Edited version of private advice

Authorisation Number: 1051975202593

Date of advice: 20 June 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question

Were the Beneficiaries, death benefits dependants 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 Beneficiaries are the parents of the Deceased.

The Deceased died during 20XX.

Medical reports and statements had been provided to support the extent of Deceased's medical conditions and treatments.

The Deceased suffered from a disorder and lived with physical disabilities listed below for their entire life:

a.    The Deceased was born with congenital heart disease and other congenital abnormalities, including an incomplete set of internal organs and the absence of an anus.

b.    As per the separation summary issued by XX Hospital, the Deceased was treated for complications relating to Warfarin titration, Hypokalaemia, Iron deficiency, Dysplastic kidneys, Neurogenic bladder, Complex congenital cardiac disease, cardiorenal syndrome, Cirrhosis secondary to heart disease and Hypertrophic pulmonary osteoarthropathy.

In the provided Statutory Declarations the Beneficiaries advised that:

a.    As an adult, the Deceased was also diagnosed with a rare bone disorder which resulted them being wheelchair bound and their mobility severely impacted.

b.    The Deceased was admitted to hospital more than XXX times and underwent more than XXX surgeries in their lifetime.

c.     The Deceased was diagnosed with Post Traumatic Stress Disorder (PTSD).

d.    They cared for the Deceased for entire life.

e.    They provided the Deceased with an accommodation in their home for the Deceased's entire life.

f.      They paid for most of the household expenses and for basic living needs.

g.    For most of the Deceased's life, the Deceased slept in a separate bedroom. However, for the last XXX years of their life (after PTSD diagnosis) the Deceased slept in the Beneficiaries bedroom.

h.    They provided the Deceased with a significant emotional support, especially after the Deceased was diagnosed with the PTSD.

i.      They assisted the Deceased with personal care due to their medical conditions and took the Deceased to medical appointments, paying for the required travel and parking

j.      When the Deceased was hospitalised in a different state after their heart transplant, the Beneficiaries stayed with the Deceased until the Deceased was able to return to their care.

The Deceased cared for the Beneficiaries by providing:

a.    Occasional support with household duties like cleaning, tidying the house and doing the dishes when in good health.

b.    Occasionally assisted with payment for groceries.

The Deceased lived with the Beneficiaries at their family home

The Beneficiaries advised that the Deceased received a disability pension.

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 Act 1997 Subsection 995-1(1)

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) 302-200.02

Reasons for decision:

An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiaries, as all of the requirements set out in the legislation have been satisfied in this case.

Therefore, the Beneficiaries are death benefits dependants of the Deceased as defined in section 302-195 of the ITAA 1997.

Summary:

1.    An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiaries, as all of the requirements set out in the legislation have been satisfied in this case.

2.    Therefore, the Beneficiaries are death benefits dependants of the Deceased as defined in section 302-195 of the ITAA 1997.

3.    Consequently, the taxable component of the superannuation lump sum death benefit paid to the Beneficiaries is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.

Detailed reasoning

Meaning of death benefits dependant

4.    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) 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.

5.    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(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

6.    The Beneficiary was not financially dependent on the Deceased person and therefore, paragraph 302-195(1)(d) of the ITAA 1997 is not applicable.

7.    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

8.    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.

9.    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.

10.  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.

11.  Subsection 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account. These matters are all of the circumstances of the relationship between the persons, including (where relevant):

a.    the duration of the relationship

b.    the ownership, use and acquisition of property

c.     the degree of mutual commitment to a shared life

d.    the care and support of children

e.    the reputation and public aspects of the relationship

f.      the degree of emotional support

g.    the extent to which the relationship is one of mere convenience

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

i.      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.

12.  Section 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

13.  Subsection 302-200.02(2) of the ITAR 2021 provides that an interdependency relationship exists between two people where:

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

b.    one or both 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.

14.  Subsections 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

a.    they have a close personal relationship; and

b.    they do not satisfy one or more of the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

                         i.     they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

                        ii.    one (or both) of them suffers from a disability.

15.  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 section 302-200.02 of the ITAR 2021 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

16.  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.

17.  This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and section 302-200.02 of the ITAR 2021.

18.  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.    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.

b.    Indicators of a close personal relationship may include:

                         i.     the duration of the relationship;

                        ii.    the degree of mutual commitment to a shared life;

                       iii.    the reputation and public aspects of the relationship (such as whether the relationship is publicly acknowledged).

19.  The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist.

20.  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

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

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

22.  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.

23.  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.

24.  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) of the ITAA 1997.

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

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

a.    Beneficiaries provided significant care and support to the Deceased throughout her live as she suffered from extensive medical conditions from her birth. This level of care exceeded the care and comfort that would usually be provided by a parent to an adult child. They had have an exceptionally close relationship. Further details of their care arrangements are provided below, under Domestic Support and Care.

b.    The Beneficiaries and the Deceased have lived together since the birth of the Deceased. Due to her medical conditions and disability, the Deceased continued to be significantly dependent on the Beneficiaries for ongoing care and support, for the remainder of the Deceased's life. The Deceased had no intention to ever move out of the family's home. They would have continued to live together if the Deceased were still alive. They had have a strong mutual commitment to having a shared life.

27.  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

28.  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.

29.  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) of the ITAA 1997, the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

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

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

Financial support

32.  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.

33.  From the facts presented, the Deceased did not have sufficient income to support themselves financially and was financially dependent on the Beneficiaries to pay for their accommodation, meals, household expenses as well as paying for travel and parking to attend medical appointments. The Deceased occasionally paid for groceries.

34.  Therefore, the Beneficiaries and the Deceased provided each other with financial support during the Deceased's life.

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

Domestic support and personal care

36.  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.

37.  From the facts presented, the Beneficiaries provided the Deceased with significant domestic support and personal care that included household chores, assistance with bathing and taking the Deceased to medical appointments.

38.  In addition, the Beneficiary provided the Deceased with significant emotional support and comfort to reduce some of the effects of her illness and PSTD.

39.  Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied.

Conclusion

40.  As all of the requirements in section 302-200 of the ITAA 1997 have been satisfied, the Deceased and Beneficiaries were in an interdependency relationship in the period just before the Deceased's death.

41.  As the Beneficiaries were in an interdependency relationship with the Deceased, the Beneficiaries are death benefits dependants as defined under section 302-195 of the ITAA 1997.