Edited version of private advice

Authorisation Number: 1051772198272

Date of advice: 18 December 2020

Ruling

Subject: Interdependency relationship

Question

Are the Beneficiaries a death benefit dependant of 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:

For the year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased died in mid-20XX.

The Beneficiaries are the parents of the Deceased.

The Deceased never married, had no spouse or children.

The Deceased lived with the Beneficiaries most of her life except in the last several years of her life, where the Deceased was renting an apartment from the Beneficiaries.

The Deceased was born with an intellectual disability and suffered from an illness.

The Rent from the apartment was subsidised by the Beneficiaries.

The Deceased resided at the Beneficiaries residence every Thursday and Sunday night.

The Deceased relied on the Beneficiaries for emotional stability and ongoing personal care.

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

•         Providing the Deceased with companionship, emotional support, personal care, guidance and assistance

•         Payment of various debt including, Centrelink overpayments, household repairs, veterinary costs

•         Assisting the Deceased with cleaning and general upkeep of her apartment

•         Providing support in dealings with medical practitioners

•         Providing transport to Doctor appointments.

The Deceased's superannuation fund paid a lump sum death benefit (the Benefit) to the Trustee of the Deceased Estate (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

An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the Beneficiaries just before the Deceased died.

Therefore, in relation to the death benefit paid to the estate of the Deceased, the Beneficiaries are considered a death benefits dependant of the Deceased as defined in subsection 302-195(1) of the ITAA 1997.

Detailed reasoning

Division 302 of the ITAA 1997 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 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 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 Beneficiaries are the parents of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

It is submitted that the Beneficiaries were in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997

Interdependency relationship

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

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.

Subsection 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 states that the regulations may specify the matters that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

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

(b)  the existence of a statutory declaration signed by 1 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 persons have, or do not have an interdependency relationship under section 302-200 of the ITAA 1997. These are specified in regulation 302-200.02 of the ITAR 1997.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively subsection 302-200(2) of the ITAA 1997, or 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. 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'.

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. 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 Regulation 8A into the Income Tax Regulations 1936, it stated that:

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 Beneficiaries are the parents of the Deceased. A close family relationship existed prior to, and at the time of the Deceased's death. The Beneficiaries lived with the Deceased until early 2017, and the Deceased had a split arrangement between the Beneficiaries residence and an apartment that was subsidised by the Beneficiaries.

In respect of emotional support, it is accepted that the Beneficiaries provided a significant degree of support to the Deceased throughout the course of her illness, regardless of whether they were living together or separately.

It is clear that a loving and supportive relationship existed between the Beneficiaries and the Deceased. It is considered that overall the relationship between them is of the type envisioned by the legislation.

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

Living together

The phrase 'live together' 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.

Therefore, as paragraph 302-200(1)(b) of the ITAA 1997 requires that the 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, the Deceased lived with the Beneficiaries for her whole life either wholly at the Beneficiaries residence and since early 2017 in a split arrangement between her subsidised rented apartment and the Beneficiaries residency. The Beneficiaries continued to provide the Deceased with financial, personal and emotional support of the nature previously provided in the Deceased's family home.

It is considered that paragraph 302-200(1)(b) of the ITAA 1997 is satisfied in this instance as the Deceased spent a substantial period prior to her death at the Beneficiaries home.

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.

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.

The Beneficiaries provided the Deceased with a degree of financial support during their relationship. This included subsidised rent, payment of repairs and maintenance costs, veterinary cost and general household/living expenses.

Subsequently, 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, 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.

From the facts presented, the Beneficiaries provided the Deceased with significant emotional support and personal care. The Beneficiaries were the Deceased's principal carer and accompanied the Deceased to medical appointments. When the Deceased and the Beneficiaries lived together, the Beneficiaries was responsible for household chores, including cooking, cleaning they continued to support the Deceased emotionally and assist her with care during the final months of her life.

Therefore, 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.

Conclusion

The Beneficiaries were in an interdependency relationship with the Deceased, just before their death, the Beneficiaries were a death benefits dependant as defined under section 302-195 of the ITAA 1997.