Edited version of private ruling

Authorisation Number: 1011640790180

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Ruling

Subject: death benefit and interdependency

Will the superannuation death benefits that have been paid to the Estate of the deceased be given concessional treatment under section 302-60 of the Income Tax Assessment Act 1997 (ITAA 1997) as a payment made in relation to a death benefits dependant?

Yes.

This ruling applies for the following period:

1 July 2008 to 30 June 2009

The scheme commences on:

1 July 2008

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased was over 50 years of age at the time of death.

The deceased died without making a Last Will and Testament.

The sole beneficiary is a parent of the deceased.

The deceased was employed until the date of death.

The beneficiary was in receipt of a Centrelink pension at the time of the deceased's death and continued to receive it until the parent received a distribution from the estate.

At the time of the deceased's death, the deceased and the parent were living together for at least twenty years in the family home.

The deceased and the beneficiary owned the residence as joint tenants.

The beneficiary became sole owner of the family home upon the deceased's death.

In the years preceding the deceased's death, the beneficiary and/or the deceased provided the other with financial support including the following:

The beneficiary paid half of the council/shire rates for the home.

During the years before becoming ill, the beneficiary provided domestic support and personal care for the deceased.

During this period the beneficiary began to develop symptoms of dementia and lost the ability to plan and organise the domestic tasks they had previously undertaken. Consequently, the deceased gradually undertook the domestic tasks, so that for the last 12 months of that period they provided domestic support and personal care for the beneficiary.

A medical assessment of the beneficiary soon after the deceased's death found that, while physically sound, their dementia was such that they were unable to care for themselves, and recommended a dementia care facility. The beneficiary was subsequently placed into a nursing home.

Six months after the deceased died the sibling of the deceased was appointed manager of the estate of the parent by the Guardianship Tribunal, as the parent did not have the capacity to manage their own financial affairs.

The same sibling was appointed by the Supreme Court as an administrator of the Estate of the deceased, for the benefit and use of the parent. The parent was the sole beneficiary of the deceased's estate.

The deceased had a superannuation rollover account with fund 1.

Fund 1 made a superannuation lump sum payment for a death benefit to the trust account of a Solicitor on behalf of the deceased. The payment received consisted of a tax free and a taxable component with no tax withheld.

The deceased was a member of Fund 2.

Fund 2 made a superannuation lump sum payment for a death benefit to the Legal Personal Representative (LPR) of the deceased with a taxable and a untaxed element again with no tax withheld.

The beneficiary died recently.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10.

Income Tax Assessment Act 1997 Subsection 302-10(1).

Income Tax Assessment Act 1997 Subsection 302-10(2).

Income Tax Assessment Act 1997 Section 302-60.

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 307-5(1).

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

Income Tax Assessment Act 1997 Section 307-65.

Income Tax Assessment Act 1997 Section 307-70.

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

Income Tax Assessment Act 1936 Section 27AAB.

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

The beneficiary is considered to have been in an interdependency relationship with the deceased prior to and at the date of death. Therefore, the beneficiary is a death benefits dependant of the deceased.

The two payments paid to the Administrator of the Estate are not assessable income and not exempt income as they are death benefits paid to a dependant of the deceased.

Detailed reasoning

Superannuation death benefits paid to a trustee of a deceased estate

For payments made after 1 July 2007, a 'superannuation death benefit' is defined in subsection 307-5(1) of the ITAA 1997 as:

… A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

A superannuation death benefit must be paid as either:

· a superannuation lump sum, or

· a superannuation income stream.

A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream as defined in section 307-70 of the ITAA 1997.

The deceased died and the benefits were paid to the Estate from two superannuation funds after the deceased's death, because the deceased was a member of each fund. Hence the payments are superannuation death benefits as defined in subsection 307-5(4) of the ITAA 1997.

The superannuation benefits are superannuation lump sums within the meaning of section 307-65 of the ITAA 1997. As the payments were made after 1 July 2007, the provisions of Division 302 of the ITAA 1997 apply to each benefit.

Application of section 302-10 of the ITAA 1997

Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the Trustee of the Deceased Estate. Subsection 302-10(1) of the ITAA 1997 states:

This section applies to you if:

(a) you are the trustee of a deceased estate; and

(b) you receive a superannuation death benefit in your capacity as trustee.

