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Authorisation Number: 1011760035797

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Ruling

Subject: Death benefit - dependency

Question

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

Advice/Answer

Answer: Yes.

This ruling applies for the following period:

2009-10 income year

The scheme commences on:

1 July 2009

Relevant facts and circumstances

Your parent (the deceased) passed away during the 2009-10 income year.

The total taxable income for the deceased for the 2007-08 income year was an amount and reportable fringe benefits tax of an amount.

The total taxable income for the deceased for the 2008-09 income year was an amount and reportable fringe benefits tax of an amount. The deceased also received Centrelink payments of an amount in that financial year.

Your total taxable income for the 2007-08 income year was an amount.

Your total taxable income for the 2008-09 income year was an amount.

When the deceased became seriously ill you moved from interstate in 2008 to care for them. You lived with the deceased from a specific date during the 2008-09 income year until the deceased's death.

For the period in which you were living with the deceased, on a weekly basis your accommodation, telephone, internet, car registration, power, rates, water and some food was paid by the deceased. You estimate that the deceased paid an amount per week toward your living expenses.

From the 2008-09 income year the only contribution that you made to the household expenses were the groceries which you contributed an amount, which is one third of the weekly bill.

You provided assistance to the deceased in all areas of domestic support including washing their clothes, general household cleaning, cooking meals, shopping, gardening, picking up medication, and taking the deceased to appointments.

You supported the deceased in every area of personal care, including administering medication, taking them to the toilet, dressing and showering them, feeding them and moving them. You provided increasing intensive care for the deceased as the deceased eventually needed support to do everything.

A Superannuation Lump Sum Payment Summary during the 2009-10 income year stated that a lump sum payment was paid to you by a superannuation fund during the 2009-10 income year. It comprised a tax-free component, a taxable component - taxed element and a taxable component - untaxed element. There was an amount of tax withheld.

You are under 55 years of age.

Relevant legislative provisions

Section 302-195 of the Income Tax Assessment Act 1997

Section 302-200 of the Income Tax Assessment Act 1997

Subsection 302-200(1) of the Income Tax Assessment Act 1997

Paragraph 302-200(1)(a) of the Income Tax Assessment Act 1997

Paragraph 302-200(1)(b) of the Income Tax Assessment Act 1997

Paragraph 302-200(1)(c) of the Income Tax Assessment Act 1997

Paragraph 302-200(1)(d) of the Income Tax Assessment Act 1997

Subsection 302-200(2) of the Income Tax Assessment Act 1997

Paragraph 302-200(3)(a) of the Income Tax Assessment Act 1997

Paragraph 302-200(3)(a) of the Income Tax Assessment Act 1997

Regulation 302-200.01(2) of the Income Tax Regulations 1997

Reasons for decision

Summary

It is considered that you and your late parent (the deceased) had an interdependency relationship at the time of the deceased's death. Therefore, you are a death benefits dependant of the deceased. As you are considered to be a death benefits dependant the superannuation death benefit paid by the superannuation fund to you will be tax-free and is not included as assessable income in your income tax return in the 2009-10 income year.

The tax withheld by the superannuation fund and remitted to the Tax Office will be refunded to you when you lodge your income tax return for the 2009-10 income year.

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:

(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.

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.

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). 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:

(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.

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:

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.

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 you are an adult child of the deceased, the facts show that when the deceased became seriously ill you moved from interstate during the 2008-09 income year to care for them. You resided with the deceased from a specific date during the 2008-09 income year until the time of the deceased's death on a specific date during the 2009-10 income year. You provided assistance to the deceased in all areas of domestic support such as washing their clothes, general household cleaning, cooking meals, shopping, gardening, picking up medication, and taking the deceased to appointments. You also supported the deceased in every area of personal care, including administering medication, taking them to the toilet, dressing and showering them, feeding them and moving them.

Therefore clearly a relationship over and above the usual familial relationship existed between you and the deceased, prior to, and at the time of the deceased's death. The deceased was highly dependent on you emotionally and that care was provided on a continuing basis until the deceased's death. The facts show that there was a mutual commitment to a shared life between you 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 you and the deceased 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 you and the deceased were residing together at the time of the deceased's death.

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.

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 that the deceased provided you with financial support. You advised that the deceased paid an amount per week toward your living expenses.

In this instance, both the existence and the level of financial assistance provided to you by the deceased 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 the deceased was seriously ill. You provided assistance to the deceased in all areas of both domestic support such as washing their clothes, general household cleaning, cooking meals, shopping, gardening, picking up medication, and taking the deceased to appointments.

You supported the deceased in every area of personal care, including administering medication, taking them to the toilet, dressing and showering them, feeding them and moving them. You provided increasing intensive care for the deceased as the deceased eventually needed support to do everything.

It is also evident from the facts that the constant care you provided to the deceased, who was seriously ill, 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 you provided the deceased with significant personal care services at this time.

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.

Interdependency relationship:

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 that you and the deceased did have an interdependency relationship.

Therefore you are 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 you are considered to be a death benefits dependant the superannuation death benefit paid to you by the superannuation fund during the 2009-10 income year will be tax-free and is not included in your assessable income in the 2009-10 income year.

The tax withheld by the superannuation fund and remitted to the Tax Office will be refunded to you when you lodge your income tax return for the 2009-10 income year. You should also quote our reference number when you lodge your income tax return for the 2009-10 income year