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Authorisation Number: 1011665187145

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Ruling

Subject: Death benefits dependant - Interdependency

Question

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

Answer: No.

This ruling applies for the following period

Year ending 30 June 2010

The scheme commenced on

10 September 2009

Relevant facts

You are the child and beneficiary of the deceased.

You lived with the deceased in the family home.

You moved back into the deceased's home after living with your other parent.

The deceased was mentally ill. During times of difficultly you provided the deceased additional financial, domestic and emotional support.

You stated that the deceased relied upon your support to maintain their normal standard of living and you relied upon the deceased to maintain your normal standard of living.

The deceased provided you with financial support in the way of accommodation, phone, internet, food, medical expenses and clothing and a motor vehicle and vehicle expenses.

You provided financial support to the deceased by way of purchasing groceries, petrol and other household items or paying utility bills.

You received emotional support, encouragement and physical assistance from the deceased by way of assisting with personal relationships and providing support during difficult times.

You provided emotional support and physical assistance to the deceased by way of providing care when ill, support through troubled relationships and, when the decreased was unable to, undertook all domestic duties for the rest of the family.

You provided the deceased with domestic support such as cooking, cleaning, caring for younger siblings and caring for the deceased when ill.

Upon the deceased's death you had to vacate the family home and temporarily relocate with extended family until you were able to re-establish yourself and financially support yourself.

Subsequent to the deceased passing away, you received taxed death benefit payments relating to the deceased's membership in complying superannuation funds as those funds regarded you as a non-dependant on the deceased.

A death benefit payments from complying superannuation funds were paid to you, as the beneficiary of deceased estate.

Relevant legislative provisions

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)

Reasons for decision

Summary of decision

It is considered that an interdependency relationship did not exist between the deceased and the Beneficiary.

Detailed reasoning

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a 'superannuation death benefit' has the meaning given by section 307-5 of the ITAA 1997.

A superannuation death benefit is defined in subsection 307-5(4) of the ITAA 1997 as being a payment described in Column 3 of the table in subsection 307-5(1) of the ITAA 1997. A superannuation death benefit is described in Column 3 of Item 1 of the table 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.

In this case the deceased passed away and death benefit payments were made from complying superannuation funds (the Funds) to you, the beneficiary of the estate (the Beneficiary).

The payments were made to the Beneficiary during the 2009-10 income year from the Funds after the deceased's death, because the deceased was a fund member. Hence each payment is a superannuation benefit within the meaning of Column 3 of Item 1 of the table in subsection 307-5(1) of the ITAA 1997.

Each payment is a superannuation death benefit as defined in subsection 307-5(4) of the ITAA 1997 and a superannuation lump sum within the meaning of section 307-65 of the ITAA 1997. The provisions of Division 302 of the ITAA 1997 apply to the payment made by the Funds.

To establish the tax treatment of these superannuation death benefits 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

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997. 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.

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:

(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.

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:

(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.

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) of the ITAA 1997. 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) of the ITAA 1997. Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) states 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; and

(b) the existence of a statutory declaration signed by 1 of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was, in an interdependency relationship with the other person.

All of the conditions in subsection 302-200(1), 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/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 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 (e.g. 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 Regulation 8A into 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, 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.

The facts of this case show that the relationship between the deceased and the beneficiary was that of a normal family relationship for an adult child living at home with a parent. While the deceased is the parent of the beneficiary and close familial ties existed between them, it does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation. While both the deceased and the beneficiary may have intended to remain an important part of each others lives, it is reasonable to assume that the relationship would have changed significantly over time.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not been satisfied in this case.

Cohabitation:

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

The facts show you lived with the deceased in the family home.

Therefore it is considered that the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied.

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) 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, such as the deceased paying phone, utilities and various household expenses, that the deceased provided the beneficiary with financial support during the course of their relationship.

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.

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

(b) 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.

There is evidence in the facts provided of an amount of domestic support and care as discussed in paragraph 2.16 of the SEM such as domestic support services and or personal care services.

The facts show the domestic support services you provided were cooking, cleaning, caring for younger siblings and caring for the deceased when ill. Furthermore, you (the Beneficiary) lived with the deceased and there is an expectation, in ordinary circumstances, that the deceased would provide some amount of domestic support to their child.

The facts show the personal care services provided by you to the deceased were by way of care when ill, support through troubled relationships and undertook domestic duties for the deceased and the rest of the family when the deceased was unable to. You received emotional support, encouragement and physical assistance from the deceased by way of assisting with personal relationships and provided support during troubled times.

The facts provided are indicative of the domestic support that parents and adult children would normally provide each other in a family household. Additionally, the facts show the deceased suffered from depression and the Beneficiary provided the deceased with emotional support to help cope with that condition. This indicates that the Beneficiary provided the deceased with personal care services above that expected in an ordinary parent and adult child relationship.

Therefore, it is considered that the deceased and the Beneficiary has satisfied the requirement of significant domestic support and personal care set out in section paragraph 302-200.02(2)(b) of ITR 1997.

Application of subsection 302-200(2):

Essentially, this subsection ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one of both of them, they do not satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997, they will still be considered to have an interdependency relationship.

It this case subsection 302-200(2) of the ITAA 1997 has not been satisfied in the first instance as it was considered that the deceased and the Beneficiary were not in a close personal relationship for the purposes of the tax legislation as previously discussed.

In view of the foregoing it is considered that an interdependency relationship did not exist between the deceased and the Beneficiary for the purposes of subsections 302-200(1) and 302-200(2) of the ITAA 1997.

Conclusion

As all the conditions in section 302-200 of the ITAA have not been satisfied, the beneficiary is not considered to have been in an interdependency relationship with the deceased.

Taxation of superannuation benefit

As it has been determined that you are not considered to be a dependant of the deceased, you are subject to tax the superannuation lump sum death benefit payment in question in accordance with subsection 302-10(3) of the ITAA 1997.

Therefore, superannuation death benefit lump sums are included as assessable income in your income tax return for the 2009-10 income year as you were a non-dependant of the deceased when you received the superannuation death benefit.