Edited version of your written advice

Authorisation Number: 1012732511996

Ruling

Subject: Superannuation death benefit - interdependency relationship.

Question

Was the Deceased and the Deceased's parent in an interdependency relationship?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

The Deceased died during the relevant income year.

The Deceased, who was employed at the time of death, was your clients' child.

The Deceased, up to the time of the Deceased's death, lived at home with your clients for most of the Deceased's life.

The only time that the Deceased did not live with your clients was for a period that the Deceased lived in another Australian state to complete tertiary course (the course).

Your clients paid an amount towards the total course and living costs incurred by the Deceased whilst undertaking the course.

Over the years your clients bought the Deceased various items and paid for expenses for the Deceased.

The Deceased also paid various expenses for your clients.

At the time of the Deceased's death, your clients and the Deceased shared their living expenses equally.

Your clients provided the Deceased with domestic support in the form of preparing meals, doing laundry, cleaning, and a number of other tasks for the Deceased. In turn the Deceased helped your clients by performing tasks around the house.

In relation to personal care, your clients and the Deceased provided each other with love, care affection and psychological assistance.

At the time of the Deceased's death, your clients had just begun to convert separate a private living space for the Deceased at their residence. An amount was spent on the conversion prior to the Deceased's death and a further amount was spent after the Deceased's death as work had already commenced and needed to be completed.

A superannuation fund paid a benefit to the Deceased's Estate during the subsequent income year.

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 Regulations 1997 subregulation 302-200.01(2)

Reasons for decision

Summary of decision

It is considered that your clients did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with their child (the Deceased). Therefore your clients were not death benefits dependants of the Deceased.

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 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 your clients' case, and from the facts provided, the relevant definition which needs to be examined is that in paragraph 302-195(c) of the ITAA 1997, that is, whether your clients were in an interdependency relationship with the Deceased.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 states:

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.

Under subsection 302-200(2) of the ITAA 1997 two people who have a close personal relationship but 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.

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 two 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 two persons have, or do not have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

Subregulation 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 two 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.

The facts show that your clients were the parents of the Deceased. Clearly a familial relationship existed between your clients and the Deceased prior to, and at the time of, the Deceased's death. Your clients provided loving support and assistance to the Deceased when they resided together and your clients provided emotional support that parents 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.

Given that the Deceased was a young adult child at the time of the Deceased's death, the Deceased and your clients had of course known each other for some time. The facts also indicate that the relationship between the Deceased and your clients was a normal familial relationship for a young person living with their parents. Whilst both the Deceased and your clients may have intended to remain an important part of each other's life, it is reasonable to assume that the relationship would have changed significantly over time.

In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the Income Tax Regulations 1936, it states that:

Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

A close personal relationship of the type envisaged by the legislation would not normally exist between a parent and their adult child because there would not be a mutual commitment to a shared life between the two. It would be expected that the adult child would eventually move out and secure independence from their parents.

In this case, the Deceased was working and earning their own income. The fact that the Deceased was working and earning income whilst still residing at the Deceased's parents' residence however does not indicate the Deceased's situation as being any different from that of any other young adult child who may reside at his or her family's residence after having entered the workforce.

It is considered that the relationship between your clients and the Deceased was one that a person would expect between parents and their child. Your clients have provided evidence that they were converting a separate private living space for the Deceased at their residence. However that does not indicate that the Deceased would have remained living with the parents. It is likely that the Deceased would have eventually moved out of the family home over time and lived independently of their parents.

In view of the above it is considered that a close familial relationship existed between your clients and the Deceased, but, it was not a close personal relationship as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, paragraph 302-200 (1)(a) of the ITAA 1997 has not been satisfied .

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.

The facts show your clients and the Deceased lived together until the time of the Deceased's death. Therefore it is accepted that your clients and the Deceased lived together at the time of the Deceased's death.

Accordingly, 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.

Paragraph 302-200(1)(c) of the ITAA 1197 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 clients and the Deceased provided each other with financial assistance.

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, and 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.

The facts show that your clients provided domestic support to the Deceased including preparing meals, doing laundry, cleaning, and a number of other tasks for the Deceased. In addition your clients also provided the Deceased with love, care and emotional support.

The Deceased in turn also helped your clients by performing tasks around the house and also provided your clients with love, care and emotional support.

The above domestic and personal support provided between your clients and the Deceased would be typical of that found within a family and between its members.

It should be noted however that personal care as referred to in paragraph 2.16 of the SEM would include ongoing assistance with mobility, personal hygiene and physical comfort. From the facts, the level of personal care between your clients and the Deceased is not the high level of personal care as envisaged by paragraph 2.16 of the SEM. Therefore the requirement of personal care under paragraph 302-200(1)(d) of the ITAA 1997 is not met.

As some of the conditions under subsection 302-200(1) of the ITAA 1997 have not been met, your clients are not considered to have been in an independency relationship with the Deceased as defined under the income tax legislation.

Conclusion

Your clients are not considered to be dependants of the Deceased within the meaning of a death benefits dependant in section 302-195 of the ITAA 1997 as your clients were not in an interdependency relationship with the Deceased. Accordingly, your clients are considered to be non-dependants of the Deceased for the purposes of the income tax legislation.