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Edited version of your written advice

Authorisation Number: 1051346759852

Date of advice: 19 March 2018

Ruling

Subject: Death benefit - interdependency

Question

Was the beneficiary in an interdependency relationship with the deceased as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following:

Year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

    1. The Taxpayer is a parent of the deceased.

    2. On or around late 2012, the deceased suffered from a disorder.

    3. Due to the deceased’s declining health, they were largely unable to work. The Taxpayer supported the deceased financially by allowing them to live rent-free in the Taxpayer’s home and paying for their meals and utilities. During periods when the deceased lived away from the Taxpayer’s home, the Taxpayer aided them financially by paying their rent and bills, paying for clothing and groceries, and providing cash for expenses.

    4. The deceased spent increasing periods of time at the Taxpayer’s home due to their deteriorating health. They also stayed for some intermittent periods with their siblings for practical, financial and moral support.

    5. On or around late 2015, the deceased was diagnosed with a terminal illness.

    6. At this time, the deceased was living with the Taxpayer at their home.

    7. The deceased’s health continued to deteriorate. As the Taxpayer was suffering from illnesses themselves, they were physically unable to provide all the increased level of care and assistance the deceased required.

    8. On or around early 2016, the deceased moved into their sibling’s home where family provided them with day-to-day personal care such as toileting, showering and dressing.

    9. While they lived at the Taxpayer’s home, the Taxpayer provided domestic support to the deceased in the form of attending to the household cleaning, preparing food, washing their clothing, and helping them attend medical appointments.

    10. The Taxpayer also assisted the deceased by providing emotional support, including palliative care in the lead-up to their death.

    11. The deceased passed away in early 2016.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

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 Subsection 302-200(2)

Income Tax Assessment Act 1997 Subsection 302-200(3)

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

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Summary

    12. An interdependency relationship as defined under subsection 302-200(1) of the Income Tax Assessment Act 1997 (ITAA 1997) existed between the Deceased and the Taxpayer, as all of the requirements which are set out in the relevant legislation have been satisfied in this case.

    13. Therefore, the Taxpayer is a dependant of the Deceased within the definition of death benefits dependant.

Detailed reasoning

Death Benefits Dependant in relation to the Superannuation Death Benefit

    14. 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.

    15. 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.

    16. 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.

    17. As the Taxpayer is the parent of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

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

Interdependency relationship

    19. 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.

    20. 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.

    21. 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.

    22. 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.

    23. 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.

    24. 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:

    25. 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’.

    26. 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.

    27. 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.

    28. 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.

    29. 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.

    30. In this case, the Taxpayer is the parent of the deceased. It is clear that a close family relationship existed prior to, and at the time of the deceased's death. The Taxpayers lived with the deceased until 2016, and the deceased moved on and off back into the Taxpayer’s home in 2012 due to their worsening health. It was not known when or if the deceased would be well enough to live independently.

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

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

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

Cohabitation:

    34. The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that two persons live together.

    35. Prior to time of the deceased's death, the deceased and the Taxpayer were living together in the Taxpayer’s home.

    36. Shortly before their death, the deceased moved to their sibling’s home as due to the Taxpayer’s illness they were physically unable to provide the increased level of care.

    37. 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 their death at the Taxpayer’s home.

    38. Alternatively, this requirement would be satisfied under paragraphs 302-200(2)(b) and (c) of the ITAA 1997 as both the deceased and the Taxpayer were suffering from illnesses.

Financial support:

    39. 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.

    40. Financial support under paragraph 302-200(1)(c) is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

    41. According to statements from the Taxpayer, the deceased was only able to work part-time or not at all. The Taxpayer continued to support them financially for several years, by allowing them to live rent-free in their home and paying for meals and utilities. During periods when they lived away from the Taxpayer’s home, the Taxpayer aided them financially by paying their rent and bills, paying for clothing and groceries, and providing cash for expenses.

    42. It is clear that the Taxpayer provided the deceased with financial support during the last years of the deceased’s life. Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this instance.

Domestic support and personal care:

    43. 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.

    44. From the facts presented, the Taxpayer clearly provided domestic support to the deceased on an ongoing basis. The Taxpayer provided the deceased with significant assistance, including helping them with medical appointments, washing their clothing, attending to household cleaning, preparing food, and other aspects of physical care.

    45. It is also apparent that the Taxpayers provided the deceased with significant emotional support during the course of their illness.

    46. 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.

Application of subsection 302-200(2):

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

    48. The deceased is considered to have been living with Taxpayer at their home even though they relocated to their sibling’s home just prior to their death.

    49. Due to their deteriorating heath, compounded by the Taxpayer’s own illnesses, the Taxpayer could not provide the deceased with the care and assistance required just prior to their death. For this reason, they relocated to their sibling’s home where the family was able to assist the deceased with day-to-day personal care such as toileting, showering and dressing.

    50. Consequently, subsection 302-200(2) of the ITAA 1997 is enlivened as the only reason the deceased moved out of the Taxpayer’s home was due to both of them suffering from physical illnesses that prevented the Taxpayer from providing the deceased with care they required just before their death.

Conclusion

    51. As all of the requirements in subsection 302-200(1) of the ITAA 1997 have been satisfied in this case, it is considered that the Deceased and the Taxpayer were in an interdependency relationship in the period prior to, and at the time of, the Deceased’s death.

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