Private ruling: Death benefits dependency
Published: July 2012
Ruling period: Financial year ended 30 June 2012 | Financial year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the beneficiary of the estate a financial dependant under section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The deceased died during the financial year ended 30 June 2010. The deceased's adult child is a beneficiary of the estate. Several years ago, the deceased gifted the child with a large sum of money. The money was placed into a self managed superannuation fund and managed by a professional organisation. The superannuation fund then made regular payments to the beneficiary. The money was used to pay for living expenses and medical expenses, and represents the principal source of income for the beneficiary. The beneficiary also derived some income from a partnership. Under the last will and testament of the deceased, the beneficiary will receive an additional income stream for the term of their life. The deceased and the beneficiary did not live together prior to the deceased's death. The beneficiary has poor health and is unable to work to any extent. The beneficiary's spouse is currently taking medication and undergoing medical attention.

Relevant legislative provisions: 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 Subsection 302-200(3). | Income Tax Assessment Act 1997 Section 302-145. | Income Tax Assessment Act 1997 Subsection 302-145(2). | Income Tax Assessment Act 1997 Subsection 302-145(3). | Income Tax Assessment Act 1997 Section 302-195 | Income Tax Assessment Act 1997 Subsection 302-195(1) | Income Tax Assessment Regulations 1997 Regulation 302-200.01.

Reasons for decision: Summary: The beneficiary of the estate is not a death benefits dependant. | Detailed Reasoning - Death benefits dependant: Division 302 of the 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. Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as: (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 - Financial dependency: For the beneficiary to be financially dependant upon the deceased it must be demonstrated that the beneficiary was actually dependent upon the deceased for maintenance and support. It must also be established that the level of financial support provided by the deceased, up to the time of the deceased's death, was substantial in that the deceased contributed all or a major amount of the beneficiary's financial support. If the level of financial support is insignificant or minor, then the beneficiary cannot be regarded as dependent. In this case, the beneficiary was an adult child of the deceased. The deceased gifted the beneficiary with a large sum of money. The gift was placed in a self managed super fund for the benefit of the beneficiary. The beneficiary subsequently received payments from the super fund. The deceased provided a one-off gift of money for the beneficiary's benefit, rather than providing ongoing financial support. Regardless of the source of the fund's assets, it was the fund itself that provided the financial support, not the deceased. It is evident that the beneficiary was not financially dependent on the deceased. The deceased did not directly contribute financially towards meeting any of the beneficiary's expenses. Accordingly, it is considered that the beneficiary was not financially dependent on the deceased immediately prior to, and at the time of the deceased's death. | Detailed Reasoning - Interdependency relationship: The term interdependency relationship is defined in section 302-200 of the ITAA 1997 as follows: (1) Subject to subsection (3), two persons (whether or not related by family) have an interdependency relationship 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. (2) 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 the other requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability; The regulations may specify: (a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether two persons have an interdependency relationship under this section; and (b) circumstances in which two persons have, or do not have, an interdependency relationship under this section. The regulations referred to above is regulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997). This regulation, which replaced former regulation 8A of the Income Tax Regulations 1936 , states: (1) For paragraph 302-200(3)(a) of the Act, this regulation sets out matters that are to be taken into account in determining whether two persons have an interdependency relationship. (2) The matters are: (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; and (b) the existence of a statutory declaration signed by one of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was, in an interdependency relationship with the other person. In order for a taxpayer to be able to claim that he/she has an interdependency relationship, all of the conditions listed in subsection 302-200(1) of the ITAA 1997 must be satisfied. Alternatively, the conditions listed in subsection 302-200(2) of the ITAA 1997 must be met. | 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 former regulation 8A of the ITR 1936, it was stated that: Generally speaking, it is not expected that children will be in an interdependency relationship with their parents. Normally, a relationship between a parent and their child would not meet the requirement under subsection 302-200(1) of the ITAA 1997 because there would not be a mutual commitment to a shared life between the two. This is because an adult child's relationship with their parents 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. A close familial relationship existed between the deceased and the beneficiary at the time of the deceased's death. This, however, does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation. Although there was a close relationship, there is nothing decisively different between this situation and one where a parent remains close to their adult child. Therefore, it is considered that the relationship 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, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not been satisfied in this case. | Detailed Reasoning - Living together: 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 deceased and the beneficiary were not living together at the time of the deceased's death. Therefore, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not 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 two persons provides the other with financial support. For the reasons discussed above, it is considered that the deceased and the beneficiary did not provide each other with financial support. Consequently, it is considered that the requirements of paragraph 302-200(1)(c) of the ITAA 1997 have not 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 discussed in similar terms in the case Dridi v. Fillmore [2001] NSWSC 319 ( Dridi v. Fillmore ). Master Macready stated, in regards to the term 'personal care', that: 108. In the present case there is no evidence, which would suggest that there was any personal care... The expression 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… 109. Accordingly, I am satisfied that there was no close personal relationship between the parties... There is nothing to indicate that domestic support or personal care of the type described above was provided. Neither the deceased nor the beneficiary had an illness or injury that required such care or emotional support. On the facts provided, it is considered that the requirement in has not been satisfied in this instance. | Detailed Reasoning - Application of subsection 302-200(2): 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), (c) and (d) of the ITAA 1997, they will still be considered to have an interdependency relationship. Based on the facts provided, none of the reasons listed above prevented the deceased and the beneficiary from living together. Therefore, this subsection does not apply. | Detailed Reasoning - Interdependency relationship: It is clear that not all of the requirements which are set out in subsection 302-200(1) of the ITAA 1997 have been satisfied in this case. Therefore, it is considered that the deceased and the beneficiary were not in an interdependency relationship. | Detailed Reasoning - Death benefits dependant: In conclusion, as the beneficiary was not in an interdependency relationship with or financially dependent on the deceased, the beneficiary is not a death benefits dependant under subsection 302-195(1) of the ITAA 1997.

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.