Edited version of private advice

Authorisation Number: 1051949604014

Date of advice: 30 May 2022

Ruling

Subject: Financial dependency

Question

Is the applicant (the Beneficiary) a "death benefits dependant" of the deceased in accordance with pursuant to section 302-195(1) of the Income Tax Assesment Act 1997 (Cth)?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 2021

The scheme commences on:

1 July 2020

Relevant facts and circumstances

The Beneficiary is the son of the Deceased.

The Deceased passed away on 24 August 2020.

The Beneficiary is the sole executor and trustee of the Deceased's estate (the Estate).

The Deceased held a superannuation account, that has paid a lump sum to the Estate. This sum has yet to be distributed.

Under the Deceased's will, 'the rest and residue of the Estate' including 'superannuation policies' were to be given to the Beneficiary 'absolutely'.

The Beneficiary had been living with his mother. The Beneficiary made a decision to move into the Deceased's house shortly after the Deceased fell ill, to take on a carer role and provide assistance until his time of death.

During this time, the Beneficiary was cooking and preparing meals for his father, and trying to encourage him to eat properly. He was cleaning and tidying the house, and washing the clothes because his father found it difficult to walk around. The Beneficiary was driving to the shops to buy food and other groceries, driving to the chemist shop to fill scripts.

The Deceased had just had a hip replacement around the time the Beneficiary moved in. The Beneficiary helped him get in and out of the chair and bed. The Beneficiary was in the process of arranging a living nursing assistance to help with showering and dressing, but this never eventuated before the Deceased passed.

The Deceased was admitted to hospital 4 months after he moved in with the Beneficiary. The hospital form provided indicates that the Deceased had been living the with Beneficiary, but the family expressed concerns about him not eating, drinking, taking medication or getting out bed. Furthermore, the hospital supports the fact the Deceased was experiencing pain, fatigue, poor appetite, reduced mobility, and reluctance in taking medication with his cancer diagnosis.

The Beneficiary was also in the process of arranging for the Deceased to enter a nursing home in the interim. The Deceased entered an aged care home for more support, however, his stay there for barely a week before he was re-admitted to hospital via ambulance.

The Beneficiary visited his father regularly in hospital, bringing him things from home and buying things for him including extra items from the chemist.

The Beneficiary was also organising paying the Deceased's bills when they came due and making any general arrangements for him, including appointments. He drove the Deceased whenever he needed to go anywhere including the hospital appointments and back home after hospital stays.

The Beneficiary did not look for paid employment at this time because doing all the things he did for his father left him no time to look for other work or to become employed.

The Beneficiary contends that he was financially dependent on the Deceased and have provided the following information in relation to this:

The Beneficiary was receiving wages fortnightly but lost employment a month before he moved in with the Deceased due to COVID-19. Bank statements support this.

He had minimal income as declared to the ATO for the 2019-20 financial year. He has yet to submit his income tax return for the 2020-21 income year.

When the Beneficiary was living the Deceased, he did not pay rent or accommodation expenses (utilities and insurance).

The Deceased gave the Beneficiary cash to attend the food and pharmacy stores and pay for other living incidentals. The Deceased's bank statements show these withdrawals made in the first two months the Beneficiary started living with the Deceased.

Besides from the above bank statements, the Deceased states that there are no written records of the cash given or any items his father paid for on his behalf, as there was no need to make any records of the cash payments at the time.

The Beneficiary did not receive any Government benefits from the time he lived with the Deceased.

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

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Death Benefits Dependant in relation to the Superannuation Death Benefit

Reasons for Decision

Summary

1.    The Beneficiary is a death benefits dependant of the Deceased under section 302-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as they were in a interdependency relationship.

Detailed reasoning

Death Benefits Dependant in relation to the Superannuation Death Benefit

2.    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.

3.    Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

(1) 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.

4.    The facts of this case demonstrate that paragraphs 302-195(1)(a) or 302-195(1)(b) of the ITAA 1997 do not apply to the Beneficiary

5.    Therefore, we will determine if the Beneficiary was a dependant of the deceased person just before he or she died in accordance with paragraph 302-195(1)(c) or 302-195(1)(d).

What is an interdependency relationship?

6.    Subsection 302-200(1) of the ITAA 1997 states that two persons (whether 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.

7.    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 suffer from a physical, intellectual or psychiatric disability

8.    Subsection 302-200(3) of the ITAA provides that the 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

9.    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.

10.  All the conditions already specified in subsection 302-200(1) of the ITAA 1997 or alternatively in subsection 302-200(2) of the ITAA 1997, must be satisfied for a person to be in an interdependency relationship.

Close personal relationship

11.  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. In discussing the meaning of 'close personal relationship' the SEM, as far as relevant, states:

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.

13.  Applying the above to this case, it is considered that the relationship between the Beneficiary and the Deceased was over and above that of a normal family relationship and that a close personal relationship existed as required by paragraph 302 200(1)(a) of the ITAA 1997.

14.  The Beneficiary provide the Deceased with ongoing support that was enduring in nature. The Beneficiary had made a conscious decision to move from his mother's to his father's house to provide caretaking and assistance, as the Deceased's illness was declining- experiencing pain, fatigue, poor appetite, reduced mobility, and reluctance in taking medication. The Deceased had entered a residential facility, however this was only for a period of less than a week. There was an ongoing commitment by the Beneficiary to ensure the well-being of the Deceased and provide the Deceased with emotional support.

Living together

15.  The Deceased and the Beneficiary were living together shortly after the Deceased fell ill, up until the time of death. Therefore, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance.

Financial support

16.  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.

17.  In this case, the facts indicate that the Deceased provided financial support to the Beneficiary by providing accommodation and related expenses including utilities and insurance. In addition, the Deceased had made cash withdrawals for the Beneficiary to buy food, go to the pharmacy and buy other living incidentals.

Domestic support and personal care

18.  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.

19.  In this case, the Beneficiary provided the Deceased with ongoing domestic care, personal care, and emotional support to help them cope with their reduced mobility, fatigue, pain, loss of appetite, and reluctance in taking medication. This was for the duration that the Beneficiary had moved into the Deceased's house up until death, including during hospital stays.

20.  The Beneficiary did not look for paid employment during this time, due to the commitment of caretaking for the Deceased.

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

22.  As all conditions of subsection 302 200(1) of the ITAA 1997 have been satisfied, the Beneficiary and the Deceased had an interdependency relationship under section 302 200 of the ITAA 1997 just before the Deceased died.

23.  Therefore, the Beneficiary is a death benefits dependant of the Deceased under paragraph 302 195(1)(c) of the ITAA 1997. As such, there is no need to consider whether the Beneficiary is a dependant of the Deceased under paragraph 302 195(1)(d) of the ITAA 1997.