Private ruling: Superannuation death benefits - interdependency
Published: June 2012
Ruling period: 2010-11 income year
Date scheme commenced: 1 July 2010

Ruling: Q1: Did an interdependency relationship exist between the beneficiary and the beneficiary's parent (the deceased) in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-10 | Income Tax Assessment Act 1997 Section 302-60 | 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). | Income Tax Assessment Act 1997 Subsection 302-200(3). | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Regulations 1997 Regulation 302-200.01(2)

Reasons for decision: Summary: It is considered that the beneficiary and the deceased had an interdependency relationship at the time of the deceased's death. Therefore, the beneficiary is a death benefits dependant of the deceased. As the beneficiary is considered to be a death benefits dependant the superannuation death benefits paid to the beneficiary will be tax-free and are not included as assessable income in the hands of the Estate. The amount ultimately distributed from the Estate to the beneficiary will not be taxable in his hands because the amount will represent a distribution of the corpus of the Estate. | Detailed Reasoning - Superannuation death benefits paid to a trustee of a deceased estate: Under section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate. This means that where a dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a dependant of the deceased, and the benefit is taken to be income to which no beneficiary is presently entitled. Where a person that is not a dependant is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled. Accordingly, in the present case, the payment from the superannuation funds paid to the trustee of the deceased estate is assessable to the trustee as income to which no beneficiary is presently entitled. The superannuation death benefits will be treated concessionally if a dependant of the deceased will benefit from the estate. 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. It will now be determined if the beneficiary is a dependant of the deceased. | Detailed Reasoning - Death Benefits Dependant in relation to a Superannuation Death Benefit:: Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195. Subsection 302-195(1) defines a 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. | Detailed Reasoning - 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. 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 determining whether 2 persons have an interdependency relationship under subsections 302-200(1) and (2). 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). Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) which has replaced former regulation 8A of the Income Tax Regulations 1936 (ITR 1936) states as follows: (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. 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 the taxpayer to be able to claim that he or she has an interdependency relationship. It is proposed to deal with each condition in turn. | Detailed Reasoning - 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 Income Tax Assessment Act 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. 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. However, in this particular case, even though the beneficiary is an adult child of the deceased, the facts show that the beneficiary returned to live with the deceased several years ago when the deceased was gravely ill and resided in the family home up until the time of the deceased's death. The beneficiary and the deceased shared the household tasks. After the deceased became seriously ill a few years ago, the personal care and household tasks the beneficiary undertook increased significantly. These tasks included, shopping, collecting prescription medication from pharmacies, taking the deceased to medical appointments and taking the deceased to and from hospital and more responsibility for cooking, washing up, cleaning and washing. Therefore clearly a relationship over and above the usual familial relationship existed between the beneficiary and the deceased, prior to, and at the time of the deceased's death. The beneficiary who is the deceased's only child and is the only close family member living permanently with the deceased several years ago to the deceased's death who was able to provide emotional support and physical care and assistance to the deceased. It is reasonable to assume that given the circumstances of the relationship would not have changed significantly over time. The facts show that there was a mutual commitment to a shared life between the beneficiary and the deceased prior to and at the time of the deceased's death during the 2010-11 income year. Therefore, it is accepted that a close personal relationship existed between the deceased and the beneficiary as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997. | Detailed Reasoning - Cohabitation:: 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 facts show that the deceased and the beneficiary were residing in the family home prior to and at the time of the deceased's death. Therefore the requirement specified in paragraph 302-200(1)(b) has been satisfied in this instance. | Detailed Reasoning - 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. Unlike the situation prior to 1 July 2004 where financial dependency (substantial support) needs to be satisfied, 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 the deceased provided the beneficiary with financial support. The beneficiary has confirmed by written declaration that the deceased paid all the bills, which included his food, car registration, and allowed him to live rent-free in the family home which was fully maintained by the deceased with respect to financial obligations such as utilities, telephone and rates. The pattern of financial support was consistent throughout the beneficiary's life, including the 2008-09 and 2009-10 income years and until the date of the deceased's death. In this instance, both the existence and the level of financial assistance provided by the deceased to the beneficiary is established and it is not necessary to look at the level of financial support provided, but merely to establish that such support existed. Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this instance. | Detailed Reasoning - 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. From the facts of the case, the deceased was diagnosed with a serious illness several years ago and commenced a lengthy course of treatment. The beneficiary returned to live in the family home several years ago to look after the deceased while the deceased underwent and recovered from a serious illness. The deceased became seriously ill again a few years ago. The deceased received further treatment. The deceased was hospitalised frequently and on heavy doses of medication. The beneficiary continued to live at home with the deceased and look after the deceased until the deceased's death. The beneficiary was the only child of the deceased and the only close family member living permanently with the deceased in the period from several years ago to the time of the deceased's death. When the beneficiary returned to live with the deceased several years ago, the deceased and the beneficiary shared the household tasks including shopping, cooking and washing up. As the deceased became seriously ill again a few years ago, the personal care and household tasks the beneficiary undertook increased significantly. These included shopping, collecting prescription medication from pharmacies, taking the deceased to medical appointments and taking the deceased to and from hospital and more responsibility for cooking, washing up, cleaning and washing. As the deceased's condition declined, the deceased was supported by a community nurse who visited at home and administered daily morphine injections and assisted with bathing. Also during this time the beneficiary was appointed the deceased's formal carer for government payment purposes. It is evident from the facts that the care provided by the beneficiary to the deceased, who was terminally ill, is significant emotional support and care of a type and quality normally provided in a close personal relationship. 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 beneficiary provided the deceased with significant personal care services at this time. 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. | Detailed Reasoning - Application of subsection 302-200(2):: Since all the requirements of subsection 302-200(1) of the ITAA 1997 have been met, consideration of subsection 302-200(2) is not necessary in this instance. | Detailed Reasoning - The deceased is in an interdependency relationship with the taxpayer:: From the facts presented, it is clear that all of the requirements which are set out in subsection 302-200(1) of the ITAA 1997 have been satisfied in this case. Consequently it is considered the beneficiary and the deceased did have an interdependency relationship. Therefore the beneficiary is considered to be a dependant of the deceased within the definition of death benefits dependant in section 302-195 of the ITAA 1997. | Detailed Reasoning - The taxation treatment of a superannuation death benefit: As the beneficiary is considered to be a death benefits dependant the superannuation death benefits will be tax-free under section 302-60 of the ITAA 1997 and are not included as assessable income in the hands of the Estate. The amount ultimately distributed from the Estate to the beneficiary will not be taxable in his hands because the amount will represent a distribution of the corpus of the Estate.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts and circumstances | The deceased died during the 2010-11 income year. | The deceased was a member of 2 superannuation funds, Fund A and Fund B. | During the 2010-11 income year, Fund A made a death benefit payment to the Estate of the deceased (the Estate) in the amount comprising a Taxable component - Taxed Element, a Taxable component - Untaxed Element and a Tax-free component. | During the 2010-11 income year Fund B made a death benefit payment to the Estate comprising wholly of a Taxable Component - Taxed Element. | Several years ago the deceased was diagnosed with a serious illness and commenced a lengthy course of treatment. The beneficiary is the only child of the deceased. For the period from the beneficiary's birth and but for a brief period prior to the diagnosis, the beneficiary lived with the beneficiary's parent on a permanent full-time basis. On the deceased's diagnosis, the beneficiary returned to the family home several years ago to look after the deceased while the deceased underwent and recovered from the serious illness. | The deceased became seriously ill again a few years ago. During that time the deceased was diagnosed with a terminal illness. The deceased received treatment. The deceased was hospitalised frequently and on heavy doses of medication until the time of the deceased's death during the 2010-11 income year. The beneficiary continued to live at home with the deceased until the deceased's death. | For several years until the deceased's death, the beneficiary provided personal care and emotional support in the home to the deceased, while the deceased provided ongoing financial and living support to the beneficiary. | An e-mail dated during the 2011-12 income year from the beneficiary's lawyers to the Estate's tax agent, stated that the beneficiary advised them that after the beneficiary returned to live with the deceased several years ago, they shared the household tasks. The beneficiary would sometimes do the shopping, cooking and washing. The beneficiary did all the gardening work at the property. After the deceased became seriously ill again a few years ago, the personal care and household tasks the beneficiary undertook increased significantly. These tasks included shopping, collecting prescription medication from pharmacies, taking the deceased to medical appointments and taking the deceased to and from hospital and more responsibility for cooking, washing up, cleaning and washing. Apart from professional care provided to the deceased, the beneficiary was the sole close family member living permanently with the deceased who was able to provide the emotional support and physical care and assistance to the deceased. | The beneficiary has confirmed by written declaration that the deceased paid all the bills, which included the beneficiary's food, car registration, and allowed the beneficiary to live rent-free in the family home which was fully maintained by the deceased with respect to financial obligations such as utilities, telephone and rates. The pattern of financial support was consistent throughout the beneficiary's life, including the 2008-09 and 2009-10 income years and until the date of the deceased's death. | The beneficiary did not provide financial support, as such, to the deceased during the period as the deceased did not require financial support from the beneficiary, being the deceased's only child. | The deceased's will dated during the 2010-11 income year provided the residue of the deceased's estate to be given to the discretionary family trust (the Trust), created by Deed of Settlement during the 2010-11 income year, to be held in trust for the benefit of the beneficiary. The trustees of the Trust are also the Executors of the Estate. | The deceased, as the sole child of the deceased and the intended primary beneficiary of the Trust, objected to the funds being held in trust and entered into a Deed of Family Arrangement during the 2011-12 income year with the Executors and Trustees under which the beneficiary was directly granted the assets held in trust, including the superannuation benefits. | In an e-mail dated during the 2011-12 income year from the Estate's tax agent to an officer of the Tax Officer stated: | I have now confirmed that the beneficiary is the ultimate beneficiary of the entire amounts paid from Fund A and Fund B and that no other person is or will be entitled to any part of these funds.