As the payments were superannuation death benefits received from the superannuation entities were paid to the Administrator (Trustee) of the Estate, section 302-10 of the ITAA 1997 will apply to the Trustee of the Estate.

Application of subsection 302-10(2) of the ITAA 1997

Subsection 302-10(2) of the ITAA 1997 states:

To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

Under subsection 302-10(2) of the ITAA 1997, where a dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the Trustee of the Estate will be subject to tax on that part of the benefit paid or to be paid to the dependant as if it were paid to a dependant of the deceased. However, the dependant is not presently entitled to this superannuation death benefit at this time and the benefit therefore does not form part of his or her assessable income.

In this case, it is necessary to determine whether the beneficiary is a death benefits dependant of the deceased.

'Death Benefits Dependant' in relation to the Superannuation Death Benefit

Section 302-195 of the ITAA 1997 defines a 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.

The beneficiary is a parent of the deceased. Therefore, neither paragraph 302-195(1)(a) nor paragraph 302-195(1)(b) of the ITAA 1997 is relevant. Rather death benefits dependency must be established in accordance with either paragraph 302-195(1)(c) of the ITAA 1997 (interdependency relationship), or paragraph 302-195(1)(d) of the ITAA 1997.

Interdependency relationship

Section 302-200 of the ITAA 1997 states:

(1) Subject to subsection (3), for the purposes of this Subdivision, 2 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, 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 there 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 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.

In order for a person to be able to claim that they have 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) 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 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, 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.

In this case, the beneficiary is the parent of the deceased. Clearly a familial relationship existed prior to, and at the time of the deceased's death. The beneficiary and the deceased both provided support and assistance to each other, during their time together.

The facts also show that the relationship between the deceased and the beneficiary was a normal familial relationship of a person living with their parents. Normally, a relationship such as this would not meet the requirement under subsection 302-200(1) of the ITAA 1997.

However it is clear that, in this case, the relationship involved a demonstrated commitment to the emotional support and well-being between the beneficiary and the deceased. The care and support provided for each other by the beneficiary and the deceased is more than that provided in a usual familial relationship.

The deceased was over 50 years of age at the time of their death and had never left the current family home. Indeed, this home had been purchased over 20 years ago by the deceased and their parents as tenants in common.

The relationship between the deceased and the beneficiary had not changed over time. The deceased had lived at home after the death of one parent, staying after the beneficiary was no longer able to look after themselves as they had developed dementia. The deceased had then undertaken care activities when the parent was undergoing medical treatment, medical appointments and in the initial stages of the illness. Clearly, the relationship between them is more than one of mere convenience. Therefore, it is accepted that a close personal relationship existed between the deceased and the beneficiary 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.

The facts show that the deceased was living with the beneficiary in the family home and had not resided elsewhere for some time. In this case, as the deceased passed away while living with the beneficiary, it is considered that they did live together. 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 these two persons provides the other with financial support.

Unlike the situation prior to 1 July 2004 where financial dependency (substantial support) needs to be satisfied, 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.

It is clear from the facts presented that the deceased provided the beneficiary with some financial support whilst living at the family home before passing away. However, the beneficiary also contributed towards expenses.

In this instance, the existence of financial assistance provided by both parties to each other is established and it is not necessary to look at the level of financial support provided. 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 Supplementary Explanatory Memorandum to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004, which inserted former section 27AAB of the ITAA 1936, 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 clearly show that the deceased and the beneficiary provided each other with domestic support over the years. This included grocery shopping, washing clothes, house cleaning and meal preparation.

The term personal care is also discussed in the NSW Supreme Court case 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 beneficiary's medical condition also required the deceased to attend to their hygiene matters including preparing and managing daily showers, arranging and escorting the parent to medical appointments, purchasing and supervising their prescription medication.

Further, the beneficiary's medical condition was assessed shortly after the death of the deceased, and found they were unable to look after themself as a result of the dementia, and recommending dementia care. Clearly, the care being provided by the deceased would have needed to be more than incidental or minor.

This indicates a significant level of palliative care provided by the deceased to the beneficiary in order to relieve the beneficiary's condition and improve their quality of life. 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.

Conclusion:

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 been satisfied in this case. Therefore, it is considered that an interdependency relationship existed between the deceased and the beneficiary. Consequently, the beneficiary would be considered a death benefits dependant of the deceased.