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Authorisation Number: 1011642797572

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Ruling

Subject

Subject: Superannuation death benefits - Dependant

Issue

Question

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

Advice/Answer

Yes.

This ruling applies for the following period

For the year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

Your client is an adult child of the deceased and one of the beneficiaries of the deceased estate.

During a twelve month period prior to the deceased's death, your client was the full-time carer for the deceased and had other family members and friends as respite carers.

In late year X, your client became more responsible for caring and assisting the deceased as the deceased's terminal illness deteriorated. Your client would do the shopping, clean the household, do the washing and take the deceased for medical appointments and treatments.

In late October year X, the deceased was admitted to a hospital. At this time the deceased was in and out of hospital and your client would visit the deceased in hospital and look after the deceased when the deceased returned home.

In late year X, a palliative nurse visited the deceased each day and your client stayed with the deceased on a daily basis sleeping over 2-3 nights.

Due to the deceased's medical condition the deceased was no longer able to have solid foods and your client would prepare liquid meals and the deceased's medication having been given specific instructions from the nurse and would write a report for the nurse on a daily basis.

At this time the doctor informed the deceased that due to the deceased's medical condition the deceased required constant care and would no longer be able to stay at home unless a full-time carer was living with the deceased.

In late year X, your client resided with the deceased on a full-time basis for 4-5 nights per week and had temporary respite carers to assist on the other nights up until the deceased's death.

In early year Y, the deceased was admitted back to hospital for a short period of 1-2 weeks to have the deceased's medication adjusted before returning back home.

Your client was living with the deceased on a permanent full-time basis and would leave for a short period to do grocery shopping and pick-up medication, with respite carers to assist the deceased when your client was away.

The deceased was bed ridden and was no longer able to look after any personal hygiene during the last months prior to the deceased's death.

Your client would prepare medication for the deceased and provided personal care which included activities such as making sure the deceased was clean, bathed, dressed, helped with hygiene and mobility and making sure the deceased was as comfortable as possible.

Your client gave up employment to care for the deceased and was financially dependant upon the deceased not withstanding your client was receiving carer payments towards the end of the deceased's life.

The deceased would also pay for utilities, food and accommodation and transport.

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.

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

Reasons for decision

Summary

It is considered that your client and the deceased had an interdependency relationship at the time of the deceased's death. Therefore, your client is a death benefits dependant of the deceased. As your client is considered to be a death benefits dependant the superannuation death benefit payable to your client will be tax-free and is not included as assessable income in the hands of the Estate.

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 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:

· the deceased person's spouse or former spouse; or

· the deceased person's child, aged less than 18; or

· any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

· any other person who was a dependant of the deceased person just before he or she died.

Interdependency relationship

Under section 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:

· they have a close personal relationship; and

· they live together; and

· one or each of them provides the other with financial support; and

· 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:

· they have a close personal relationship; and

· they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and

· the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.

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 determining whether 2 persons have an interdependency relationship under subsections 302-200(1) and (2). 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).

Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) which has replaced former regulation 8A of the Income Tax Regulations 1936 (ITR 1936) states as follows:

· all of the circumstances of the relationship between the persons, including (where relevant):

· the duration of the relationship; and

· whether or not a sexual relationship exists; and

· the ownership, use and acquisition of property; and

· the degree of mutual commitment to a shared life; and

· the care and support of children; and

· the reputation and public aspects of the relationship; and

· the degree of emotional support; and

· the extent to which the relationship is one of mere convenience; and

· any evidence suggesting that the parties intend the relationship to be permanent.

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 for the taxpayer to be able to claim that he or she has an interdependency relationship. 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 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 Income Tax Assessment Act 1936. In discussing the meaning of close personal relationship the SEM states:

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.

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).

The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist.

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. 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 your client is an adult child of the deceased, the facts show that your client resided with the deceased as the deceased's full-time carer up until the time of the deceased's death and prepared all the deceased's medication and assisted the deceased to attend medical appointments and treatments.

During the last month's of the deceased's life the deceased's terminal illness deteriorated and was bed ridden. As such, your client's care for the deceased increased as the deceased was unable to look after himself and your client had the responsibility of maintaining the deceased's personal hygiene such as showering and toiletry needs and provided the deceased with physical, personal and emotional support and comfort.

Therefore clearly 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 highly dependent on your client emotionally and that care was provided on a continuing permanent basis for at least 4-5 days per week. It is reasonable to assume that given the circumstances of the relationship would not have changed significantly over time. The facts show that there was a mutual commitment to a shared life between your client and the deceased prior to and at the time of the deceased's death.

Therefore, it is accepted that a close personal relationship 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 two persons live together.

The facts show that the deceased and your client were residing together at the time of the deceased's death. It is noted that from late year X, your client resided with the deceased on a full-time basis and stayed for a majority of 4-5 nights per week and had temporary respite carers to assist the deceased for short periods of time on the other nights up until the deceased's death.

It is further noted that whilst the deceased had short periods in hospital requiring treatment, your client remained with the deceased when the deceased returned home.

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 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 provided financial support. Your client gave up employment to look after the deceased and was financially dependant upon the deceased. The deceased would also pay for utilities, food and accommodation and transport.

In this instance, both the existence and the level of financial assistance provided by the deceased to your client is established and it is not necessary to look at the level of financial support provided, but merely to establish that such support existed.

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 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 show that your client prepared the deceased's medication and assisted the deceased with daily hygiene and to dress each day.

Your client did the laundry, ironing, cleaning and would do the grocery shopping and cook the daily meals.

It is also evident from the facts that the constant care provided by your client to the deceased, is significant emotional support and care of a type and quality normally provided in a close personal 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 your client provided the deceased with significant personal care services at this time.

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.

Application of subsection 302-200(2):

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

The deceased is in an interdependency relationship with the taxpayer:

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. Consequently it is considered the deceased and your client did have an interdependency relationship.

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.

The taxation treatment of a superannuation death benefit

As your client is considered to be a death benefits dependant the superannuation death benefit will be tax-free and is not included as assessable income in the hands of the Estate. The amount ultimately distributed from the Estate to your client as beneficiary will not be taxable in your client's hands because the amount will represent a distribution of the corpus of the Estate.