Private ruling: Death benefit - Interdependency relationship
Published: June 2012
Ruling period: 2011-12 income year
Date scheme commenced: 1 July 2011

Ruling: A1: No.

Relevant facts and circumstances: Your adult child (the deceased) suffered from an illness. The deceased was in constant contact with you at least 1 to 2 phone calls a day and was constantly at your home after work for meals and support. The deceased did not live with you and had not lived with you for at least 3 years. You would take the deceased to most of the deceased's medical appointments. You paid for the deceased's counselling, medical bills and prescriptions. You helped the deceased get into rehab and supported the deceased by taking the deceased there, taking phone calls from the deceased and supplied the deceased with toiletries, underclothes and joggers. The deceased had a bout in jail, and you supported the deceased. You were also there for every visiting time that was allowed to support the deceased. You would take the deceased to interviews and after the deceased got out of jail you took a week off work so that you could drive the deceased around to different interviews so the deceased could find a job. When the deceased was not working, you regularly met the deceased at lunch time and took the deceased to the shopping centre to try to keep the deceased motivated and keep the deceased positive. Also on occasions you met the deceased after work for 10-15 minutes to give the deceased encouragement and money as the deceased became even more down and depressed when the deceased wasn't working. The deceased helped you in the garden, help cook meals, wash the cars and feed your animals. You provided an estimate of the amount of financial support you provided to the deceased over this period for: · weekly living costs per week; · registration and insurance on the car; · a bond for accommodation. · legal costs , fines, driving fines, and other charges you paid off monthly and amount for the solicitor. Fines were paid by money order to the relevant Department. The deceased also had a payment card that you paid an amount per month at the Post Office. · petrol and presents for family members. A PAYG Payment Summary - Superannuation Lump Sum from the superannuation fund during the 2011-12 income year stated that a death benefit payment was paid to you during the 2011-12 income year. The payment comprised of an amount for the taxed element of a taxable component and an amount for the untaxed element of a taxable component. There was an amount of tax withheld.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-145 | 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 Assessment Act 1997 Paragraph 302-200(2)(a) | Income Tax Assessment Act 1997 Paragraph 302-200(2)(b) | Income Tax Assessment Act 1997 Paragraph 302-200(2)(c) | Income Tax Regulations 1997 Regulation 302-200.01(2)

Reasons for decision: Detailed Reasoning - Summary of decision: It is considered that you did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with your adult child (the deceased). Therefore you were not a death benefits dependent of the deceased. As you are not considered to be a death benefits dependant the superannuation death benefit paid to you should be included in your assessable income in the 2011-12 income year. | Detailed Reasoning - Detailed reasoning: 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. 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 persons spouse or former spouse; or (b) the deceased persons 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 you cannot qualify under paragraphs (a) or (b) of the above definition, paragraphs (c) and (d) of section 302-195 need to be examined. | Detailed Reasoning - Interdependency relationship: Paragraph 302-195(c) of the definition of death benefits dependant refers to 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. 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, 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. Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) states as follows: all of the circumstances of the relationship between the persons, including (where relevant): · the duration of the relationship; and · whether or not a sexual relationship exists; and · the ownership, use and acquisition of property; and · the degree of mutual commitment to a shared life; and · the care and support of children; and · the reputation and public aspects of the relationship; and · the degree of emotional support; and · the extent to which the relationship is one of mere convenience; and · 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. | 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 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. In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted regulation 8A of the Income Tax Regulations 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. From the facts provided, you are the parent of the deceased. A close familial relationship existed between you and the deceased prior to, and at the time of the deceased's death. This however does not necessarily indicate that a close familial relationship existed for the purposes of the tax legislation. Although you were in constant contact with the deceased on the telephone, and the deceased was constantly at your home after work for meals and support, no evidence was provided of a closeness of relationship between you and the deceased that goes beyond a normal parent/adult child relationship. Furthermore you and the deceased were not residing together up to and at the time of the deceased's death. Accordingly, there is nothing to indicate that the deceased's relationship with you was such that it would be said that there was a mutual commitment to a shared life. Therefore, it is considered that the relationship between you and the deceased was one that a person would expect between a parent and their child, but it was not a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997. Accordingly, it is not accepted that a 'close personal relationship' existed between you and the deceased 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 the two persons live together. From the facts provided, you and the deceased did not live together, and did not live together at the time of the deceased's death. Since the deceased did not live with you and did not live with you at the time of their death, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been met. | 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. 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 you provided the deceased with financial assistance, including weekly living costs, registration and insurance for the car, a bond for accommodation and legal costs. In this instance, the existence of financial assistance is established and it is not necessary to look at the level of financial support provided, but merely to establish that such support existed. Therefore the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has been met. | 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… From the facts provided you took the deceased to most of the deceased's medical appointments, and you supported the deceased when the deceased was in rehab and when the deceased was in jail. However, there is no evidence in the facts provided of an amount of 'domestic support and personal care' as discussed in paragraph 2.16 of the SEM such as personal care services. Therefore on the facts provided, it is considered that the requirement of 'domestic support and personal care' in paragraph 302-200(1)(d) of the ITAA 1997 has not been met. As three of the conditions under subsection 302-200(1) of the ITAA 1997 have not been met, you are not considered to have an independency relationship with the deceased. | Detailed Reasoning - Application of subsection 302-200(2):: Essentially, this subsection ensures that where two people have a close personal relationship but 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 two people satisfy the requirements of paragraph 302-200(1)(a), in accordance with the terms of aragraph 302-200(2)(a). Further it should be noted that the reasons why the requirements in paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997 are not satisfied should arise from at least one of the persons in the relationship having a physical, intellectual or psychiatric disability which requires them to be in a special care facility or shared accommodation, for example a nursing home, medical facility etc. This is not the situation in this case. Consequently, as subsection 302-200(10(a) of the ITAA 1997 has not been satisfied, consideration of the other conditions is therefore not necessary. Accordingly, subsection 302-200(2) of the ITAA 1997 has not been met. | Detailed Reasoning - Conclusion: You are not considered to be a dependant of the deceased within the definition of death benefit dependant in section 302-195 of the ITAA 1997 as it has been determined that you are not in an interdependency relationship with the deceased under subsection 302-200(1) of the ITAA 1997. Therefore, you are considered to be a non-dependant of the deceased for the purposes of the tax legislation. | Detailed Reasoning - Taxation of death benefit superannuation payment: As you are not considered to be a death benefit dependants, the death benefit superannuation payment from the superannuation fund paid to you during the 2011-12 income year is assessable to you in your 2011-12 income year. Consequently, the taxable component of the death benefit payment (taxed element and untaxed element) is to be included in your assessable income in the 2011-12 income year. A tax offset will ensure that the rate of tax payable on the taxed element of the taxable component will not exceed 15% and that the rate of tax payable on the untaxed element of the taxable component will not exceed 30%.

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. | Subject: Death benefit - Interdependency relationship: Do you have an interdependency relationship, as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with your child?