Private ruling: Death benefits dependant - interdependency
Published: April 2014
Ruling period: 2012-13 income year
Date scheme commenced: 1 July 2012

Ruling: Q1: Did a parent of the deceased have an interdependency relationship, as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with the deceased? | A1: Yes.

Relevant facts and circumstances: The deceased died during the relevant income year. The deceased's date of birth was provided. The deceased was not married or in a de facto relationship and has no dependants under the age of 18. The deceased financially supported their parent in the following ways: • The deceased paid the electricity bill per month - payments were sometimes made monthly, but also quarterly; • The deceased paid the telephone/internet bill per month; • The deceased also provided cash per fortnight to their parent to assist with living expenses such as, and food and groceries; and • In addition to this, any bills that the parent needed paying, the deceased would help the parent out with them. It was advised that the deceased and their parent lived by themselves. Personal care, emotional and physical assistance provided by the deceased to their parent during the three years prior to death include: • The parent was on a disability pension during this period for severe pain, which restricts their mobility and their ability to attend to normal household duties; • The deceased would care for the parent when the parent was unable to move and was largely immobile. The deceased would attend to the parent's immediate care needs, such as changing heat packs, providing pain relief tablets and assisting the parent to dress, toilet and shower; • The deceased would also attend to the cleaning, cooking and yard work of the household on a regular basis as the parent was unable to always do this. The deceased's superannuation funds paid out the deceased's fund balances as Superannuation Lump Sum Death benefits to the Trustee of the Estate. A PAYG payment summary for the subsequent income year stated that a death benefit was paid to the Trustee of the Estate during the subsequent income year. The payment comprised a taxed element. A PAYG payment summary for the subsequent income year stated that a death benefit was paid to the Trustee of the Estate during the subsequent income year. The payment comprised a taxed element and an untaxed element.

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 302-200 | 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) | 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 the deceased's parent and the deceased had an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 at the time of the deceased's death. Therefore, the deceased's parent is a death benefits dependant of the deceased. As deceased's parent is considered to be a death benefits dependant the superannuation death benefits paid to the parent 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 deceased's parent will not be taxable in their 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 deceased's parent 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: n the duration of the relationship; n the degree of mutual commitment to a shared life; n 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 deceased is an adult child of the parent, the facts show that the deceased lived with the deceased's parent. The only periods where the deceased did not live with the parent were short periods of time when the deceased was away for work. The deceased's parent (who is on a disability pension),their disability restricts their mobility and their ability to attend to normal household duties. As the deceased and the deceased's parent were the only two in the house, the deceased would care for the parent when the parent was unable to move and was largely immobile. The deceased would attend to the parent's immediate care needs, such as changing heat packs, providing pain relief tablets and assisting the parent to the toilet and shower. The deceased would also attend to the cleaning, cooking and yard work of the household on a regular basis as the deceased's parent was unable to always do this. Therefore clearly a relationship over and above the usual familial relationship existed between the deceased and the deceased's parent prior to, and at the time of the deceased's death. The deceased is the only close family member living permanently with the parent who was able to provide emotional support and physical care and assistance to the parent. It is reasonable to assume that given the circumstances of the relationship that it would not have changed significantly over time. The facts show that there was a mutual commitment to a shared life between the deceased and the deceased's parent prior to and at the time of the deceased's death during the relevant income year. Therefore, it is accepted that a close personal relationship existed between the deceased and the deceased's parent 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 their parent 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. From the facts, the deceased financially supported the deceased's parent in the following ways: • The deceased paid the electricity bill per month - payments were sometimes made monthly, but also quarterly; • The deceased paid the telephone/internet bill per month, • The deceased also provided cash per fortnight to the parent to assist with living expenses such as food and groceries; and • In addition to this, any bills that the deceased's parent needed paying, the deceased's would help the parent out with them. It is clear from the facts presented that the deceased provided the parent with financial support. In this instance, both the existence and the level of financial assistance provided by the deceased to the parent 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 the adult child of the parent and the only close family member living permanently with the parent. The deceased's parent had severe pain, which restricts their mobility and their ability to attend to normal household duties. The deceased would care for the parent when the parent was unable to move and was largely immobile. The deceased would also attend to the parent's immediate care needs, such as changing heat packs, providing pain relief tablets and assisting the parent to the toilet and shower. The deceased would also attend to the cleaning, cooking and yard work of the household on a regular basis as the parent was unable to always do this. It is evident from the facts that the care provided by the deceased to their parent was 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 deceased provided the parent 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 - Interdependency relationship: 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 that the deceased and the deceased's parent were in an interdependency relationship. Therefore the deceased's parent 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 deceased's parent is considered to be a death benefits dependant the superannuation death benefits that are paid to the parent 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 parent will not be taxable in their hands because the amount will represent a distribution of the corpus of the Estate. | Detailed Reasoning - Conclusion:: The deceased's parent had an interdependency relationship with the deceased as defined under section 302-200 of the ITAA 1997. Therefore, the parent is a death benefits dependant of the deceased.