Private ruling: Superannuation death benefits - Interdependency relationship
Published: April 2013
Ruling period: 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Did an interdependency relationship exist between your client and the deceased in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997 ) ? | A1: Yes.

Relevant facts and circumstances: Your client is a parent of the deceased. In mid 200X, the deceased became ill. Prior to becoming ill the deceased had been working full-time. The deceased was diagnosed with an illness and had initially spent a number of weeks receiving treatment and had undergone operations. The deceased worked when the deceased could but the majority of time the deceased was too ill to work and received Centrelink support. The deceased continued to receive treatments until mid 20YY, when the deceased had a short break from treatments. The deceased's treatments were daily lasting a number of hours. The treatments consisted of a continual number of days cycle of drugs. In late 20YY, the deceased passed away. During the deceased's illness your client provided the deceased with domestic support which included, cooking meals, washing, grocery shopping and housecleaning. Your client provided the deceased with personal care and attended medical appointments and treatments with the deceased as the deceased could not drive during treatments. Your client, further assisted the deceased with needles and medication when required, changed bandages after operations and other personal hygiene needs. As the deceased's main support person, your client was instrumental in keeping the deceased's spirits up at this time and during the deceased's treatments. The deceased resided with your client in the family home up until the deceased's death. Your client had been in permanent work until the deceased's illness. Prior to early 20ZZ, your client was in receipt of a new start allowance. Your client was the full-time carer for the deceased and was in receipt of a carer's pension from early 20ZZ. From the period the deceased became ill, money was pooled between the deceased and the deceased's parents from their savings, Centrelink payments and money earned to pay costs of living utilities, travel costs and medication. A PAYG Payment Summary - Superannuation Lump Sum payment summary for the relevant year made to the trustee of the deceased Estate from the superannuation fund shows a taxable component - taxed element and an untaxed element with no tax withheld. The superannuation death benefit was made to your client, as sole beneficiary.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 27AAB. | Income Tax Assessment Act 1997 Section 302-195. | Income Tax Assessment Act 1997 Ch3-Pt3-30-Div302. | 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 Subsection 302-200(3). | Income Tax Assessment Act 1997 Paragraph 302-200(3)(a). | Income Tax Assessment Act 1997 Paragraph 302-200(3)(b). | Income Tax Regulations 1936 Regulation 8A. | Income Tax Regulations 1997 Regulation 302-200.01(2). Issue | Summary | It is considered that your client and the deceased had an interdependency relationship and your client is therefore a death benefits dependant. As your client is a death benefits dependant the superannuation death benefit payable to your client will be tax-free and is not included in your client's assessable income. | Detailed reasoning | Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997), which has replaced former section 27AAB of the of the Income Tax Assessment Act 1936 , sets out the taxation arrangements that apply to the payment of superannuation death benefits that are made after 30 June 2007. 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 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. | 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, above, 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. | 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 (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, the deceased is an adult child of your client. The facts show that your client was the deceased's full-time carer from mid 200X until the time of the deceased's death. During treatments the deceased was unable to drive and your client attended medical appointments and treatments with the deceased and assisted with the deceased's needles and medication as required. | Prior to the deceased's death, your client's care for the deceased increased and your client had the responsibility of maintaining the deceased's personal hygiene needs and provided the deceased with physical, personal and emotional support and comfort. | Therefore clearly a relationship over and above the usual familial relationship existed between your client and the deceased, prior to, and at the time of the deceased's death. The deceased was highly dependent on your client emotionally and personally and that care was provided on a continuing basis. It is reasonable to assume that given the circumstances of the relationship would not have changed significantly over time. The facts show that there was a mutual commitment to a shared life between your client and the deceased prior to and at the time of the deceased's death in late 20YY. | Therefore, it is accepted that a close personal relationship existed between your client and the deceased as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997. | 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 your client and the deceased resided together in the family home up to the time of the deceased's death. | Therefore the requirement specified in paragraph 302-200(1)(b) has been satisfied in this instance. | 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. | It is clear from the facts presented that money the deceased and your client received was pooled and used to pay costs of living such as utilities, travel expenses and medical costs. | In this instance, both the existence and the level of financial assistance provided by the deceased to your client 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. | 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. | Your client assisted the deceased with domestic support which included, cooking meals, washing, grocery shopping and housecleaning. | Your client provided the deceased with personal care and accompanied the deceased when attending medical appointments as the deceased could not drive whilst undergoing treatment. Your client gave the deceased needles and assisted with the deceased's other medication and changing bandages after operations and assisting the deceased with personal hygiene needs. | As the deceased's main support person, your client was instrumental in keeping the deceased's spirits up at this time and during the deceased's treatments. | It is also evident from the facts that the constant care provided by your client to the deceased, is 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 your client provided the deceased 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. | 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 of 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, 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. | The deceased is in an interdependency relationship with the taxpayer: | From the facts presented, it is clear that 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 your client did have an interdependency relationship. | Therefore your client is considered to be a dependant of the deceased within the definition of death benefits dependant in section 302-195 of the ITAA 1997. | The taxation treatment of a superannuation death benefit | As your client is a death benefits dependant the superannuation death benefit will be tax-free and is not included in your client's assessable income.