for you because of your illness. The deceased also assisted with the ongoing maintenance of the farm as you became unable to do the same because of your condition.

However, it would be reasonable to expect that the support given to each other may be no less than the care and support that an adult child and a parent would give to each other at a time of need under the circumstances.

Having considered all the circumstances, it is the case that the deceased was your adult child and the facts show that your relationship was that of a parent/adult child relationship.

For the above reasons, you and the deceased were not in a close personal relationship 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 two persons live together.

Having considered all the circumstances surrounding the deceased's stated desire to re-locate back to the family farm/property, it can be seen that it was more the case the deceased's intention to re-locate was on a number of fronts convenient and predominantly because of the desire to construct their own home on the family property and raise their own family.

The deceased had resided predominantly in a major city and also in other towns on work projects until he moved back to another major city in a certain year for work reasons.

The deceased had also been in a relatively long term relationship. Despite the stated intention and efforts to seek approval from council to construct either an additional dwelling or a single dwelling on the property, the preferred option was to construct their own home on the family property and to raise their own family there.

This plan was in many ways ultimately subject to receiving council approval and the preferred option had always been to erect a separate dwelling and not an extension the parents' residence on the farm. Therefore there was no commitment to a shared life with parents as envisaged by 302-200(1)(a) of the ITAA 1997.

After the deceased's relatively long term personal relationship ended the deceased had been keen to relocate back to reside in the family home. Your spouse was unable to accommodate this move given their own health problems in addition to the need to care for you and the confines of the family home.

When the deceased was diagnosed with serious illness which required treatment in medical facilities close to the city. It is noted the deceased returned to the family home/farm on alternate weekends whenever possible.

Your permanent admission to respite care in a recent year allowed your spouse to spend more time with the deceased at the family home (stated as nearly every alternate weekend).

As stated previously, it is considered you and the deceased were not in a close personal relationship as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997.

From the facts, it is evident you and the deceased did not live together as envisaged in paragraph 302-200(1)(b) despite the fact that it was the intention to move back to the family farm at sometime in the future or build a separate dwelling on the property.

It is the case that due to your incapacity you moved to permanent respite care in the recent year. However, as you did not live together prior to this, it is also not considered that you were temporarily living apart due to your incapacity.

Therefore looking at all the circumstances for the period both prior to and at the time of his death, it is the case the requirement for two persons to live together in an interdependency relationship as envisaged in paragraph 302-200(1)(b) has not been satisfied in this instance.

Therefore, it does not become necessary to consider subsection 302-200(2) of the ITAA 1997.

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.

In considering whether two persons were in an interdependency relationship one factor to look at would be whether, to any extent, if one or both persons contributed to day to day living expenses which included groceries, food items and household expenses.

From the facts, we note the deceased had paid for a road to be built on the family property, however this was clearly in anticipation of gaining council approval to construct a separate dwelling to raise their own family.

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.

In this instance, it is established the deceased paid for cost of the road to be built and also for some supplies for the repairs on the family farm. However, for the reasons above, it could not be considered to be the financial support that is considered as relevant or envisaged for an interdependency relationship to have existed for the purposes of paragraph 302-200(1)(c) of the ITAA 1997.

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.

It is noted you have stated you had been dependent on the deceased's emotional support in relation to the needs associated with your spouse having to care for you because of your ill health; and also the physical support in regards to the management and caretaking of the family home and farm property attached.

Paragraph 2.16 of the SEM gives some guidance in measuring the level of domestic care and support that two persons would give each other in an interdependency relationship when considering if they meet the requirement in paragraph 302-200(1)(d) of the ITAA 1997.

More likely the kind of care and support normally provided in a close personal relationship would extend to constant care, attending medical appointments with the person or the provision of personal and physical assistance where required on a significant and regular basis.

The provision in paragraph 302-200(1)(d) distinguishes between the kind of care outlined above and the care that a friend or flatmate might reasonably be expected to provide.

From the facts provided, the level of support and care as envisaged by paragraph 302-200(1)(d) has not been demonstrated.

Therefore it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 and paragraph 2.16 of the SEM did not exist. Consequently the condition of this paragraph has not been met.

Conclusion

Two persons have an interdependency relation when they have a close personal relationship, they live together, one or each of them provides the other with financial support and one 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.

There are a number of factors when considering whether two persons have an interdependency relationship, or whether two people had an interdependency relationship immediately before the death of one of them.

It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. Each of the matters is to be given appropriate weighting under the circumstances.

The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

On the facts provided, all of the above have been taken into careful consideration to determine if an interdependency relationship existed for the purposes the legislative provision. However, it is concluded that the requirements in section 302-200(1) of the ITAA 1997 have not been satisfied in this instance.

Therefore it is considered that you and the deceased were not in an interdependency relationship prior to, and up to, the time of his death.

Consequently you are also not considered to be a death benefits dependant of the deceased within the definition 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 not 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 is distributed to you as a non-dependant of the deceased.

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