Edited version of your private ruling

Authorisation Number: 1012376409099

Ruling

Subject: Superannuation death benefit - interdependency

Question

Is your client in an interdependency relationship with the Deceased at the time of death?

Advice/Answers

No.

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

Your client is the Deceased's parent and supported the Deceased.

The Deceased left school and found a job as an administration assistant.

The Deceased lived with their elder siblings during the week and would go to your client's home each weekend.

The majority of the Deceased's personal effects remained at your client's home.

Your client paid for most of the family expenses, however, the Deceased contributed to the household budget by purchasing food for the family. The Deceased also helped with cooking meals, cleaning the house, gardening and their younger siblings with homework.

You provide that your client relied on the Deceased for companionship, emotional support and friendship. Further, your client and the Deceased had a normal loving family relationship evidenced by mutual respect and support.

In the 2009-10 income year the Deceased had a accident which resulted in them spending time in hospital. The Deceased returned home to be cared for by your client. The Deceased was severely traumatised by the accident and would not leave the house. The Deceased suffered from depression and panic attacks and your client provided both emotional support and physical care to the Deceased during this difficult time.

In the 2009-10 income year the Deceased was involved in another accident which caused her death.

The Deceased was over 18 years of age.

A PAYG payment summary - superannuation lump sum for the 2011-12 income year from a superannuation fund shows a death benefit was made to your client, a non-dependant of the Deceased, and tax was withheld. The PAYG payment summary further shows the death benefit was made up of following components:

· a taxable component - taxed element

· a taxable component - untaxed element

The superannuation fund advised that a pricing error had occurred. This affected the Deceased's account and, so as not to disadvantage in away way, additional benefits were made to your client.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27AAB

Income Tax Assessment Act 1997 Division 302

Income Tax Assessment Act 1997 Section 302-195.

Income Tax Assessment Act 1997 Subsection 302-195(1).

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

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

Income Tax Assessment Act 1997 Subsection 302-200(3).

Income Tax Assessment Act 1997 Subsection 995-1(1).

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

Reasons for decision

Summary of our decision

Your client and the Deceased were not in an interdependency relationship.

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. 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.

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.

In this case, your client was not the Deceased's spouse, former spouse or the Deceased's child aged less than 18. It will now be determined if your client had an interdependency relationship with the Deceased.

Interdependency relationship

The term interdependency relationship is defined in section 302-200 of the ITAA 1997. Section 302-200 of the ITAA 1997 states:

1) Subject to subsection (3), for the purposes of this Subdivision, 2 persons (whether or not related by family) have an 'interdependency relationship' 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.

2) In addition, 2 person (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 the other requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability;

3) The regulations may specify:

a. matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and

b. circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.

Paragraph 302-200(3)(a) of the ITAA 1997,above, states that the regulations may specify the matters that are, or are not, to be taken into account in determining whether two 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 two 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;

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 you to be able to claim that you had 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 (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.

The explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted regulation 8A of the Income Tax Regulations 1936 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.

In this case, the beneficiary, your client, is the Deceased's parent. Clearly a familial relationship existed prior to, and at the time of the Deceased's death.

Whilst your client and the Deceased may have intended to remain an important part of each others lives, it is noted that the Deceased was establishing her own life and it is reasonable to assume that the relationship would have changed significantly over time.

In this case, the Deceased had already found a job as an administration assistant in a town over 200kms away. Further, the Deceased was living with their elder siblings in that town during the week and only going to your client's home each weekend.

The facts also show that the relationship between your client and the Deceased was a normal parent child relationship.

In light of the foregoing, it is not accepted that a close personal relationship, as envisaged by paragraph 302-200(1)(a) of the ITAA 1997, existed between your client and the Deceased at the time of death.

As noted previously 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 you to be able to claim that you had an interdependency relationship. As paragraph 302-200 (1)(a) of the ITAA 1997 has not been satisfied your client is not in an interdependency relationship with the Deceased.

We will, however, deal with some of the other conditions.

Domestic support and personal care

The requirement specified in paragraph 302-200(1)(d) of the ITAA 1997 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 in the case Dridi v. Fillmore 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…

It is noted that the Deceased helped with cooking meals, cleaning the house, gardening and their younger siblings with homework. Further, your client relied on the Deceased for companionship, emotional support and friendship. However, the domestic support supplied between your client and the Deceased was infrequent and that of a normal parent child relationship. It does not indicate domestic support and personal care to satisfy paragraph 302-200(1)(d) of the ITAA 1997.