Private ruling: Superannuation death benefits- Interdependent relationship
Published: May 2012
Ruling period: For the year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Were the beneficiaries of a deceased estate (the Estate) in an interdependency relationship with the deceased in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997 ) ? | A1: No.

Relevant facts and circumstances: The deceased, who was an adult, passed away in the 2010-11 income year. A parent of the deceased was appointed as the Administrator for the Estate of the deceased (the Estate). The parents of the deceased are the only beneficiaries of the Estate. The deceased always resided with the parents. The deceased was employed prior to death and during a period of unemployment was financially supported the parents. The deceased provided some financial support when in full-time employment. Details of the amounts contributed by the deceased towards living expenses which included costs of food, lodgings, laundry and internet. The deceased assisted with various house and yard maintenance. The deceased's parents provided all meals, laundry and ironing services and accommodation. A parent of the deceased states that the parents had a close relationship with the deceased and that they performed domestic duties for the deceased such as laundry, cooking and cleaning for the deceased. The deceased's parents provided emotional support to the deceased, particularly in the months preceding the deceased's death. The deceased assisted and cared for one of the parent's who was invalid and had a medical condition. The deceased also assisted the other parent in transportation to and from hospital for in-patient procedures. The deceased was a member of two superannuation funds (the Funds) at the date of death. Documentation in relation to the death benefit payments made from the Funds has been provided which includes the taxed and untaxed elements. The death benefit payments were made directly to the Trustee of the Estate. Details of the deceased's total income for the 2010-11 income year up to the date of death have been provided. Details of the parents' total incomes for the 2010-11 income year have also been provided. The deceased did not have a spouse at the time of death and did not have any other dependency relationships.

Relevant legislative provisions: Income Tax Assessment Act 1936 repealed section 27AAB. | Income Tax Assessment Act 1936 Subsection 101A(3) | Income Tax Assessment Act 1997 Ch3-Pt3-30-Div302. | Income Tax Assessment Act 1997 Section 302-10. | 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 Regulations 1936 Former Regulation 8A. | Income Tax Regulations 1997 Regulation 302-200.01 | Income Tax Regulations 1997 Regulation 302-200.02

