Edited version of private advice

Authorisation Number: 5010081879065

Date of advice: 13 July 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1

Was the beneficiary a death benefits dependant of the deceased person 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:

Year ended 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 died during the 20XX income year.

The Trustees of the Deceased Estate ("the Trustees") have advised that the Beneficiary has been suffering from a psychiatric illness since the early 19XXs. Copies of reports from psychiatrists and neuropsychologists provided by the Trustees note that the Beneficiary was diagnosed with a psychiatric illness which the Trustees have advised was in the early 19XXs.

The Beneficiary received financial support from disability support benefits, which was apportioned as per the copy of the Beneficiary's disability support plan provided by the Trustees. The Beneficiary also received a limited income during the 20XX and 20XX income years.

The copy of the Beneficiary's disability support plan lists that meal preparation, linen, cleaning and maintenance assistance provided to the Beneficiary is managed by the disability support management provider.

The Beneficiary did not live with the Deceased.

The Trustees provided a statutory declaration in May 20XX, stating that the Deceased contributed half of the purchase price for an apartment in the early 19XXs, in which the Beneficiary has resided since, and that said property is in the Beneficiary's XXXX name.

The Trustees have advised that the arrangement in place was that the Beneficiary's other parent would list all of the Beneficiary's expenses, total them, and send the list alongside a request to the Deceased to pay half of this total. Before online banking, the Deceased would send a cheque in the mail to the Beneficiary.

The Trustees have further advised that the expenses paid for by the Deceased and the Beneficiary's XXXX included electricity, telephone, water rates and usage, streaming subscription services, council rates, strata, food and everyday living items, holidays and medical expenses.

Copies of handwritten lists of the Beneficiary's expenses from the Beneficiary's XXXX have been provided by the Trustees.

The Trustees have provided copies of the bank statements from the Beneficiary's XXXX from late 20XX to early 20XX showing deposits titled with the Beneficiary's name.

A copy of a report from early 20XX stated that the Beneficiary is able to manage day-to-day financial transactions, but relies on familial assistance for larger and recurring payments such as rent or bills.

The Trustees have advised that the Beneficiary occasionally makes payments to their XXXX as a contribution towards rent, but these payments are not regular or expected.

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 Subsection 302-195(1)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(a)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(b)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(c)

Income Tax Assessment Act 1997 Paragraph 302-195(1)(d)

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Subsection 302-200(1)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(b)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(c)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(d)

Income Tax Assessment Act 1997 Paragraph 302-200(3)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(3)(b)

Income Tax Assessment Act 1997 Paragraph 302-200(4)(c)

Income Tax Assessment Act 1997 Subsection 302-200(2)

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Subsection 995-1(1)

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

Income Tax Assessment (1997 Act) Regulations 2021 Subsection 302-200.01(2)

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

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(2)

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(3)

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(4)

Income Tax Assessment (1997 Act) Regulations 2021 Section 302-200.02(5)

Reasons for decision

Detailed reasoning:

Meaning of death benefits dependant

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 Beneficiary is the adult child of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 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(1)(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(1)(d) of the ITAA 1997 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.

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.

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.

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):

                                  i.    the duration of the relationship

                                 ii.    the ownership, use and acquisition of property

                                iii.    the degree of mutual commitment to a shared life

                               iv.    the care and support of children

                                 v.    the reputation and public aspects of the relationship

                               vi.    the degree of emotional support

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

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

                               ix.    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.

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

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.

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.

Subsection 302-200.02(5) of the ITAR 2021 states that two persons do not have an interdependency relationship if one of them provides domestic support and personal care to the other:

a.    under an employment contract or a contract for services; or

b.    on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

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

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 section 302-200.02 of the ITAR 2021.

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).

The above indicators are not an exclusive list and none of them are required 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) of the ITAA 1997.

The Beneficiary has been living in a property purchased for them by the Deceased and the Beneficiary's other parent, and this has been largely rent-free. The Beneficiary received continual financial support from the Deceased and the Beneficiary's other parent since their diagnosis in the early 19XXs for normal living expenses, such as food and water, utility bills and medical expenses.

From the facts provided, it does not appear that the Beneficiary managed to secure independence from their parents, being the Deceased and the Beneficiary's other parent.

Therefore, a close personal relationship did exist 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) 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.

Prior to the Deceased's death, the Beneficiary and the Deceased did not live together.

In the early 1990s, the Deceased and the Beneficiary's other parent jointly purchased a property for the Beneficiary to live in, and the Beneficiary has been the sole occupant of said property.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not 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.

From the facts presented, the Deceased did not have sufficient income from disability support benefits and a limited income to support themselves financially and was financially dependent on the Deceased to pay for their food and everyday living items, utilities and rates, medical expenses and accommodation-associated expenses.

The Beneficiary is also unable to manage larger, recurring payments, such as rent or bills, without familial assistance.

Therefore, the Deceased provided the Beneficiary with financial support since the Beneficiary's diagnosis in the early 1980s.

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 and the Deceased did not provide each other with significant assistance.

The Beneficiary is instead reliant upon their disability support plan-managed services for assistance with daily living activities, such as meal preparation, cleaning, laundry and like services.

In addition, the Beneficiary and the Deceased did not provide each other with significant emotional support and comfort.

Therefore, the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied.

Disability

Subsection 302-200(2) of the ITAA 1997 ensures that where two people have a close personal relationship but cannot satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) or (d) of the ITAA 1997 because one or both of them has a physical, intellectual or psychiatric disability, they are still considered to have an interdependency relationship.

The Beneficiary and the Deceased did not live together, and therefore did not satisfy the requirement in paragraph 300-200(1)(b) of the ITAA 1997.

From the facts presented, the reason why the Beneficiary and the Deceased did not live together was due to the Beneficiary's ongoing psychiatric disability.

The Beneficiary and the Deceased did not provide each other with domestic support and personal care, and therefore did not satisfy the requirement in paragraph 300-200(1)(d) of the ITAA 1997.

From the facts presented, the reason why the Deceased did not provide domestic support and personal care to the Beneficiary was due to the Beneficiary suffering from an ongoing psychiatric disability that required external assistance, via NDIS plan-managed services, to complete those daily living activities.

Therefore, in accordance with Subsection 302-200(2) of the ITAA 1997, the Beneficiary and Dependant are still considered to have an interdependency relationship even though they cannot satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) or (d) of the ITAA 1997 because the Beneficiary has a disability.

Conclusion

As all of the requirements in section 302-200 of the ITAA 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.