Edited version of your private ruling

Authorisation Number: 1051801885159

Date of advice: 28 April 2021

Ruling

Subject: Death benefit - interdependency relationship

Question

Was the Beneficiary a death benefits dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Beneficiary is the adult child of the Deceased.

The Deceased had a serious heart condition, heart disease and diabetes, which resulted in the Beneficiary living with him.

The Deceased built a house (the Property) for the Beneficiary, at a time when the Beneficiary could not afford to pay the required deposit.

The Beneficiary relocated from overseas to Australia with the intention of caring for his parents.

The Beneficiary retired from his job and took up a new position which allowed him to work from home and care for his parents on a full time basis.

Prior to his passing, the Deceased was receiving income streams.

The Beneficiary cared for the Deceased by providing:

•         financial support, in paying approximately $XX per week towards meeting expenses for rates, water and groceries - additionally, although not quantified he also paid for motor vehicle expenses of the Deceased

•         domestic support as primary carer, including cleaning, shopping and preparing meals to meet the special dietary needs of the Deceased

•         personal care and assistance relating to attendance at medical appointments, support relating to a serious heart condition, diabetes and surgery, providing transport, and walking and sitting with the Deceased, who also suffered from a spinal disc relocation, and

•         emotional support, including providing comfort and consoling in relation to the loss and distress associated with the terminal illness of the Deceased's wife. The Beneficiary commenced living with the Deceased and was still living with the Deceased at the time of his passing.

The Beneficiary has applied for a Medicare card, made application to the Electoral Office and has his own private health insurance.

The Beneficiary signed a statutory declaration to the effect that he was in an interdependency relationship with the Deceased prior to the Deceased's death.

Working only XX hours per week gave the Beneficiary the flexibility to undertake both work and caring responsibilities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-145

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

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for Decision

Summary

An interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act (ITAA 1997) existed between the Deceased and the Beneficiary, as all of the requirements set out in the legislation have been satisfied in this case.

Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

section 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 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.

As the Beneficiary is the adult child of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

The Beneficiary was not financially dependent on the Deceased person and therefore, paragraph 302-195(d) is not applicable.

To meet the definition of a death benefits dependant, the Beneficiary must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Under subsection 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.

To assist in determining whether two people have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 provides that the regulations may specify the matters that are, or are not to be taken into account.

Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the matters to be taken into account as follows:

•         all of the circumstances of the relationship between the persons, including:

•         the duration of the relationship

•         the ownership, use and acquisition of property

•         the degree of mutual commitment to a shared life

•         the degree of emotional support

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

•         any evidence that the parties intend the relationship to be permanent; and

•         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.

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two people have, or do not have an interdependency relationship.

Regulation 302-200.02 of the ITAR 1997 sets out the circumstances in which two people have an interdependency relationship.

Relevantly, subregulation 302-200.02(2) of the ITAR 1997 provides that an interdependency relationship exists between two people where:

•         they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997; and

•         one or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship rather than by a mere friend or flatmate, for example one person provides significant care for the other person when they are unwell or suffering emotionally.

All of the conditions in subsection 302-200(1) of the ITAA 1997, and one of the tests in regulation 302-200.02 of the ITAR 1997 must be satisfied for a person to be in an interdependency relationship with another person. We deal with each condition in turn, to establish if an interdependency relationship existed.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that the 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 states:

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.

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)

•         The above indicators are not an exclusive list, nor are any of them a requirement for a close personal relationship to exist.

•         People who share accommodation for convenience (such as flatmates) or people who provide care as part of an employment relationship or on behalf of a charity are not intended to fall within the definition of a close personal relationship.

The Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) stated that:

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

While this statement does not preclude a child from being in an interdependency relationship with a parent, it suggests that interdependency only exists where the relationship goes beyond the usual relationship between an adult child and a parent.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between a parent and an adult child 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, where unusual and exceptional circumstances exist, a relationship between a parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1).

The relationship between the Beneficiary and the Deceased was over and above a normal family relationship between a parent and an adult child.

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

•         The Beneficiary provided significant care and support to the Deceased throughout his illness. The Beneficiary provided the Deceased with intensive and ongoing emotional, domestic and financial support. This level of care exceeded the care and comfort that would usually be provided by an adult child to a parent. They had an exceptionally close relationship. Further details of their care arrangements are provided below, under Financial Support and Domestic Support and Care.

•         The Beneficiary and the Deceased lived together up until the Deceased's death, and the Deceased was significantly dependent on the Beneficiary for ongoing care and support. They would have continued to live together after this time as the Beneficiary owned the Property where they were residing. They had a strong mutual commitment to having a shared life.

•         The Beneficiary's range of medical conditions and inability to be self-sufficient necessitated the Beneficiary to retire from his job and take up a new position with a pay cut in Australia. This demonstrates a commitment beyond that expected in a normal familial relationship.

Therefore, a close personal relationship existed between the Beneficiary and the Deceased and the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states that two interdependent persons (whether or not related by family) live together.

The term 'live' is not defined in the ITAA 1997 or accompanying regulations. According to the Macquarie Dictionary, the term 'live' means to dwell or reside. The term 'reside' is defined as the action of dwelling in a particular place permanently or for a considerable time. In the context of paragraph 302-200(1)(b), the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together. The Beneficiary relocated permanently from overseas with the intention of caring for both his parents.

As evidenced by the Beneficiary's ownership of the Property, the living arrangements had a degree of permanency that was only disturbed by the death of the Deceased.

Prior to the Deceased's death, the Beneficiary and the Deceased lived together.

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

Financial support

The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, which states that one or each of these 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 of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

Both parties did not appear to have been in a situation of financial dependency, however each party provided a level of financial support to the other as follows:

•         the Deceased and his wife built a house for the Beneficiary, at a time when the Beneficiary could not afford to pay the required deposit

•         the Beneficiary made payments towards meeting expenses for rates, water and groceries for several years paid while the Deceased and his wife occupied the Property

•         those expenses were recently approximated to be $XX per week - additionally, although not quantified he also paid for motor vehicle expenses of the Deceased.

Therefore, the Beneficiary and the Deceased provided each other with financial support during an extended period inclusive of the period immediately prior to the death of the Deceased.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied.

Domestic support and personal care

The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, which 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 presented, the Beneficiary provided the Deceased with significant assistance as follows:

•         domestic support as primary carer, including cleaning, shopping and preparing meals to meet the special dietary needs of the Deceased

•         personal care and assistance in assisting the Deceased with medical appointments and support relating to a serious heart condition, diabetes, surgery, providing transport; and walking and sitting with the Deceased, who also suffered from a spinal disc relocation

•         emotional support, including providing comfort and consoling in relation to the loss and distress associated with the terminal illness of the Deceased's wife, and

•         the Beneficiary's presence in the Deceased's life made a big difference to the Deceased's happiness as the Deceased valued the time spent with the Beneficiary.

Therefore, the requirement in paragraph 302-200(1)(d) has been satisfied.

Conclusion

As all of the requirements in section 302-200 of the ITAA 1997 and Subregulation 302-200.02(2) of the ITAR 1997 have been satisfied, the Deceased and Beneficiary were in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary was in an interdependency relationship with the Deceased, the Beneficiary is a death benefits dependant as defined under section 302-195 of the ITAA 1997.