Private ruling: Death benefit - interdependency relationship
Published: July 2012
Ruling period: 2012-13 income year
Date scheme commenced: 1 July 2012

Ruling: Q1: Did the deceased and the beneficiary have an interdependency relationship, as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The beneficiary was a relative of the deceased. The deceased passed away during the 2011-12 income year. The deceased was single and had no children. The deceased requested that the beneficiary be a co-trustee with the deceased in the Fund of which the deceased was the sole member. The beneficiary is the designated beneficiary of the deceased's superannuation interest. The beneficiary and the beneficiary's children are beneficiaries of the Deceased's Estate. The beneficiary's health care for the deceased started a few years ago when the deceased was diagnosed with a serious illness and continued up to the date of the deceased's death, becoming progressively more involved over that period. For several months the beneficiary's care for the deceased consisted of driving the deceased to doctor/specialists appointments, to x-rays, scans for medical treatment, purchasing the deceased's medications and ensuring the deceased's was taking them according to doctor's instructions. The beneficiary often took time off work to accompany the deceased to medical appointments. The deceased lived with the beneficiary and the beneficiary's family at their house for a few months, when recovering from a course of treatment. The deceased returned to the deceased's own house after that time, however the beneficiary had a bedroom at the deceased's house and regularly stayed there overnight during the next few months. The beneficiary resigned from employment on a specific date during the 2010-11 income year to care for the deceased. On a specific date during the 2010-11 income year the beneficiary moved into the deceased's house to look after the deceased. The number of nights that the beneficiary lived with the deceased during the deceased's illness, depended on whether the beneficiary's spouse was home to care for their children or away on business. The beneficiary's spouse travelled frequently. It was advised that the beneficiary lived with the deceased for a few nights a week to care for the deceased, and lived the other nights with the beneficiary's family. On the nights that the beneficiary could not spend the whole night with the deceased the beneficiary would give the deceased dinner, medication, help the deceased with the deceased's bathroom routine for the night, place commode next to bed, place the phone next to bed, and turn off the lights. The beneficiary arrived again at 7.00am the following morning and cleaned the commode, and helped the deceased to the bathroom and showering etc. The beneficiary was able to provide the deceased with more domestic support since the deceased ceased full time employment on a specific date during the 2010-11 income year which included: · House cleaning; · Grocery buying; · Medication dispensing; · Regular laundry and change of linen · Cooking all the deceased's meals; · Maintaining the garden; · Paying all the deceased's bills and administering all business matters for the deceased. The deceased's need for personal care assistance grew as the deceased's health deteriorated. The beneficiary specifically assisted the deceased with mobility, personal hygiene matters including helping the deceased in the bathroom for toilet and shower use, and changed linen and washed the deceased clothes everyday. The beneficiary also progressively helped the deceased to walk, first on the arm, then with a walking stick, then a walker and finally in a wheelchair for the last month of the deceased's life. Over the two year period of the deceased's member's illness, the beneficiary drove the deceased to the deceased's doctor's appointments and to hospital; for treatment, using the beneficiary's own car and paying for the beneficiary's own petrol. The beneficiary regularly purchased medicines and groceries for the deceased, for which the beneficiary was not always reimbursed. The deceased would normally pay for the groceries which they both used when living together and also prior to that time, when they would take meals together on an almost daily basis, with the beneficiary cooking food which was sometimes paid by the beneficiary and sometimes paid by the deceased. Sometimes the deceased would pay for the beneficiary's petrol, which the beneficiary used for purposes other than the deceased's travel. There was no formal arrangement for reimbursement. Instead, it was a familial arrangement, whereby the beneficiary and the deceased spent money on each other on a regular and ongoing basis.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section302-10 | Income Tax Assessment Act 1997 Subsection 302-10(3) | Income Tax Assessment Act 1997 Section302-60 | Income Tax Assessment Act 1997 Section302-145 | Income Tax Assessment Act 1997 Subsection 302-145(2) | Income Tax Assessment Act 1997 Subsection 302-145(3) | Income Tax Assessment Act 1997 Section302-195 | Income Tax Assessment Act 1997 Paragraph 302-195(c) | 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 Assessment Act 1997 Paragraph 302-200(3)(a) | Income Tax Assessment Act 1997 Paragraph 302-200(3)(b)

