Edited version of your written advice

Authorisation Number: 1051214702443

Date of advice: 20 April 2017

Ruling

Subject: Death benefits- interdependency

Question

Is a person (the Beneficiary) a death benefits dependant of a person who has died (the Deceased) in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997) by virtue of being in an interdependency relationship with the Deceased under section 302-200 of the ITAA 1997 just before they died?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The Beneficiary is a parent of the Deceased.

The Deceased suffered from a serious medical condition. The ongoing and progressive effects of these illnesses restricted the Deceased's ability to perform everyday physical tasks and, as their health declined, they required ongoing care and support.

The Deceased lived with the Beneficiary until their complex medical needs required them to stay in the hospital, where they died.

The Beneficiary provided the Deceased with ongoing financial support and domestic support and personal care, including the following:

● paying all household expenses;

● caring for the Deceased by assisting them with showering, personal grooming and toileting;

● purchasing the Deceased's medications;

● undertaking routine domestic tasks such as shopping, ironing and laundry;

● transporting and accompanying the Deceased to medical appointments;

● providing the Deceased with emotional care.

The Deceased provided the Beneficiary with personal care in the form of English lessons.

The Beneficiary has signed a Statutory Declaration stating that they were in an interdependency relationship with the Deceased at the time of the Deceased's death.

A lump sum death benefits payment in the amount of $XXX,XXX was paid to the estate of the Deceased.

The Deceased's Will directed that the Beneficiary and their spouse, also a parent of the Deceased, receive the death benefits payment.

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

Further issues for you to consider

Death benefit paid to a trustee of a deceased estate

As the Beneficiary is a death benefits dependant of the Deceased and is expected to benefit from the superannuation death benefit paid to the Estate, the superannuation death benefit will be tax free in the hands of the estate. This is due to the operation of section 302-10 and section 302-60 of the ITAA 1997.

When the superannuation death benefit paid to the Estate is eventually passed on the Beneficiary, the Beneficiary will not be liable to pay income tax on the amount, as the amount will represent a distribution of the corpus (or capital) of the Estate.

Reasons for decision

Summary

An interdependency relationship as defined under section 302-200 of the ITAA 1997 existed between the Deceased and the Beneficiary just before the Deceased died. Therefore, the Beneficiary is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

Subsection 302-195(1) of the ITAA 1997 defines a 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 just before he or she died.

*To find definitions of asterisked terms, see the Dictionary, starting at 995-1.

As the Beneficiary is a parent of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an 'interdependency relationship' with the Deceased or that they were a 'dependant' of the Deceased just before the Deceased died.

What is an interdependency relationship?

Subsection 302-200(1) of the ITAA 1997 states that two persons (whether or not 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.

Subsection 302-200(3) of the ITAA 1997 provides that 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, 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):

(a) the duration of the relationship; and

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

(c) the degree of emotional support; and

(d) the extent to which the relationship is one of mere convenience; and

(e) any evidence suggesting that the parties intend the relationship to be permanent.

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 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.

The matters that indicate that the Beneficiary and the Deceased had a close personal relationship are:

● the Beneficiary provided care to the Deceased during their illness;

● the Beneficiary and the Deceased lived together until the Beneficiary could no longer provide the care that the Deceased required;

● while the parties lived together they provided each other with financial, domestic and emotional support;

● there is nothing to indicate that the relationship was one of mere convenience;

● the facts indicate that the relationship between the Deceased and the Beneficiary was likely to be permanent;

● the Beneficiary has provided a Statutory Declaration to the effect that the Beneficiary and the Deceased were in an interdependency relationship as defined in section 302-200 of the ITAA 1997.

Living together

At the time of their death, the Deceased was staying in hospital as they were too unwell to be at home.

Accordingly, paragraph 302-200(1)(b) of the ITAA 1997 is not satisfied as the Deceased and the Beneficiary were not living together at the time of the Deceased's death.

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 this case, the facts indicate that the Beneficiary provided the Deceased with financial support by providing for all the Deceased's household and medical expenses.

Therefore, it is considered that the Beneficiary and the Deceased provided financial support to each other as required under paragraph 302-200(1)(c) of the ITAA 1997.

Domestic support and personal care

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 provided domestic support and personal care to the Deceased on an ongoing basis. This consisted of assisting the Deceased with basic necessities such as showering, toileting and grooming. The Beneficiary also completed routine domestic tasks including washing, grocery shopping and providing the Deceased with meals. In addition, the Beneficiary took 19 months off work to provide care to the Deceased.

Based on the above, the requirements of paragraphs 302-200(1)(a), (c) and (d) of the ITAA 1997 are satisfied but the requirements of paragraph 302-200(1)(b) of the ITAA 1997 are not satisfied because, the parties did not live together just before the Deceased died.

However, in accordance with subsection 302-200(2) of the ITAA 1997, two persons also have an interdependency relationship 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, mental or psychiatric disability.

The Deceased suffered from the debilitating effects of a serious medical condition. It was because of the complex needs of the Deceased's illness that they could not live with the Beneficiary and had to undertake prolonged stays in hospital. That is, the requirements of paragraph 302-200(1)(b) of the ITAA 1997 (living together) are not satisfied, in this case, because the Deceased suffered from a physical disability.

Therefore, although the Deceased and the Beneficiary did not live together just before the Deceased died as required by subsection 302-200(1) of the ITAA 1997, the Beneficiary had an interdependency relationship with the Deceased under subsection 302-200(2) of the ITAA 1997.

Consequently, the Beneficiary is a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997

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