Edited version of private advice

Authorisation Number: 1051770106043

Date of advice: 04 November 2020

Ruling

Subject: Interdependency relationship

Question

Is the Taxpayer a death benefit dependant of the (the Deceased) in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997) by virtue of being in an interdependency relationship pursuant to section 302-200 of the ITAA 1997 with the Deceased?

Answer

Yes.

This ruling applies for the following period

Income year ended 30 June 2020.

The scheme commences on

1 July 2019

Relevant facts and circumstances

The Taxpayer is the parent of the late the Deceased

The Deceased died in 2019

The Deceased was not married, not in a de facto relationship and had no children.

The Taxpayer suffered from an illness and had several symptoms which prevent the Taxpayer from working full time.

The Deceased moved in with the Taxpayer prior to the Deceased's death.

The Taxpayer relied on the Deceased, for companionship, emotional support and friendship. Further, The Taxpayer and the Deceased had a normal loving family relationship evidenced by mutual respect and support.

The Taxpayer provided the Deceased with ongoing financial and domestic support and personal care including the following:

§  The Taxpayer provided support to the Deceased by not asking for rent and utility payments while they were living together.

§  providing the Deceased with companionship and emotional support;

The Deceased provided the Taxpayer with ongoing financial and domestic support and personal care including the following:

§  contributing towards the groceries; and

§  cooking and preparing meals for the household

The Deceased's superannuation fund paid a lump sum death benefit (the Benefit) to the Trustee of the Deceased Estate (the Trustee) on 2020. This was subsequently distributed to the Beneficiary by the Trustee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the Taxpayer just before the Deceased died. Therefore, the Taxpayer is a death benefits dependent of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

Section 302-60 of the ITAA 1997 states:

A superannuation lump sum that you receive because of the death of a person of whom you are death benefits dependent is not assessable income and is not exempt income.

Subsection 302-195(1) of the ITAA 1997 defines a 'death benefits dependant' of a person who has died 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 just before he or she died.

For the Taxpayer to be a death benefits dependant of the Deceased, as paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case, it must be established that the Beneficiaries was in an 'interdependency relationship' with the Deceased, or that the Beneficiaries was a 'dependant' of the Deceased just before the Deceased died.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 states that 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.

Subsection 302-200(3) of the ITAA 1997 provides the matters and circumstances which are to be considered in determining whether an interdependency relationship exists between two persons under that section may be specified in the regulations.

To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 1997 (ITAR 1997) state that in considering subparagraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are all the relevant circumstances of the relationship between the persons, including (in this case):

(a)  the duration of the relationship; and

(b)  the degree of mutual commitment to a shared life; and

(c)   the degree of emotional support; and

(d)  the extent to which the relationship is one of mere convenience.

The facts provided indicate that the Beneficiaries and the Deceased had a close personal relationship in that:

§  they had a close personal relationship;

§  they lived together; and

§  the Taxpayer provided the Deceased with financial and domestic support and personal care as required by subsection 302-200(1).

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'.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR 1997.

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 (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. flat mates), 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 into the ITR 1936, it stated that:

'It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship

Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.'

As stated above, the intention of the law is that 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, 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.

In this case, the Taxpayer is the father of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. The Taxpayer lived with the Deceased prior to the Deceased's death. The Deceased undertook part-time work in order to care for the Taxpayer.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

As stated above, the Deceased lived with the Taxpayer shortly before the Deceased's death.

Accordingly, paragraph 302-200(1)(b) of the ITAA 1997 is satisfied as the Deceased and Taxpayer were living together at the time of the Deceased's death.

However, subsection 302-200(2) of the ITAA 1997 states that in addition to subsection 302-200(1) of the ITAA 1997, two persons will have an interdependency relationship if:

(a)  they have a close personal relationship;

(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, mental or psychiatric disability.

In this case it has been determined that both the Deceased and the Taxpayer had a close personal relationship. Thus, the Deceased and the Taxpayer will still be considered to have been in an interdependency relationship.

Financial support

Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.

The facts show that the Taxpayer provided the Deceased with accommodation and food and that the Deceased provided care, free of charge.

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.

Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attention to the household shopping, cleaning, and laundry and like services.

The facts presented in this case show the Deceased provided domestic support and personal care to the Taxpayer on an ongoing basis. This consisted of undertaking household shopping, completing routine domestic tasks for the Taxpayer and the Taxpayer providing the Deceased with personal care which included emotional support and stability to the Deceased.

Based on the above, the Taxpayer meets all the requirements of an interdependency relationship for the purposes of section 300-200 of the ITAA 1997. Therefore, the Beneficiary is a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.