Edited version of your private ruling

Authorisation Number: 1012337912740

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: interdependency relationship

Question

Were you in an interdependency relationship with your child (the deceased ) as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period

For the year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are the parent of the deceased. The deceased died unexpectedly in a recent year.

You supplied comprehensive details of your personal and working relationships with your child.

You advised us of your taxable income for the 2009-10 and 2010-11 income years.

You received two superannuation lump sums during the 2011-12 income year from the trustee of the deceased estate in respect of the deceased's superannuation entitlements in two superannuation funds.

Prior to receiving the lump sums, you completed statements indicating you were not financially dependent or interdependent on your son at the time of death.

However, you have subsequently advised that you were affected by the deceased's death at the time of signing the statements and had no understanding of the outcome that would result from your actions.

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.

Reasons for decision

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 302-60).

Where a person receives a lump sum superannuation death benefit and that person was a non-dependant of the deceased, then the taxable component of the lump sum is assessable income (section 302-145).

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) he 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.

As you cannot qualify under paragraphs (a) (b) or (d) of the above definition, paragraph (c) of section 302-195 needs to be examined.

Interdependency relationship

Paragraph 302-195(c) of the definition of death benefits dependant refers to an 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:

(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.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2) must be satisfied for a person to be in an interdependency relationship with another person.

To assist in determining whether 2 persons have an interdependency relationship, 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 addition, 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.

It is proposed to deal with each condition of subsection 302-200(1) of the ITAA 1997 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) Bill 2004 which inserted former section 27AAB of the Income Tax Assessment Act 1936. This section dealt with interdependency relationships prior to 1 July 2007. 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 Income Tax Regulations 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, even though the deceased was your adult child, the facts show that the relationship between the deceased and yourself were far from being normal circumstances. Clearly you both demonstrated your mutual love and concern for the welfare of each other well beyond normal boundaries.

Despite the difficulties following your divorce, there were significant extra demands placed on each other due to ill health. Your mutual concern for each other's welfare was paramount and the deceased chose to keep close to you. This arrangement was not just one of convenience but driven by safety, care and concern for your wellbeing.

The nature of the deceased's illness resulted in a particular behaviour. This meant the deceased also relied heavily on your emotional support.

Therefore clearly a relationship over and above the usual familial relationship existed between yourselves, prior to, and at the time of the deceased's death. You were also highly dependent on your child's emotional and physical support as the deceased supported and cared for you on a continuing basis during your ill health. It is clear there was a mutual commitment to mutual care and support prior to and at the time of the deceased's death.

For the above reasons, it is accepted that a close personal relationship existed 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.

Although the facts show that although the deceased stayed on the family property where his other parent resided, this was to perform daily tasks to ensure the property remained viable.

However, the deceased would stay with you on a regular basis for a number of nights each week. Prior to becoming unemployed and up to the time of the deceased's accidental death, the deceased would stay up to a number of nights each week with you.

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 your child provided you with some financial support. Although in receipt of benefits and occasionally employment income, the deceased contributed to day to day living expenses which included groceries, food items and household expenses.

In this instance, both the existence and the level of financial assistance provided 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 term 'personal care' is also discussed the New South Wales Supreme Court in 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 facts show the deceased accompanied you to attend medical appointments. The deceased also provided domestic support and personal care especially when you suffered due to your medical condition.

The wording in paragraph 2.16 of the SEM clearly envisages that a wider interpretation of what constitutes 'domestic support and personal care' is required, rather than the slightly narrower view given in cases such as Dridi v. Fillmore [2001] NSWSC 319.

Consequently, the emotional support you provided to each other supports a finding of domestic support and personal care as envisaged by paragraph 302-200(1)(d) of the ITAA 1997 and paragraph 2.16 of the SEM.

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.

You were in an interdependency relationship with the deceased:

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 were in an interdependency relationship prior to, and up to, the time of death.

Therefore you are also considered to be a death benefits dependant of the deceased within the definition in section 302-195 of the ITAA 1997.

The taxation treatment of a superannuation death benefit paid to a trustee of a deceased estate

A superannuation death benefit may be received by a person acting as a trustee of a deceased estate. The taxation arrangements that apply to superannuation death benefits are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

Where a person who is a death benefits dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a dependant of the deceased to that extent (section 302-10 of the ITAA 1997).

As you are a death benefits dependant of the deceased, the superannuation death benefits are not assessable and are not subject to taxation.

From the information provided, as you have already received the distribution of the superannuation death benefits from the trustee of the deceased estate (the Estate), the trustee will need to ensure the relevant income tax return of the Estate reflects the correct taxation treatment of the superannuation death benefits that were distributed to you as a dependant of the deceased.