Edited version of your private ruling

Authorisation Number: 1012429713400

Ruling

Subject: Superannuation death benefits -Interdependency relationship

Question 1

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

Answer

No.

This ruling applies for the following period:

For the year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are the parent of the deceased.

The deceased died in the recent year, leaving an estate.

The deceased was age over 40 and did not have a spouse or children.

You and your spouse are entitled to a beneficial interest of the deceased's estate (the Estate).

The deceased's superannuation benefits with the superannuation provider are to be paid to the Estate as superannuation death benefits.

You have advised that there have been no death benefit payments to date but there is an inclination to proceed in due course to seek a release of the funds.

· You provided a statutory declaration and included the following in your ruling application:

· You and your spouse had a number of children who were raised on a property (the family home/farm).

· The deceased was living away from the family but had decided in a certain year to return to live permanently on the family farm and to raise a family there.

· The deceased was living predominantly in a major city for some years, and also lived in other areas at other times for work projects.

· The deceased had moved to another city in a subsequent year for work and also to be closer to your family and to progress the process of moving back to live at your family farm and construct a home on the property.

· It was the deceased's intention to build their own home on your family property and also to assist you to manage the farm.

· The deceased sought legal advice about relevant environmental and planning laws that may relate to the construction of an additional dwelling or single dwelling on the property.

· The advice received was that it was likely that a single dwelling only could be built on the property or possibly it could include the construction of a small cottage as well.

· The deceased had not been able to decide the course of action as it was their dream to build a large family home on the property and the deceased had paid for a road to be built to accommodate a dwelling.

· The deceased attended at the family home/farm regularly in order to assist with its ongoing maintenance and management and to attend to chores and like for you, and also to share in close family time.

· You experienced an extended period of personal difficulties and health related issues, such as major depression and heart problem, as a consequence of your spouse's long term illness of a number of years, graduating to your spouse's total incapacitation from a certain year onwards.

· You believe the deceased was pivotal in supporting you emotionally and psychologically in this regard.

· From the ra certain year for a period of 12 months the deceased would visit the farm switching between alternate to nearly three weekends each month.

· From the subsequent year for a period of months the deceased would visit the farm almost each alternate weekend and you would visit the deceased one weekend of each month.

· You had always been dependent on the deceased's emotional support in relation to the needs associated with caring for your spouse and also the physical support in regards to management and caretaking of the family home and attached farm property.

· The deceased was instigating to relocate back to reside in the family home in a certain year onwards.

· You were unable to accommodate this move given your own heightened health problems, your spouse's illness and needs being as they were and the confines of the family home. However, it was still the deceased's intention to build their own home in years to come or at least an expansion of the family home.

· The farm had fallen into disrepair over the years mainly due to your spouse's ill health and the deceased had a long term goal of fixing up the farm so that work could commence to make it a fully functional farming property. The deceased was very keen to one day operate both organic livestock and crops.

· The deceased would attend to various jobs on each visit to the farm as your spouse was unable to do the same and this included but was not limited to maintenance jobs on the farm and residence, looking after the cattle and other animals on the property.

· The deceased would pay for any supplies/materials required in regards to the above and also gave you respite with the caring for your spouse.

· During your visits with the deceased, you attended to the deceased's laundry on most occasions as well as repair of clothes, cooking, cleaning and general shopping which you paid for. Things only amplified in this regard after the deceased was diagnosed with serious illness in the particular year.

· After the diagnosis, the deceased became unable to relocate back to the family home due to ongoing medical needs that were required to be accommodated and attended to in the city of residence.

· After that the deceased returned to the family home/farm sporadically due to health needs but still about every other weekend.

· Other than periods in hospital, the deceased was normally residing at the residential home in the city.

· The Deceased started treatments in late in a certain year.

· The deceased nonetheless continued to return to the farm nearly on each alternate weekend to stay and was dependent on the domestic support, personal care and your love and affection.

· You also periodically visited the deceased in the city during this period.

· When you visited the deceased, you would provide food, do cooking, cleaning, shopping, laundry and assist in the administering of medication, preparation of various complicated herbal remedies that the deceased was prescribed.

· You spoke regularly by telephone at other times during the week and when the deceased was unable to make it to the family home/farm on weekends.

