Edited version of your private ruling

Authorisation Number: 1012512334104

Ruling

Subject: Superannuation death benefits and interdependency relationship

Question

Did the parents of the deceased have an interdependency relationship with the deceased just before the deceased's death?

Answer

No

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

Prior to the deceased's date of death, the deceased resided in a certain state of Australia.

The beneficiaries of the deceased estate are the parents of the deceased.

The deceased's parents lived in a different state of Australia. The parents are both elderly.

The deceased had been sick for many years suffering from an illness since a teenager.

The deceased was transient. The deceased moved back home a number of times and lived with the parents but not permanently.

The decease passed away suddenly.

The deceased's parents often paid for the deceased's medical expenses and had provided for the deceased with financial assistance over the years. However, the parents do not have proof of the financial assistance they provided to the deceased and they cannot provide dates of the periods the deceased resided with them.

You have advised that as the deceased passed away suddenly, the parents were not providing domestic support and personal care at the time of the deceased's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 302

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)

Reasons for decision

Summary

It is considered that the parents were not in an interdependency relationship with the deceased just before the deceased's death. Therefore the parents are not considered to be death benefit dependants of the deceased.

Detailed reasoning

Superannuation death benefits

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.

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) 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.

As the two beneficiaries 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

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.

Subsection 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 alternately both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2), must be satisfied for you to be able to claim that you 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 subsections 302-200(1) and (2) of the ITAA 1997. 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 ITAA 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:

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.

In this case, the beneficiaries of the deceased estate are the parents of the deceased. The relationship between the parents and the deceased was a normal familial relationship that a person would expect between parents and a child. Whilst both the beneficiaries and the deceased may have intended to remain an important part of each others lives, it is reasonable to assume the relationship would have changed significantly over time and this is evident by the parents and the deceased maintaining separate residences in separate states of Australia.

Although the deceased did move back to the parents' house at certain times, it is not accepted that a close personal relationship (as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997) existed between the deceased and the parents.

Live together:

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 third edition of the Macquarie Dictionary (2001 multimedia edition) in its definition of live lists:

24. live together,  ...  cohabit.

The Macquarie Dictionary defines cohabit as:

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

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, revised 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'. 

Whilst paragraph 302-200(1)(b) of the ITAA 1997 states that the persons live together, it is considered in the context of the provision, that the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

It is noted that there were numerous occasions when the deceased lived with the parents due to financial and medical reasons however, the parents and the deceased maintained separate residences in different states of Australia and did not live together.

Therefore the requirement specified in paragraph 302-200(1)(b) has not 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.

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.

In this case, you advised the parents provided the deceased with financial assistance. However, the parents are unable to provide proof of the financial assistance to the deceased. Due to the deceased's medical conditions, it is considered that the parents had provided some level of financial assistance to the deceased such as medical expenses.

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.

The term personal care is also discussed in the New south Wales Supreme Court in 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…

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 parents did not provide the deceased with significant personal care services or domestic support as they were living separately in different states of Australia.

On the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied in this instance.

Application of subsection 302-200(2):

Essentially, this subsection ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one of 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.

In this case, the requirement that the persons live together as specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been met. However, as the reasons for not living together are not due to the deceased's disability, subsection 302-200(2) of the ITAA 1997 does not apply.

Conclusion

As all conditions of subsection 302-200(1) have not been satisfied, the parents and the deceased were not in an interdependency relationship. Therefore, the parents are not considered to be death benefit dependants of the deceased for the purposes of subsection 302-195(c) of the ITAA 1997.