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Ruling

Subject: Superannuation death benefit - interdependency relationship

Question

Was a beneficiary (the Beneficiary) a death benefits dependant of the deceased at the time of the deceased's death?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The deceased died during the 2011-12 income year from several medical conditions which existed for many months prior to the deceased's death.

During the 2010-11 and 2011-12 income years the deceased lived with at the residence of one of the deceased's adult children (the Beneficiary) until the deceased's date of death.

During the period that the deceased resided with the Beneficiary the deceased's illness required intensive care and on going medical assistance which the Beneficiary provided by attending to complex medical dressings and frequent requests for 24 hour a day assistance.

The Beneficiary:

(a) co-ordinated the provision of care for the deceased by organising in home visits by nurses;

(b) accompanied the deceased to frequent medical appointments and diagnostic tests; and

(c) arranged the collection of medical appointments and supporting the deceased during frequent hospital admissions.

During the above period the Beneficiary also provided the deceased with emotional, domestic and financial support which included:

(a) laundering and cleaning the deceased's linen and clothing;

(b) cooking meals;

(c) providing the deceased with a clean and tidy personal space within the Beneficiary's residence; and

(d) frequent trips made by the Beneficiary and the Beneficiary's spouse to the deceased's property to check on its state and attend to the general maintenance of the yard and house.

A copy of the deceased's last Will and Testament (the Will) has been provided which shows the Deceased:

(i) appointed the Beneficiary and the Beneficiary's siblings as joint executors and trustees of the Will;

(ii) left the whole of the estate in equal shares to the Beneficiary and the siblings as beneficiaries; and

(iii) made provisions for the Beneficiary's child to be a Beneficiary should the Beneficiary have died before the deceased.

Copies of the deceased's death certificate and the granting of probate have been provided which show the Beneficiary and the siblings are all adults and reside at separate residences.

In the 2011-12 income year a lump sum death benefit was paid by a superannuation fund (the Fund) to the trustee of the estate of the deceased.

The 'PAYG Payment Summary - Superannuation Lump Sum' which was prepared the Fund has been provided.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 101A(3)

Income Tax Assessment Act 1997 Ch3-Pt3-30-Div302.

Income Tax Assessment Act 1997 Section 302-10.

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 Assessment Act 1997 Subsection 995-1(1)

Income Tax Regulations 1936 Former Regulation 8A.

Income Tax Regulations 1997 Regulation 302-200.01

Income Tax Regulations 1997 Regulation 302-200.02

Reasons for decision

Summary

It is considered that the Beneficiary and the deceased had an interdependency relationship at the time of the deceased's death. Therefore, the Beneficiary is a death benefits dependant of the deceased.

As the Beneficiary is considered to be a death benefits dependant, that part of the superannuation death benefit paid in respect of the Beneficiary will be tax-free and is not included as assessable income in the hands of the Estate of deceased (the Estate). The amount ultimately distributed from the Estate to the Beneficiary will not be taxable in the Beneficiary's hands because the amount will represent a distribution of the corpus of the Estate.

Detailed reasoning

Superannuation death benefits paid to a trustee of a deceased estate

Under section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

This means that where a 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, and the benefit is taken to be income to which no beneficiary is presently entitled.

Where a person that is not a dependant 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 non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled.

Accordingly, in the present case, the payment from the superannuation fund paid to the trustee of the deceased estate is assessable to the trustee as income to which no beneficiary is presently entitled.

The superannuation death benefits will be treated concessionally if a dependant of the deceased will benefit from the estate. 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.

In this case there are several beneficiaries who will receive a distribution arising from the superannuation death benefit which was paid to the deceased estate. However, the ruling sought by the applicant only relates to whether the Beneficiary's share of the superannuation death benefit which will be ultimately paid the Beneficiary will be concessionally treated for tax purposes.

It will now be determined if the Beneficiary is a dependant of the deceased.

Death Benefits Dependant in relation to a 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. Subsection 302-195(1) 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, as the Beneficiary cannot qualify under paragraphs (a) or (b) of the above definition, paragraphs (c) and (d) of section 302-195 of the ITAA 1997 need to be examined to determine if the Beneficiary was a dependent of the deceased.

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.

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 the Beneficiary is an adult child of the deceased, the facts show that the deceased went to live with the Beneficiary in the 2010-11 income year as the deceased was gravely ill and resided in the Beneficiary's home up until the time of the deceased's death. Further, the facts indicate that this was not for a definite period of time.

As the deceased suffered from a number of medical conditions which required constant care the Beneficiary undertook a significant number of tasks which included:

(i) arranging intensive care, co-ordinating the provision of care for the deceased;

(ii) accompanying the deceased to frequent medical appointments and diagnostic tests;

(iii) arranging the collection of medical appointments and supporting the deceased during frequent hospital admissions;

(iv) laundering and cleaning the deceased's linen and clothing;

(v) cooking meals; and

(vi) providing the deceased with a clean and tidy personal space within the Beneficiary's residence.

Therefore clearly a relationship over and above the usual familial relationship existed between the Beneficiary and the deceased, prior to, and at the time of the deceased's death. In view of the facts provided it is considered reasonable to assume that given the circumstances the relationship would not have changed significantly over time. The facts show that there was a mutual commitment to a shared life between the Beneficiary and the deceased prior to and at the time of the deceased's in the 2011-12 income year.

Therefore, it is accepted that a close personal relationship existed between the deceased and the Beneficiary 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 and the Beneficiary were residing in the Beneficiary's home prior to and 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 Beneficiary provided the deceased with financial support. The Beneficiary stated financial support existed in relationship between the Beneficiary and the deceased. Further, the duties and tasks undertaken by the Beneficiary for the deceased, for example, such as cleaning, laundry, cooking etc, for the deceased would represent added expenses which were incurred in the household from the time of the deceased's having taken up residence with the Beneficiary.

In this instance, both the existence and the level of financial assistance provided in the relationship between the deceased to the Beneficiary 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.

From the facts of the case, the deceased was suffering from a number of medical conditions which existed many months prior to the deceased's death. As a result of his condition, the deceased took up residence with the Beneficiary.

As previously stated, and shown in the facts, the Beneficiary provided the deceased with domestic and personal care which included cooking, cleaning, arranging medical appointments for the deceased, attending to complex medical dressings and frequent requests for 24 hour a day assistance.

In view of the above, it is evident that significant care and emotional support was provided by the Beneficiary to the deceased which is 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 the Beneficiary 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 Beneficiary and the deceased did have an interdependency relationship.

Therefore the Beneficiary 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 the Beneficiary is considered to be a death benefits dependant, the Beneficiary's share of the death benefit will be tax-free under section 302-60 of the ITAA 1997 and not included as assessable income in the hands of the Estate.

Further, the amount ultimately distributed from the Estate to the Beneficiary in relation to the Beneficiary's share of the death benefits will not be taxable in the Beneficiary's hands because the amount will represent a distribution of the corpus of the Estate.