Reasons for decision: Detailed Reasoning - Summary of decision: It is considered that the beneficiary and the deceased did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) at the time of the deceased's death, therefore the beneficiary is not considered to be a death benefits dependant of the deceased. | 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 the beneficiary cannot qualify under paragraphs (a) or (b) of the above definition, paragraph (c) of section 302-195 needs 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. 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. The beneficiary resigned from employment on a specific date during the 2010-11 income year to look after the deceased. On a specific date during the 2010-11 income year the beneficiary moved into the deceased's house to look after the deceased and stayed a few nights per week to care for the deceased. The beneficiary had a family to care for and lived in the beneficiary's family home for the other nights in the week. However, on the nights that the beneficiary could not spend the whole night with the deceased, the beneficiary would ensure the deceased was comfortable for the night by giving the deceased dinner, medication, help with the deceased's bathroom routine for the night, place commode next to bed etc. The beneficiary arrived again at 7.00am the following morning and cleaned the commode, and helped the deceased to the bathroom and showering etc. From the facts it is considered that there was a demonstrated and ongoing commitment to the emotional support from the beneficiary for the deceased. Therefore, it is accepted that a 'close personal relationship' existed between the beneficiary 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 must live together. The beneficiary lived at the deceased's residence for a few nights a week from a specific date during the 2010-11 income year until the deceased's death. However, the beneficiary had a family including children and a husband that the beneficiary cared for and resided with in the family home. It is considered that although the beneficiary spent a few of the nights in the week at the deceased's residence, the beneficiary's principal place of residence was with the beneficiary's family in the beneficiary's family home Since the beneficiary did not live with the deceased on a full time basis at the time of the deceased's 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. From the facts provided, the beneficiary and the deceased spent money on each other on a regular and ongoing basis. The beneficiary used the beneficiary's own car and paid for the petrol when the beneficiary drove the deceased to doctor's appointments and to hospital; for treatment. The beneficiary regularly purchased medicines and groceries for the deceased for which the beneficiary was not always reimbursed. The deceased would normally pay for the groceries which they both used when living together and also prior to that time, when they would take meals together on an almost daily basis, with the beneficiary cooking food which was sometimes paid by the beneficiary and sometimes paid by the deceased. Sometimes the deceased would pay for the beneficiary's petrol, which the beneficiary used for purposes other than the deceased's travel. Although the level of financial support does not necessarily have to be substantial, the monies that the beneficiary and the deceased spent money on each other are not considered to be financial assistance. The expenses are of a type that a close family member would spend on each other and are not considered to be financial assistance in this instance. Therefore the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has not 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 the beneficiary provided the deceased with domestic care including driving the deceased to doctor/specialists appointments; to x-rays, scans, to medical treatment, and purchasing the deceased's medications. The beneficiary stopped full time employment on a specific date during the 2010-11 income year and resigned from employment to care for the deceased. Since giving up work the beneficiary was able to provide the deceased with more domestic support which included house cleaning, grocery buying, medication dispensing, cooking the deceased's meals, maintaining the garden and paying all the deceased's bills and administering all business matters for the deceased. From the facts provided, the beneficiary also provided the deceased with personal care by assisting the deceased with mobility, personal hygiene matters including helping the deceased in the bathroom for toilet and shower use, and changed linen and washed the deceased clothes everyday. The beneficiary also progressively helped the deceased to walk, first on the arm, then with a walking stick, then a walker and finally in a wheelchair for the last month of the deceased's life. It is considered that the beneficiary has provided the deceased with domestic care and personal care, therefore the condition under paragraph 302-200(1)(d) of the ITAA 1997 has been met. | Detailed Reasoning - Application of subsection 302-200(2):: Essentially, this subsection ensures that where two people have a close personal relationship but because of either or both of them suffer from a physical, intellectual or psychiatric disability (e.g. a person with a disability who lives in an institution), 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. Although the beneficiary and the deceased satisfy the requirements of paragraph 302-200(1)(a),and have a close personal relationship, it is considered that subsection 302-200(2) does not apply as neither the beneficiary or the deceased suffer from a physical, intellectual or psychiatric disability which prevents them from living together. Therefore section 302-200(2) of the ITAA 1997 does not have application in this case. | Detailed Reasoning - Conclusion: All conditions under section 302-200(1) of the ITAA 1997 must be met before the beneficiary and the deceased are considered to have an interdependency relationship. As discussed above, the conditions in paragraphs 302-200(1)(b) and (c) of the ITAA 1997 have not been met. As two of the conditions have not been met, the beneficiary and the deceased are not considered to be in an interdependency relationship under section 302-200(1) of the ITAA 1997. Therefore the beneficiary is not considered to be a death benefits dependant of the deceased under section 302-195. | Detailed Reasoning - The taxation treatment of the superannuation death benefits paid to the Trustee of the 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. In the case 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. Where the payment will be distributed to a non dependant beneficiary of the deceased, the Trustee of the Estate is subject to tax on the superannuation lump sum death benefit payment in accordance with subsection 302-10(3) of the ITAA 1997. The payment is treated as a superannuation death benefit to which section 302-145 of the ITAA 1997 will apply. However, a tax-offset under subsection 302-145(2) of the ITAA 1997 will apply to ensure that the rate of tax payable on the taxable component-taxed element will not exceed 15%. Under subsection 302-145(3) of the ITAA 1997 will apply to ensure that the rate of tax payable on the taxable component-untaxed element will not exceed 30%. An amount is included as assessable income in the income tax return of the Estate in the year the payment is made under subsection 302-10(3) of the ITAA 1997. The amount ultimately distributed from the Estate to the non dependant will not be taxable in the beneficiary's hands because the amount will represent a distribution of the corpus of the Estate. | Detailed Reasoning - The taxation treatment of the superannuation death benefits paid to the beneficiary: Under section 302-145 of the ITAA 1997 a superannuation lump sum that comprises a taxable component that is paid to a non-dependant of the deceased is assessable income of the non-dependant. However, a tax-offset under subsection 302-145(2) of the ITAA 1997 will apply to ensure that the rate of tax payable on the taxable component-taxed element will not exceed 15%. Under subsection 302-145(3) of the ITAA 1997 will apply to ensure that the rate of tax payable on the taxable component-untaxed element will not exceed 30%.

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