Edited version of your private ruling

Authorisation Number: 1012485354927

Ruling

Subject: Superannuation death benefit - interdependency relationship

Question

Does your client have an interdependency relationship, as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with the Deceased?

Answer

No.

This ruling applies for the following period:

1 July 2012 to 30 June 2014

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The Deceased died overseas during the relevant income year.

The Deceased held a superannuation account with a superannuation fund. This superannuation account also held a life insurance policy for the Deceased.

The Deceased had a non-binding death benefit nomination in place, nominating the Deceased's parents, your client and your client's spouse as the nominated beneficiaries of the Deceased's superannuation and life proceeds in the event of the Deceased's death.

The Deceased was over 21 years of age at the time of their death, and had never married, or had any children.

Your client and your client's spouse lived in the same town in Australia for all of the Deceased's life, there was everyday interaction and support provided to the Deceased at all times.

The Deceased owned a unit, however, the Deceased's had not been residing there for some months prior to the Deceased's death. The unit was tenanted to an unrelated party. At the time of the Deceased's death, and for a majority of the few years preceding the Deceased's death, the Deceased was residing with your client and your client's spouse at their residential home. You provided a list of the addresses where the Deceased was residing for the 200X, 200Y and 200Z income years:

Whilst the Deceased worked where possible, the Deceased struggled financially to keep up with the Deceased's financial commitments, and to ensure sufficient funds to attend to their own health and wellbeing. Your client and your client's spouse had been supporting and assisting the Deceased's financially for many years including:

· Paying many of the Deceased's expenses relating to the Deceased's house. The property over several years has required repairs and maintenance expenditure, and all of the co-ordination and payment for that was handled by your client and your client's spouse. It included plumbing, painting, carpet replacement and maintenance to the bathroom.

· The Deceased had animals, which your client and your client's spouse made payment for in respect to the animals food, and registration requirements. These animals are still in your client's care.

· In addition, your client and your client's spouse paid the Deceased's general expenses such as rates, gas, phone bills and other personal expenditure. Cash withdrawals were also given to the Deceased.

The nature and level of the non-financial personal care provided to the Deceased by your client is as follows:

· A house to reside in rent free;

· Daily provision of meals;

· Provision of clean clothes, and housing including laundry;

· Daily review and attention to the well-being of the Deceased;

· Support and reminders regarding appointments and requirements to attend Employment Service meetings for counselling, and employment support services;

· Support, travel to and from, and reminders regarding appointments with medical doctor. Your client and your client's spouse would attend these appointments with the Deceased.

· Regular transport as required for travel to and from appointments and work.

A letter from the medical doctor to your tax agent during the relevant income year advised that the Deceased's parents supported the Deceased both emotionally as well as financially. The Deceased stayed mostly at the Deceased parents house in the months before the Deceased's death as the Deceased was not able/capable to support themselves financially as well as needing help to carry out activities of daily living.

Information was obtained from records held in the Taxation Office for the Deceased in the 200X, 200T and 200Z income years which indicated that the Deceased had an assessable amount of income for salary and wages in those years. Also the Deceased received an amount for Australian Government allowances and payments in the 200X and 200Z income years.

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 Paragraph 302-200(2)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(b)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(c)

Income Tax Regulations 1997 Regulation 302-200.01(2)

Reasons for decision

Summary of decision

It is considered that your client did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with the Deceased. Therefore your client was not a death benefits dependent of the Deceased. As your client is not considered to be a death benefits dependant the superannuation death benefit that will be paid to your client should be included in your client's assessable income in the income year that it is received.

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 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 302-195 of the ITAA 1997 defines death benefits dependant as follows:

A death benefits dependant, of a person who has died, is:

(a) the deceased persons spouse or former spouse; or

(b) the deceased persons 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 your client cannot qualify under paragraphs (a) or (b) of the above definition, paragraphs (c) and (d) of section 302-195 need to be examined.

Interdependency relationship

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

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), of the ITAA 1997 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.

Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) states the following matters are to be taken into account in determining whether 2 persons have an interdependency relationship:

(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;

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) Act 2004 which inserted former section 27AAB of the 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.