· You were always extremely close but this relationship became closer after this diagnosis.

· Due to personal health requirements the deceased needed many herbal supplements and a special juicing machine which you purchased . You purchased all these items to be able to provide the same food and supplements when the deceased was at the farm.

· Updating your kitchen to purely organic was also an increase financial strain which you were happy to do to make for the deceased's comfort and health benefit.

· You wanted to give support in any way you could and even taught yourself to bake favourite foods as the deceased was on a strict no diet.

· Following treatments the deceased could no longer eat or drink the necessary juices with supplements due to the treatment side effects.

· The treatment also had severe side effects requiring assistance to tend.

· On visits to the family farm, one of your children and yourself also assisted in administering nutrition to the deceased.

· During the times when the deceased was too ill to travel you would visit them when you were able to get a respite carer for your spouse however as the deceased's health deteriorated so did your spouse's.

· When you could not visit the deceased you would provide assistance so one of your children could visit.

· In early the recent year the deceased made the difficult decision to go through with necessary surgery and once the final stages of treatment were completed, to return to live at the farm.

· After the Deceased's surgery, recovery in hospital was longer than expected due to complications.

· The difficult period was physically and emotionally draining for the deceased.

· After being released from hospital the deceased returned to the city residence but was too weak to travel so you arranged a rotation schedule for friends and family each day to support them.

· The deceased came to stay with you in the recent year but was unwell and in pain and soon after was admitted to hospital.

· In accordance with medical advice, your spouse was admitted to a respite centre at the time, and now resides there permanently.

· The deceased was admitted to Palliative care with a prognosis of having approximately 3 weeks to live.

· While in Palliative care the nurses and doctors began plans to transfer the deceased to the farm as there was nothing more the medical community could do.

· The deceased stayed at the farm for a short time and was cared for by yourself and siblings and passed away in a hospital shortly after.

The following was also included in your private ruling:

· A copy of your spouse's Power of Attorney (POA) wherein your spouse nominated you as POA because of their incapacity.

· A copy of the deceased's superannuation entitlements from the superannuation provider.

· A statutory declaration from the authorised person for your ruling application which supported the information that you have provided in addition to the following:

o The deceased had been in a long term relationship which ended a few years ago.

o In a subsequent year legal advice was sought about the potential of constructing a home on the family property which was likely to be difficult (due to zoning issues) to construct two premises on the property, although there may have been a potential to construct a small cottage in addition to the family home.

o This was not the preferred option which was to construct a large home on the family property.

o There were various issues that came into play with the decision making process including your spouse's deteriorating health.

o The deceased was mindful that your spouse might be admitted to a nursing home and if this was the case it was more probable to construct the large family home on the property to accommodate you therein and the deceased's intended family.

o The interim plan was to live with parents and to set about raising the savings and then finance over the years to progress the above.

o Even after the serious illness diagnosis, the deceased continued to relay this desire to in particular to look after you and share a close family on the family property.

Relevant legislative provisions

Income Tax Assessment Act 1936 former section 27AAB.

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

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Section 302-145.

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 former Regulation 8A.

Reasons for decision

Summary

You were not in an interdependency relationship with the deceased as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997), therefore, you are not a death benefits dependant of the deceased for the purposes of section 302-10 of the ITAA 1997.

Consequently, the taxable component of superannuation death benefits received are subject to taxation.

Detailed reasoning

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits.

These arrangements depend on whether the person who receives the superannuation death benefits 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, 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 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.

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.

Under subsection 302-200(2) two people who have a close personal relationship but who cannot satisfy all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, may still have an interdependency relationship.

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 section 302-200.

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:

o the duration of the relationship;

o the degree of mutual commitment to a shared life;

o 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.

The Explanatory Statement (ES) to the Income Tax Amendment Regulations 2005 (No. 7) (the Regulations) which inserted former regulation 8A of the Income Tax Regulations 1936, stated that the purpose of the Regulations was to specify matters that are, or are not, to be taken into account in determining whether two people have an interdependency relationship. An extract of the ES to the Regulations is as follows:

Subregulation 8A(1) lists a number of matters that are to be taken into account when determining whether two people have an interdependency relationship, or whether two people had an interdependency relationship immediately before the death of one of them.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

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 even though each may have intended to remain an important part of each others' lives. 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 age over 40 and was your adult child who had lived independently away from the family home for a substantial period of time and was in a settled relationship for many years.

