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Edited version of private advice

Authorisation Number: 1051847992937

Date of advice: 8 June 2021

Ruling

Subject: Death benefits - interdependency

Question

Was the Beneficiary a death benefits dependant as defined in section 302-195 of the Income Tax Assessment Act 1997 of the Deceased?

Answer

Yes

This ruling applies for the following period:

The income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.            The Deceased died on XX Month 2020.

2.            The Deceased has lived with the Beneficiary their entire life, never living independently.

3.            The Deceased suffered from medical conditions.

4.            The Deceased retired from work on the grounds of ill health and received disability insurance payments for X years and was on Newstart payments until their death.

5.            The Beneficiary provided the Deceased with a home and continued financial support including the following;

•                    Paying for household expenses

•                    Vehicle running costs

•                    Medical Insurance and medical and pharmaceutical costs

•                    Holidays

•                    Credit Card and loan debts

6.            The Deceased could not manage money well due to their medical conditions, however when they did have money they often purchased items for the household.

7.            The Deceased lived a reclusive life due to their medical conditions and relied on the Beneficiary for complete emotional support and there was no likelihood of this changing.

8.            The Deceased and the Beneficiary spent a lot of time together enjoying mutual hobbies such as gardening and holidays and providing each other with emotional support.

9.            The Beneficiary assisted the Deceased with domestic support and personal care ensuring the Deceased ate well and attended to hygiene and personal care.

10.         When the Beneficiary suffered from an illness the Deceased provided personal care and support to the Beneficiary.

11.         The Deceased would transport the Beneficiary to any medical appointments.

Relevant legislative provisions

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 Income Tax Assessment Act 1997 (ITAA 1997) existed between the Deceased and the Beneficiary as all of the requirements which are set out in the relevant legislation have been satisfied.

Therefore, the Beneficiary is considered to be a death benefits dependant of the Deceased.

Detailed reasoning

Superannuation death benefits

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 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.

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997.

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.

As the Beneficiary is a child of the Deceased aged over 18, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an 'interdependency relationship' with the Deceased or that they were a 'dependant' of the Deceased just before the Deceased died.

What is an 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 that regulations may specify:

(a)          matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship

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

•                    the duration of the relationship; and

•                    the ownership use and acquisition of property; and

•                    the degree of mutual commitment to a shared life; and

•                    the degree of emotional support; and

•                    the extent to which the relationship is one of mere convenience; and

•                    any evidence suggesting that the parties intend the relationship to be permanent.

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 close personal relationship is generally one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. Indicators of a close personal relationship may include the duration of the relationship and the degree of mutual commitment to a shared life.

Generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between a parent and child. This is because the relationship between a parent and child would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where, as in this case, unusual and exceptional circumstances exist, a relationship between a parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

The matters that indicate that the Beneficiary and the Deceased had a close personal relationship prior to the Deceased's death are:

•                    The Deceased had lived with the Beneficiary all their life. They cannot live independently due to their medical conditions.

•                    The Beneficiary provided the Deceased with continuous emotional support.

•                    The Deceased emotionally supported the Beneficiary and provided personal care during times of illness.

•                    The Deceased and the Beneficiary spent much of their time together and enjoyed mutual hobbies together such as gardening.

•                    The Beneficiary provided the Deceased with financial support including paying for all the accommodation, household, holiday and medical expenses.

•                    The Deceased contributed to the household expenses on occasions when they had access to funds.

•                    The Deceased provided transport to the Beneficiary to medical appointments.

•                    The facts indicate that the relationship between the Deceased and the Beneficiary was intended to be permanent; and

•                    There is nothing to indicate that the relationship was one of mere convenience.

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. It is considered in the context of the provision, that the living arrangements must have some degree of permanency.

In determining if the persons live together it is relevant to have regard to 'the degree of mutual commitment to a shared life' and 'any evidence suggesting that the parties intend the relationship to be permanent'.

In this case, an adult child has lived with the parent all their life. The child has been employed for short times sporadically, however, has never held permanent employment and has been deemed unable to work due to medical conditions. This can be considered that the child has, in fact, committed to a shared life with the parent and they intended the relationship to be permanent.

Therefore, it is considered that the Beneficiary and the Deceased lived together.

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 the two persons provides the other with 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 was provided by one person (or each of them) to the other, for example providing support for a person's household and/or medical expenses.

In this case, the facts indicate that the Beneficiary provided all financial support to the Deceased. The Beneficiary provided the Deceased with a home and continued financial support and household expenses including;

•                    Vehicle running costs

•                    Medical Insurance and medical and pharmaceutical costs

•                    Holidays

•                    Credit Card and loan debts

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.

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.

In this case, the Beneficiary provided cleaning, cooking and laundry services to the Deceased regularly. The Beneficiary assisted the deceased with reminders to practice personal hygiene and eat in the morning. The Beneficiary usually prepared lunch and dinner for the Deceased.

It is therefore considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

Based on the above, the Beneficiary meets all the requirements of an interdependency relationship for the purposes of subsection 300-200(1) of the ITAA 1997.

Therefore, the Beneficiary is a death benefits dependent of the Deceased for the purposes of section 302-195 of the ITAA 1997.