ATO ID 2005/143: Superannuation, retirement & employment termination: ETP death benefit dependant and interdependency relationship
Date of decision: 1 April 2005
Year of income: Year ended 30 June 2005
Business line: Superannuation

Issue
Did an interdependency relationship exist between a person who will receive a death benefit eligible termination payment (ETP) and her son, the deceased taxpayer, within the meaning of subsection 27AAB(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision
Yes. The taxpayer and his mother had an interdependency relationship within the meaning of subsection 27AAB(1) of the ITAA 1936.

Facts
The taxpayer was a member of a superannuation fund. Since 1998 the taxpayer lived with his mother. After moving in he commenced to make financial contributions towards the payment of electricity and telephone bills. He also contributed towards weekly mortgage repayments. When the mortgage on the home was later refinanced, the lender gave due consideration to the taxpayer continuing to make contributions of weekly amounts toward the mortgage repayments. Apart from making contributions towards other bills, the taxpayer also assisted by purchasing groceries for the household. During a period of separation between his mother and her husband, and later, when the husband was ill and unable to work, the taxpayer made substantial weekly motor vehicle loan repayments. This vehicle had been purchased by his mother. Household chores performed by the taxpayer included mowing the lawn, gardening, laundry, and cooking the evening meals. The taxpayer also did any heavy lifting required around the house and did any maintenance on his mother's vehicle. Emotional support was provided by the taxpayer to his mother when her other son was seriously injured, and in particular during the period of her separation and her husband's illness. In particular, during his mother's separation and when her husband was absent from home due to work, the taxpayer's presence provided his mother with a sense of safety and protection. An ETP will be paid by the superannuation fund to the taxpayer's mother in the year ended 30 June 2005.

Reasons for decision
Summary: Concessional tax treatment is available under section 27AAA of the ITAA 1936 when death benefit ETPs are paid to dependants. The term 'dependant' is defined in subsection 27A(1) of the ITAA 1936. For an ETP that is made after 30 June 2004 dependant includes a person with whom the taxpayer has an interdependency relationship. As defined in subsection 27A(1) of the ITAA 1936, 'interdependency relationship' has the meaning given by section 27AAB of the ITAA 1936. Subsection 27AAB(1) of the ITAA 1936 states: Subject to subsection (3), for the purposes of this Subdivision, 2 persons (whether or not related by family) have an interdependency relationship 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. As stated in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2003: 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. In this particular case a close familial relationship existed between the taxpayer and his mother at the time of the taxpayer's death. This was demonstrated in a number of ways such as the emotional support that the taxpayer provided during difficult times. Until his death, the taxpayer and his mother had lived together for a number of years. Financial support had been provided by the taxpayer to the extent that his mother relied on that support for her normal standard of living. 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. This wording clearly envisages that a wider interpretation of what constitutes 'domestic support and personal care' is required, rather than the slightly narrower view given in cases such as Dridi v. Fillmore [2001] NSWSC 319. In view of the household work performed by the taxpayer the domestic support requirement has clearly been met. Some of the assistance provided by the taxpayer showed a concern for his mother's wellbeing and was clearly directed at ensuring her physical comfort. When the emotional support provided by the taxpayer is taken into account, the personal care requirement is considered to have been met. An interdependency relationship therefore existed between the taxpayer and his mother. His mother will be a dependant for death benefit ETP purposes.

Legislative references: Income Tax Assessment Act 1936 subsection 27A(1) section 27AAA section 27AAB
Case references: Dridi v. Fillmore [2001] NSWSC 319
Other references: Supplementary Explanatory Memorandum to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2003
Subject references: Dependants Eligible termination payments ETP death benefit ETP death benefit dependants Precedent