The facts do indicate the deceased provided support to you during your health related issues and your spouse's ill health in regard to management and caretaking of the family home and attached farm property, weekend visits to the farm and regular telephone calls during the week when unable to make a weekend visit.

You continued to give emotional support when the deceased made the decision to go through with necessary surgery after the serious illness diagnosis. Recovery in hospital was hampered by complications. During this very difficult period you continued to give the deceased emotional support to see it through.

However, it would be reasonable to expect that the support given to each other may be no less than the care and support that an adult child and a parent would give to each other at a time of need under the circumstances and there was no commitment to a shared life with parents as required by 302-200(1)(a) of the ITAA 1997.

For the above reasons, you and the deceased were not in a close personal relationship 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.

Having considered all the circumstances surrounding the deceased's stated desire to re-locate back to the family farm/property, it can be seen that it was more the case the deceased's intention to re-locate was on a number of fronts convenient and predominantly because of the desire to construct their own home on the family property and raise a family of their own there.

The deceased had resided predominantly in a city and also in other towns on work projects until the move back to another city in a certain year for work reasons.

The deceased had also been in a relatively long term relationship and planning to have a family at the time. Despite the stated intention and efforts to seek approval from council to construct either an additional dwelling or a single dwelling on the property, the preferred option was to construct their own home on the family property and to raise their own family there.

This plan was in many ways ultimately subject to receiving council approval and the preferred option had always been to erect a separate dwelling and not an extension to the parents' residence on the farm.

Despite the fact you did care for the deceased in a 2 week period before their death it is not considered you and the deceased lived together as envisaged in paragraph 302-200(1)(b) of the ITAA 1997.

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.

In considering whether two persons were in an interdependency relationship one factor to look at would be whether, to any extent, if one or both persons contributed to day to day living expenses which included groceries, food items and household expenses.

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.

From the facts, we know the deceased attended at the family home/farm regularly in order to assist with its ongoing maintenance and management and to attend to chores and like for you. The deceased would pay for any supplies/materials required in regards to the above.

When you cared for the deceased, you would provide food. Due to personal health requirements the deceased needed many herbal supplements and a special juicing machine which you purchased. You purchased all these items to provide the same food and supplements at the farm which the deceased had in the city residence.

In this instance, both the existence and the level of financial assistance provided 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 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.

You have shown that the deceased provided emotional support in relation to the needs associated with caring for your spouse and also provided physical support in regards to the management and caretaking of the family home and farm property during visits.

Following the serious illness diagnosis you cared for the deceased by helping with medical issues, visiting, sending food, arranging for friends and family to visit, and looking after the deceased for a 12 month period until the deceased passed away in a hospital.

However, the domestic support and personal care envisaged by the legislation is of a frequent and ongoing nature provided to persons living together in a committed relationship with a mutual commitment to a shared life. The support given by the deceased is in keeping with a normal parent/adult child relationship while the support you provided would be common for a parent looking after a single adult child.

Therefore it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 and paragraph 2.16 of the SEM did not exist. Consequently the condition of this paragraph has not been met.

Conclusion

Two persons have an interdependency relation when they have a close personal relationship, they live together, one or each of them provides the other with financial support and one or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.

There are a number of factors when considering whether two persons have an interdependency relationship, or whether two people had an interdependency relationship immediately before the death of one of them.

It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. Each of the matters is to be given appropriate weighting under the circumstances.

The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

On the facts provided, all of the above have been taken into careful consideration to determine if an interdependency relationship existed for the purposes the legislative provision. However, it is concluded that all the requirements in subsection 302-200(1) of the ITAA 1997 have not been satisfied in this instance.

Therefore it is considered that you and the deceased were not in an interdependency relationship prior to, and up to, the time of his death.

Consequently you are also not 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 not 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 non-dependant of the deceased to that extent (subsection 302-10(3) of the ITAA 1997).

From the information provided, you advised the superannuation death benefits have not been made to 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 was distributed to you as a non dependant of the deceased.