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Date of advice: 12 January 2016

Ruling

Subject: Death benefit - interdependency

Question

Are you a death benefits dependant of the deceased person (the Deceased) as defined under section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20WW

The scheme commences on:

1 July 20VV

Relevant facts and circumstances

The Deceased died during the 20VV-WW income year.

You are an adult child of the Deceased.

The Deceased separated from your other parent some time ago. Following the separation, the Deceased developed a drug dependency.

After the separation, you continued to live with the other parent.

You have provided medical records from a hospital (the Hospital) which outline the treatment received by the Deceased since the separation. In that period, the Deceased was treated in a hospital a number of times for drug related conditions.

The Deceased became dependent on you for physical and emotional support when they lost mobility as a result of an injury and a number of major illnesses.

Although you did not live with the Deceased, you relied on the Deceased for emotional support as a parent.

The Deceased lived alone from the 20UU-VV income year till their passing.

You provided domestic support to the Deceased, which included:

• finding short-term accommodation after the Deceased left the Hospital;

• locating and securing rental accommodation during the 20TT-UU income year for the Deceased;

• assisting the Deceased with moving furniture into the rented accommodation;

• assisting the Deceased with buying whitegoods;

• completion of household chores including washing, vacuuming and cleaning and grocery shopping;

• assisting the Deceased by paying weekly rent and quarterly bills for them electronically;

• purchasing and assembling mobility assistance equipment including walking frame; and

• providing transport and accompanying the Deceased to medical and legal appointments

You also provided emotional support to the Deceased during:

• the Deceased's separation and divorce;

• subsequent separation from a partner;

• the Deceased's attendance in Rehabilitation programs;

• the Deceased's diagnosis of a major illness; and

• the Deceased's extended hospital admission during the 20TT-UU income year.

You did not receive a carer's allowance for caring for the Deceased.

The Deceased's bills were paid from the Deceased's savings account.

You were unable to live with the Deceased because of the psychological impact of their struggles with addiction and the resulting behaviour. Instead, you lived in close proximity to the Deceased so that you may maintain close personal contact and to provide the Deceased with regular domestic support.

Relevant legislative provisions

Income Tax Assessment Act 1936 former section 27AAB.

Income Tax Assessment Act 1997 section 302-195.

Income Tax Assessment Act 1997 section 302-200.

Income Tax Assessment Regulations 1997 subregulation 302-200.01

Superannuation Industry (Supervision) Act 1993 subsection 10A(1)

Superannuation Industry (Supervision) Act 1993 subsection 10A(2)

Reasons for decision

Summary

Just before the Deceased died, you and the Deceased had an interdependency relationship for the purposes of section 302-200 of the ITAA 1997.

Therefore, you are a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

Detailed reasoning

Death benefits dependant

Section 302-195 of the ITAA 1997 defines death benefits dependant, of a person who has died, as:

(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 you are a child of the Deceased who was more than 18 years of age when the Deceased died, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case.

In addition, there is nothing in your application that indicates that you were a dependant of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997. Therefore, paragraph 302-195(1)(c) of the ITAA 1997 will be considered to determine whether you were in an interdependency relationship with the Deceased just before the Deceased died.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 provides that two persons (whether or not related by family) have an interdependency relationship under that 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.

Under subsection 302-200(2) of the ITAA 1997, two people who have a close personal relationship but cannot satisfy any of the other requirements of an interdependency relationship because either or both of them suffer from a physical, intellectual or psychiatric disability, may still have an interdependency relationship.

In accordance with subsection 302-200(3) of the ITAA 1997, matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under that section may be specified in the regulations.

To that effect, subregulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) states that the matters to be taken into account for the purposes of paragraph 302-200(3)(a) of the ITAA 1997 are all the relevant circumstances of the relationship between the persons, including (in this case):

(i)  the duration of the relationship; and

…

(iii) the ownership, use and acquisition of property; and

(iv)  the degree of mutual commitment to a shared life; 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

…

Close personal relationship:

Generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between a parent and child. This is because the relationship between a parent and child would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where, as in this case, unusual and exceptional circumstances exist, a relationship between a parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

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

The matters that indicate that you and the Deceased had a close personal relationship prior to the Deceased's death are:

• Your relationship with the Deceased commenced at your birth and ceased upon the Deceased's death. A close familial relationship existed at the time of the Deceased's death.

• You and the Deceased demonstrated an ongoing commitment to each other's emotional and physical well-being. You provided emotional support to the Deceased when the Deceased separated from your other parent and during the Deceased's subsequent relationships and health problems. You also provided extensive domestic support and personal care. In turn, you relied on the Deceased's emotional support as part of your parent-child relationship.

