Edited version of private ruling

Authorisation Number: 1011797641487

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Ruling

Subject: Superannuation death benefit - interdependency relationship

Question:

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

Answer: Yes

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

The deceased was under 30 years of age when they passed away.

As a child, the deceased was placed in the custody and guardianship of your client under a permanent care order.

At the time the deceased was diagnosed with an illness they had been living independently in a rental premises for a few years. The deceased moved back to the family home into the care of your client for few months prior to the deceased's death.

During the period the deceased was living away from your client they did not co-habit with a partner.

Whilst the deceased was receiving medical treatment your client visited the deceased daily at the hospital, bringing particular foods that the deceased could tolerate. Additionally your client provided to the deceased home comforts including music and cushions, meditation tapes and recordings, books and magazines.

The deceased had several courses of medical treatment which required your client to attended special training to help the deceased once the deceased returned home from hospital.

On discharge from each course of treatment, the deceased would require daily injections of medication which your client administered.

In addition to daily household duties and providing personal care and physical assistance for the deceased, your client provided significant emotional support, the details of which were provided.

The deceased had the option of going into palliative care however your client was adamant that they receive love at home until the end. The deceased passed away at the family home.

Your client was paid a full Carer's allowance.

The deceased was a member of two complying superannuation funds.

Your client lodged a claim with one fund for payment of the deceased's death benefits on the basis that you client had an interdependent relation with the deceased prior to and at the time of death.

In the 2010-11 income year, a gross superannuation death benefit was made to your client by this Fund. No tax was withheld for the death benefit.

The deceased did not own any assets with your client.

In the months prior to their death, the deceased contributed to the phone, gas and electricity accounts, as well as food and grocery purchases for the household.

Your client assisted the deceased to pay for the running and maintenance of their car, internet access and regularly paid for medical procedures and medicines.

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

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 Section 995-1

Income Tax Regulations 1997 Subregulation 302-200.01(1)

Income Tax Regulations 1997 Subregulation 302-200.01(2)

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 is not assessable income and is not exempt income.

Detailed reasoning

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' that are made after 30 June 2007. 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.'

A superannuation death benefit received by a dependant of the deceased is not assessable income and is not exempt income.

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

Section 302-200(1) of the ITAA 1997 defines an 'interdependency relationship' 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) 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. Sub-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):

1. the duration of the relationship; and

2. whether or not a sexual relationship exists; and

3. the ownership, use and acquisition of property; and

4. the degree of mutual commitment to a shared life; and

5. the care and support of children; and

6. the reputation and public aspects of the relationship; and

7. the degree of emotional support; and

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

9. 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) of the ITAA 1997, or alternately both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2), of the ITAA 1997 must be satisfied for the taxpayer to be able to claim that he/she has an interdependency relationship.

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.

In this particular case, the deceased was an adult child of your client who moved out of the family home a few years ago and was living in a rental premises on an independent basis.

However, due to illness, the deceased moved back to the family home. During the course of the deceased's illness, your client visited the deceased daily while they stayed at the hospital. Your client attended special training to assist the deceased with their illness, which included daily injections of medication. Your client administered these treatments when the deceased was home from the hospital.

In addition to daily household duties and providing personal care and physical assistance for the deceased, your client also provided the deceased with significant emotional support.

It is considered that the care and support provided by your client is more than that provided in a usual familial relationship. This is because of the type of illness the deceased had and the degree of care and support the deceased required from your client. This is also seen in your client's decision to personally look after the deceased rather than to put the deceased in full time palliative care.

The relationship between them had ceased to be one of mere convenience and changed to one where the deceased required your client's care. 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 in the final few months was living with your client in the family home. The deceased passed away at the family home in the 2010-11 income year.

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 and your client provided each other with financial support.

In this instance, both the existence and the level of financial assistance provided by the deceased and your client to each other 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 30-200(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 provided a substantial amount of domestic support and personal care during the deceased's illness. This included undertaking household duties such as cooking, cleaning and other household chores.

Your client also provided constant care and personal physical assistance to the deceased where required, due to the deceased's progressing illness, and is significant emotional support and care of a type and quality normally provided in a closed personal relationship.

The significant level of palliative care provided by your client was deemed sufficient for Centrelink to grant a carer's payment to your client in order for your client to devote time to care for the deceased. Your client also undertook special training in order to be able to provide the required level of personal care the deceased required.

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.

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 were in 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 benefits paid and payable by the deceased's superannuation funds are not assessable income and not exempt income (i.e. tax-free).