Reasons for decision: Summary: The beneficiaries are not death benefit dependants. Accordingly no part of the taxable components of the superannuation lump sum death benefits paid to the Trustee of the Estate will be tax free. | 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 who receives the superannuation death benefit is a death benefits dependant of the deceased or not; and whether the amount is paid as a superannuation lump sum death benefit or a superannuation income stream death benefit. Where a person receives a superannuation death benefit and that person is a death benefits dependant of the deceased, it is not assessable income and is not exempt income. Subsection 302-195(1) 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 this case, the relevant paragraph which requires consideration as to whether the parents of the deceased (the beneficiaries) were dependents of the deceased is paragraph (c) of section 302-195 of the ITAA 1997. | Detailed Reasoning - Interdependency relationship: Paragraph 302-195(c) of the definition of death benefits dependant refers to 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. | Detailed Reasoning - 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 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 2 persons have an interdependency relationship, subsection 302-200(3) of the ITAA 1997 states the regulations may specify the matters and circumstances that are, or are not, to be taken into account. Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) which 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. It is proposed to deal with each condition of subsection 302-200(1) of the ITAA 1997 and whether they satisfy the regulations. | 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) Bill 2003 which inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). This section dealt with interdependency relationships prior to 1 July 2007. In discussing the meaning of a 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 beneficiaries were the parents of the deceased. Clearly a familial relationship existed between the beneficiaries and the deceased prior to, and at the time of, the deceased's death. Given the deceased's age at the time of death, the deceased and the beneficiaries had of course known each other for some time. The facts also indicate that the relationship between the deceased and the beneficiaries was a normal familial relationship for a young person living with one's parents. Whilst both the deceased and the beneficiaries may have intended to remain an important part of each others 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 income. The fact that the deceased was working and earning income whilst still residing at the 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 the beneficiaries and the deceased was one that a person would expect between parents and their child. Further there were no indicators, such as assets held in joint names etc, of there being a mutual commitment to a shared life between the deceased and the parents prior to and at the time of the deceased's death. For the above reasons, it is considered that though a close familial relationship existed between the beneficiaries and the deceased, it was not a close personal relationship 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 beneficiaries were residing in the family home 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. In this case the beneficiaries are stated to have provided the deceased with financial assistance whilst the deceased provided the beneficiaries with contributions to accommodation and household expenses by making weekly payments. In this instance, it is considered that above shows some level of financial assistance was provided by the deceased to the beneficiaries and vice versa. 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. 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 beneficiaries state that the care and support the deceased provided them prior to death included: · assistance with various house and yard maintenance · care for an invalid parent · transportation of the other parent to and from hospital for procedures. The beneficiaries state that they performed domestic duties for the deceased such as laundry, cooking and cleaning and providing the deceased with emotional support, particularly in the months preceding the deceased's death. In this case, the examples and facts provided in relation to care and support are only indicative of the normal domestic support that a child would provide in a family household. Further, the emotional care and support provided by the deceased to the beneficiaries, and that provided by the beneficiaries to the deceased, are typical of the care and support family members would provide to each other where one or more of its members are ill. Based on the information provided it is considered that the relationship between the beneficiaries and the deceased did not involve personal care as specified in paragraph 302-200(1)(d) of the ITAA 1997, notwithstanding the loving familial relationship which existed between the parties prior to and at the time of the deceased's death. Further, as indicated in the SEM, personal care services are envisaged to consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person, for example, when a person is suffering an illness. It follows from the foregoing, and the facts provided, that the care and support offered by the beneficiaries to the deceased, and that of the deceased to the beneficiaries, is not domestic support and personal care of a type and quality normally provided within the meaning of paragraph 302-200(1)(d) of the ITAA 1997. Consequently, it is considered that the fourth requirement specified in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied in this instance. | Detailed Reasoning - Application of subsection 302-200(2) of the ITAA 1997: Essentially, this subsection ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one or 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. However, subsection 302-200(2) of the ITAA 1997 will only apply where the taxpayer and the deceased satisfy the requirement of paragraph 302-200(1)(a), in accordance with the terms of paragraph 302-200(2)(a). As previously discussed above, the requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not been satisfied in this instance. Since this requirement has not been satisfied, consideration of paragraphs 302-200(2)(b) and (c) is not necessary in this instance. | Detailed Reasoning - Determination of an interdependency relationship: As already noted above, in order to qualify as an interdependency relationship all the requirements of subsection 302-200(1) of the ITAA 1997 must be satisfied. In the present case, only two of the four requirements of subsection 302-200(1) are considered to have been satisfied. An examination of the information provided shows that in this instance, an interdependency relationship under subsection 302-200(1) of the ITAA 1997 did not exist between the beneficiaries and the deceased at the time of the deceased's death, as only two requirements of subsection 302-200(1) have been satisfied. Accordingly, as neither subsections 302-200(1) or 302-200(2) of the ITAA 1997 have been satisfied it is considered an interdependency relationship did not exist between the beneficiaries and the deceased. | Detailed Reasoning - Conclusion relating to dependency: Taking into account all of the above, it is considered that the beneficiaries were not in an interdependency relationship with the deceased in the period prior to and at the time of the deceased's death. It follows from the foregoing that the beneficiaries are not death benefit dependants of the deceased for the purposes of subsection 302-195 of the ITAA 1997. | Detailed Reasoning - Taxation treatment of the superannuation death benefits made to the Estate: In view of the above and the facts provided, the superannuation death benefits (death benefits) are ultimately paid to non-dependant beneficiaries. Further the facts show that the death benefits from the deceased's superannuation funds were directly paid to the Estate. In accordance with subsection 101A(3) of the ITAA 1936 the death benefits paid directly to the Trustee of the Estate should be disclosed in an income tax return lodged by the Trustee of the deceased Estate for the 2011-12 income year. In relation to how death benefits made to an estate are treated section 302-10 of the ITAA 1997 states: 302-10(1) This section applies to you if: (a) you are the trustee of a deceased estate; and (b) you receive a superannuation death benefit in your capacity as trustee. … 302-10(3) To the extent that 1 or more beneficiaries of the estate who were not death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit: (a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and (b) the benefit is taken to be income to which no beneficiary is presently entitled. The effect of the above is that where a death benefit is paid to the Trustee, and there are non-dependant beneficiaries, the tax rates applied are determined by reference to sections 302-140 and 302-145 of the ITAA 1997 which deal with death benefits to non-dependants. In the 2011-12 income tax return lodged for the Estate, the taxable components of the lump sum death benefits represent assessable income. In accordance with subsections 302-145(2) and (3) of the ITAA 1997 the taxed and untaxed elements of the taxable component are subject to tax offsets so that the effective maximum rates of tax on these elements is 15% and 30% respectively. Further, it should be noted that as this benefit is paid directly to the Trustee of the Estate, no Medicare levy or Medicare levy surcharge is applicable.

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