• Facts suggest that your close familial relationship would have continued but for the Deceased's death. You maintained contact despite living separately and you provided emotional support, domestic support and personal care to the Deceased which indicates that your relationship was not one of mere convenience.

• You transported and accompanied the Deceased to several medical and legal appointments. You also regularly performed household tasks, paid rent and bills on the Deceased's behalf, and assisted them with their mobility problems.

Living together:

Paragraph 302-200(1)(b) of the ITAA 1997 requires that the two persons must live together. However, at the time of the Deceased's death, you and the Deceased did not live together.

Consequently, paragraph 302-200(1)(c) of the ITAA 1997 has not been satisfied.

Financial support:

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.

In your case, there is nothing to indicate that you provided any financial support to the Deceased, or the Deceased to you, as required by paragraph 302-200(1)(c) of the ITAA 1997. While it is acknowledged that you assisted the Deceased by paying their rent and their bills; doing grocery shopping; and purchasing furniture and other household items, the money to enable you to do so came from the Deceased's own savings account. Therefore, paragraph 302-200(1)(c) of the ITAA 1997 has not been satisfied.

Domestic support and personal care:

The Supplementary Explanatory Memorandum 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) (the immediate predecessor to section 302-200 of the ITAA 1997) discusses the meaning of domestic support and personal care and states:

2.16 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 activities. Personal care services may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

You provided the Deceased with domestic support services including household duties, grocery shopping, cleaning, laundry and paying of bills. You also accompanied the Deceased to medical and legal appointments to provide them with physical and emotional support; and you provided emotional support to the Deceased during a difficult divorce and while in a previous domestic relationship.

In view of the above it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been met.

Therefore, applying subsection 302-200(1) of the ITAA 1997 to your circumstances, you meet the requirements of paragraphs 302-200(1)(a) and (d) but fail paragraphs (b) and (c) of that section. That being the case, subsection 302-200(2) of the ITAA 1997 requires consideration to determine whether you and the Deceased were in an interdependency relationship nonetheless.

In accordance with paragraph 302-200(1)(c) of the ITAA 1997, two parties may still have an interdependency relationship if the reason that paragraphs 302-200(1)(b), (c) or (d) ITAA 1997 was not met is due to a 'physical, intellectual or psychiatric disability' suffered by one or both parties.

Meaning of 'physical, intellectual or psychiatric disability'

Past determinations of the Superannuation Complaints Tribunal (the Tribunal) have established that, depending on individual circumstances, a deceased member's illness may be a 'disability' for the purposes of subsection 10A(2) of the Superannuation Industry (Supervision) Act 1993 (SISA). An interdependency relationship may thus be established if the parties' relationship had satisfied the other three requirements of subsection 10A(1) of the SISA, despite living separately due to the deceased member's illness.

In Determination D10-11\\068, the Tribunal was satisfied that the deceased member's illness was a 'disability' for the purposes of subsection 10A(2) of the SISA and that an interdependency relationship existed under that subsection. At paragraphs 45 and 46 the Tribunal stated:

45. The Tribunal is satisfied, as apparently was the Trustee, that the primary factor leading to the separation in about 20XX was the Complainant's [sic] illness, which, in turn had previously been a factor in the breakdown of her/his earlier marriage. It seems clear that this problem had been aggravated following her/his serious workplace accident in 19XX and that the significant physical disability she/he suffered through this accident remained a substantial factor in her/his illness and consequent behaviour.

46. The Tribunal believes that it is reasonable to treat the Deceased Member's illness combined with the ongoing effects of her/his physical injury as a disability which would satisfy Section 10A(2) of the SIS Act. There is persuasive evidence that the Joined Party and the Deceased Member continued to enjoy a close personal relationship at the time of her/his death and, in these circumstances, the Tribunal considers that it was reasonable for the Trustee to have concluded that an interdependency relationship existed within the terms of that sub-section. (Emphasis added.)

In Determination D11-12\\034 the Tribunal was again satisfied that the deceased member's illness was a 'disability' for the purposes of subsection 10A(2) of the SISA and that an interdependency relationship existed under that subsection. At paragraphs 50 and 52 the Tribunal stated:

50. The Joined Party stated that the only reason they did not live together was the Deceased Member's illness. On the basis of the evidence about the proximity of their homes, the continuing closeness of the relationship up to the Deceased Member's death, and the information provided about the amount of time that the Deceased Member and the Joined Party spent together, the Tribunal is satisfied from the material before it that, but for the Deceased Member's illness, he and the Joined Party would be living together and that, in the circumstances, the Deceased Member's illness constitutes a disability for the purposes of s 10A(2) of SIS. …

52. Accordingly, the Tribunal is satisfied that the Joined Party was a dependant of the Deceased Member at the date of her/his death by virtue of being in an interdependency relationship with him…

