Edited version of your private ruling

Authorisation Number: 1012494565956

Ruling

Subject: Death benefits - interdependency

Question

Was your client in an interdependency relationship with the deceased?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commences on

1 July 2012

Relevant facts and circumstances

Your client is the parent of the deceased.

The deceased was born after 1947.

The deceased passed away during the relevant income year.

A Statutory Declaration by your client's legal representative states that prior to the death of the deceased, your client and the deceased occupied the same address for over 10 years.

You stated that after the death of the deceased, your client entered a residential age care facility.

A Statutory Declaration by your client's family member who also worked at the residential aged care facility stated the following:

· The deceased was previously in receipt of a disability pension up to the date of death.

· Your client was in receipt of a government pension.

· The deceased assisted your client with household chores, washing, cleaning, shopping, trips to the doctors and pharmacist.

· Your client and the deceased shared household expenses, rent, electricity, telephone and food.

Your client was never married and had a child who was the deceased.

Your client's legal representative also stated the following:

· neither your client nor the deceased owned a vehicle and the deceased did all the shopping.

· the deceased assisted your client with getting into and out of bed and preparing and washing clothes.

· the deceased assisted your client with maintaining hygiene. For example, the deceased would place a chair under the shower for your client for their shower.

· the deceased made medical appointments for your client and ensured that your client took the medications at the appropriate times and dosages.

· the deceased prepared drinks and meals for your client when they fell ill.

You stated that your client is the sole beneficiary of the deceased's estate.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27AAB.

Income Tax Assessment Act 1997 Section 82-135.

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 Subsection 302-200(3).

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

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

Income Tax Assessment Act 1997 Subsection 307-5(1).

Income Tax Assessment Act 1997 Subsection 307-5(4).

Income Tax Assessment Act 1997 Subsectio n 995-1(1).

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

Income Tax Regulations 1997 Subregulation 302-200.02(2).

Income Tax Regulations 1997 Sub-subregulation 302-200.02(2)(b).

Reasons for decision

Summary

Your client is a death benefits dependent of the deceased at the time of death as they have satisfied all of the requirements which are set out in section 302-200 of the ITAA 1997.

Detailed reasoning

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997), which has replaced former section 27AAB of the Income Tax Assessment Act 1936, sets out the taxation arrangements that apply to the payment of superannuation death benefits that are made after 30 June 2007. 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.

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.

Subsections 302-200(2) and (3) of the ITAA 1997 go on to state:

(2) 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.

(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.

For the purposes of paragraph 302-200(3)(a), regulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) sets out matters that are to be taken into account in determining whether 2 persons have an interdependency relationship. These matters include (sub-subregulation 302-200.01(2)(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.

In this case, as neither the deceased nor your client suffered from a physical, intellectual or psychiatric disability, therefore, your client must satisfy all the conditions in subsection 302-200(1) of the ITAA 1997 to prove that they have an interdependency relationship with the deceased.

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 the conditions in 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 (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 facts show that the deceased was the child to your client who never married and that they occupied the same address for over 10 years prior to the death of the deceased.

The next issue to consider is whether the relationship between your client and the deceased was one that involved a demonstrated and ongoing mutual commitment to a shared life.

The facts show that whilst your client did not have any joint assets with the deceased, they nevertheless shared household expenses, rent, electricity, telephone and food. Furthermore, as neither your client nor the deceased owned a vehicle, the deceased did all the shopping for your client.

In respect of emotional support, the facts show that the deceased and your client provided each other with a significant degree of support and companionship.

It is clear that the relationship between your client and the deceased is one which involved a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. From the facts provided it is likely that both parties would have continued to contribute to the physical and emotional wellbeing of the other person and provide each other with constant care and support for as long as was required.

Therefore, it is considered that overall the relationship between the deceased and your client is of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

The second requirement to be met is specified in paragraph 302-200(1)(b), and states that two persons live together.

The Macquarie Dictionary Online in its definition of the word 'live' lists:

24. live together, … cohabit.

The Macquarie Dictionary Online defines 'cohabit' as:

2. … to dwell or reside in company or in the same place.

The Macquarie Dictionary Online further defines 'dwell' as:

1. to abide as a permanent resident.

Prior to their death, the deceased was living together with your client on a daily basis and have been living together in the same property for over 10 years.

Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 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.

The facts show that prior to the deceased's death, the deceased was in receipt of a disability pension up to the date of death and your client was in receipt of a government pension. Both parties relied on these allowances to pay for their share of the household, rent, electricity, telephone and food expenses.

Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied by your client 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.

Paragraph 302-200.02(2)(b) of the Income Tax Regulations 1997 states:

(b) 1 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.

The facts show that the deceased provided domestic support and personal care to your client on an ongoing basis. As your client was of a frail nature, the deceased assisted them with household chores, washing, cleaning, shopping and trips to the doctors and pharmacist. Furthermore, the deceased provided your client with personal care (for example, helping them get into and out of bed and preparing and washing their clothes and assisting them with entering into the shower on a daily basis).

Therefore 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.

Interdependency relationship

From the facts presented, it is clear that all of the requirements which are set out in section 302-200 of the ITAA 1997 have been satisfied by your client in this case. Consequently it is considered that the deceased and your client were in an interdependency relationship at the time of death.

The taxation treatment of superannuation death benefits

As your client (the sole beneficiary) is considered to be death benefit dependant of the deceased, the superannuation death benefit payment will be tax-free and therefore not included in their assessable income in the year in which it is received under section 302-60 of the ITAA 1997.

Conclusion

Your client is a death benefits dependent of the deceased at the time of death as they have satisfied all of the requirements which are set out in section 302-200 of the ITAA 1997.