In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted 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.

From the facts provided, your client is a parent of the Deceased so clearly a familial relationship existed prior to, and at the time of the Deceased's death. Your client provided loving support and assistance to the Deceased when they resided together and your client provided emotional support that a parent would normally give to their child. This however does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation.

The facts would indicate the relationship between the Deceased and your client was a normal familial relationship for an adult child living at home. The Deceased had purchased their own property and had lived in that property at times when it suited them. Clearly, there was no commitment to a shared life as envisaged by the legislation. Whilst both the Deceased and your client may have intended to remain an important part of each others lives, it is reasonable to assume that the relationship would have changed significantly over time.

Therefore, it is considered that the relationship between your client and the Deceased was one that a person would expect between a parent and their child, but it was not a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, it is not accepted that a 'close personal relationship' existed between your client and the Deceased 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 the two persons live together.

From the facts provided, the Deceased died whilst on a holiday. However, it was advised that for a majority of the few years preceding your client's death, your client and the Deceased lived together at the residential house. Therefore in this case, it is accepted that your client and the Deceased lived together at the time of the Deceased's death.

Therefore the requirement under paragraph 302-200(1)(b) of the ITAA 1997 has been met.

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 your client provided the Deceased with financial assistance on a continuing basis including paying many of the Deceased's expenses relating to the Deceased's house including repairs and maintenance expenditure such as plumbing, painting, carpet replacement and maintenance to the bathroom. Your client also paid for the Deceased's general expenses such as rates, gas, phone bills and provided the Deceased with cash.

In this instance, the existence of financial assistance is established and it is not necessary to look at the level of financial support provided, but merely to establish that such support existed.

Therefore the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has been met.

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 in 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.

From the facts provided your client provided domestic support to the Deceased, including daily provision of meals and provision of clean clothes, and housing such as laundry. This support provided would be typical for a family member. However, the level of 'personal care' provided would not be high enough to meet the requirements of paragraph 302-200(1)(d) of the ITAA 1997. While it is evident your client assisted the Deceased in a number of matters, the Deceased did not require assistance in mobility and personal hygiene and was fit enough to travel and go on a holiday. Therefore on the facts provided, it is considered that the requirement of 'domestic support and personal care' in paragraph 302-200(1)(d) of the ITAA 1997 has not been met.

Application of subsection 302-200(2):

Essentially, this subsection ensures that where two people have a close personal relationship but because of the physical, intellectual or psychiatric disability of one or both of them they do not satisfy one or more of the requirements in paragraphs 302-200(1)(b) to (d) of the ITAA 1997, they will still be considered to have an interdependent relationship.

However, subsection 302-200(2) of the ITAA 1997 will only apply where the two people satisfy the requirements of paragraph 302-200(1)(a), in accordance with the terms of paragraph 302-200(2)(a).

Further it should be noted that the reasons why the requirements in paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997 are not satisfied should arise from at least one of the persons in the relationship having a physical, intellectual or psychiatric disability which requires them to be in a special care facility or shared accommodation, for example a nursing home, medical facility etc. This is not the situation in this case.

Consequently, as subsection 302-200(1)(a) of the ITAA 1997 has not been satisfied, consideration of the other conditions is therefore not necessary.

Accordingly, subsection 302-200(2) of the ITAA 1997 has not been met.

Taxation of death benefit superannuation payment

As your client is not considered to be a death benefit dependants, the death benefit superannuation payment that your client will receive is assessable to your client in the income year that it is received.

Consequently, the taxable component of the death benefit payment is to be included in your client's assessable income in the income year that it is received.

A tax offset will ensure that the rate of tax payable on the taxed element of the taxable component will not exceed 15% and that the rate of tax payable on the untaxed element of the taxable component will not exceed 30%.

Conclusion

Your client is not considered to be a dependant of the Deceased within the definition of death benefit dependant in section 302-195 of the ITAA 1997 as it has been determined that your client is not in an interdependency relationship with the Deceased under subsection 302-200(1) of the ITAA 1997. Therefore, your client is considered to be a non-dependant of the Deceased for the purposes of the income tax legislation.