Three issues emerge from these determinations:

a. In each case, the Tribunal considered that it was reasonable to treat the deceased member's illness (whether or not it co-existed with other health problems) as a disability for the purposes of subsection 10A(2) of the SISA (which is identical to subsection 302-200(2) of the ITAA 1997). However, the Tribunal's determinations did not state whether the deceased member's illness was a 'physical, intellectual or psychiatric' disability as the subsection specifies. The Tribunal instead referred to the concept of 'disability' in general terms.

b. In each case, the Tribunal explicitly stated that the deceased member's illness caused the parties' inability to satisfy a requirement of subsection 10A(1) of the SISA (being paragraph (b)'s requirement that the parties live together).

c. In each case, the Tribunal specified that its decision to treat the deceased member's illness as a disability for subsection 10A(2) of the SISA purposes was reasonable in the specific circumstances of that case.

These issues as they relate to the current case are addressed in turn below.

First, the term 'physical, intellectual or psychiatric disability' is not defined in the ITAA 1997 and thus takes its ordinary meaning in the context in which it appears. However, the Tribunal treated illness as a disability falling within the parameters of 'physical, intellectual or psychiatric' disability in the above determinations. Illness is a complex disease with both physical and psychiatric components. It is difficult to classify as purely a physical disability or a psychiatric disability.

The circumstances of this case indicate that the Deceased experienced serious physical problems manifesting from their illness, including mobility problems and a number of major illnesses. These physical problems reduced their quality of life and ultimately contributed to their death. In the circumstances, the physical problems that manifested from the Deceased's illness are sufficient to be classified as a physical disability.

Second, the deceased member's illness must have caused the parties' inability to satisfy each requirement of an interdependency relationship. Again, paragraph 302-200(2)(c) of the ITAA 1997 states:

(c) the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability. (Emphasis added.)

The Tribunal's decisions in Determinations D10-11\\068 and D11-12\\034 reflect this. Therefore in this case, the Deceased's illness (being a disability) must have caused the parties' inability to satisfy paragraphs 302-200(1)(b) and (c) of the ITAA 1997.

Paragraph 302-200(1)(b) of the ITAA 1997 is not satisfied as you and the Deceased did not live together. You lived with your other parent (the Deceased's former partner) following the latter's divorce. However, the facts indicate that the Deceased's illness, and their related separation and divorce, caused the Deceased and you to live separately - you still lived with a person that the Deceased could no longer live with.

Paragraph 302-200(1)(c) of the ITAA 1997 is also not satisfied as neither you nor the Deceased provided financial support to the other. The Deceased and you lived separately due to their illness, and had no joint financial obligations arising from a shared household (such as groceries, utilities, rent or mortgage payments, etc.) requiring pooling of your incomes.

Third, it must be reasonable in this case's specific circumstances to treat the Deceased's illness as a disability.

Paragraph 2.18 of the Supplementary Explanatory Memorandum explains: 'The extent to which a person requires assistance with the activities of daily living would be an indication of the level of a person's disability.' Coupled with the Tribunal's decisions in Determinations D10-11\\068 and D11-12\\034, this suggests that the favoured approach when deciding to treat illness as a disability is a holistic approach that takes all of the case's specific circumstances.

This ruling has already discussed the circumstances of the present case in detail. Briefly, you and the Deceased continued to enjoy a close personal relationship until their death. Both of you demonstrated a mutual ongoing commitment to the other's emotional and physical well-being. You also provided extensive domestic support and personal care to the Deceased to ensure their physical and emotional comfort.

Taken together, the circumstances indicate that it is reasonable to treat the Deceased's illness as a disability for taxation purposes.

Application of paragraph 302-200(2)(c) of the ITAA 1997 to your circumstances

However, to conclude that you and the Deceased were in an interdependency relationship just before the Deceased died, it must be demonstrated that the reason you did not live with the Deceased; and the reason that neither provided the other with financial support, was because of the Deceased's disability.

On the basis of evidence of the proximity of your homes; the nature of the Deceased's disability; the nature of your relationship with the Deceased; and the psychological effect that the Deceased's disability and personal relationships had on you, it is considered that you could not live with the Deceased because of their disability. As such, paragraph 302-200(2)(c) of the ITAA 1997 applies in this instance.

Further, because you and the Deceased did not live together by reason of their disability, you had no joint financial obligations arising from a shared household (such as groceries, utilities, rent or mortgage payments, etc.) which required pooling of your incomes and sharing of your expenses. Consequently, it is considered that the reason neither party provided the other with financial support is that the Deceased suffered from a disability.

Therefore, you and the Deceased had an interdependency relationship for the purposes of section 302-200 of the ITAA 1997, and you are a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

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