Edited version of your written advice

Authorisation Number: 1051247880330

Date of advice: 26 July 2017

Ruling

Subject: Death Benefits – Interdependency relationship

Question 1

Is the Beneficiary a death benefits dependent of 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 pursuant to section 302-200 of the ITAA 1997 with the Deceased?

Answer

No

Relevant facts and circumstances

The Beneficiary is the parent of the Deceased.

The Deceased travelled interstate to visit their friends and temporarily lived apart from the Beneficiary prior to death. The Deceased intended to return to State A.

Superannuation Fund X paid a superannuation death benefit to the Beneficiary. The PAYG Payment summary shows an amount being withheld for tax purposes.

The Beneficiary presented facts in a Statutory Declaration (the Declaration) to support the contention that:

● The Deceased was an only child

● The Deceased and Beneficiary were in an interdependency relationship

● The Beneficiary separated from the Deceased’s parent and the parent did not maintain contact with the Deceased.

● The Deceased resided with the Beneficiary for a continuous period.

● The Beneficiary provided the Deceased with financial support on a continuing basis.

● The Beneficiary and Deceased maintained close personal relationship.

● The Deceased and the Beneficiary provided domestic support and personal care to each other on a mutual basis.

● The Deceased was undertaking a tertiary education.

● The Deceased was working part time and was unable to financially support themselves independently.

● The Deceased stated that a relationship with the Beneficiary will be maintained and was against sending the Beneficiary to a nursing home or aged care facility.

Additional facts have been provided by the Beneficiary which states that The Deceased was in receipt of welfare payments while undertaking their tertiary studies.

The Deceased never married and had no children.

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.

Reasons for decision

Summary

It is considered that the Beneficiary did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with the Deceased. Therefore the Beneficiary was not a death benefits dependant of the Deceased.

Detailed reasoning

Death benefits dependant

Section 302-195 of the ITAA 1997 defines 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.

In the Beneficiary’s case, and from the facts provided, the relevant definition which needs to be examined is that in paragraph 302-195(c) of the ITAA 1997, that is, whether the Beneficiary was in an interdependency relationship with the Deceased.

Interdependency relationship

Relevantly, 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 all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, may still have an interdependency relationship.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively both the condition in paragraph 302-200(1)(a) and the condition in subsection 302-200(2), of the ITAA 1997 must be satisfied for a person to be in an interdependency relationship with another person.

To assist in determining whether two persons have an interdependency relationship, 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 addition, paragraph 302-200(3)(b) states that the regulations may specify the circumstances in which two persons have, or do not have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the following matters are to be taken into account in determining whether two persons have an interdependency relationship:

(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;

The Explanatory Statement to the Income Tax Amendment Regulations 2005 (No 7) which introduced regulations that specified matters that are, or are not, to be taken into account in determining whether two people have an interdependency relationship for the purposes of former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936) – the immediate predecessor of section 302-200 of the ITAA 1997 – states:

It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

It is proposed to deal with each condition of subsection 302-200(1) of the ITAA 1997 in turn.

Close personal relationship

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

The expression 'close personal relationship’ is not defined in the ITAA 1997. However, the meaning of the term is discussed in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 which inserted former section 27AAB of the ITAA 1936. According to the SEM:

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.

Furthermore, in the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7), it states that:

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

The explanatory statement also provides a detailed example of a relationship between an adult child and their parents and the relevant considerations that are to be taken into account:

Example

Daniel died at age 23, leaving behind a superannuation benefit of $30,000. Daniel was not married, nor did he have any children, and lived with his parents and younger brother in his parent’s home.

Given that Daniel was 23, he and his parents had of course known each other for some time (subparagraph (1)(a)(i)). While both parties may have intended to remain an important part of each other’s lives, it is reasonable to assume that the relationship would have changed significantly over time. That is neither Daniel, nor his parents, would have expected to be providing each other the same level of domestic support and personal care that they did prior to Daniel’s death, for the next forty years, had he not died (subparagraphs (iv) and (viii)).

He did not own the house, nor was he a mortgagee (subparagraph (iii)).

While Daniel sometimes cooked dinner for his younger brother and provided other care and support to him, it was no more than would generally be expected of an older sibling and was far less than the care and support that his parents provided (subparagraph (v)).

Friends, neighbours and associates of Daniel and his parents all considered that the relationship between Daniel and his parents was a reasonably normal, healthy, relationship for a young man living with his parents. They attended family functions together and occasionally attended functions organised by each other’s friends. For example, when Daniel’s long time friend was married, Daniel’s parents were also invited to attend. However, generally speaking, they did not socialise together (subparagraph (vi)).

When his mother’s close friend died three months prior to Daniel’s death, he provided emotional support to his mother, however, it was Daniel’s father who took time off work and who cancelled social and sporting engagements in order to be with her and provide support (subparagraph (vii)).

It would be reasonable to expect that Daniel would have moved out of his parent’s home at some stage. That is, it was convenient (and possibly expected) on a number of fronts for Daniel as a young adult to live with his parents, including financially, domestically and emotionally. However, while it was never specifically discussed, it was generally accepted that he would move out eventually (subparagraphs (viii) and (iv)).

Based on the facts of this case, Daniel and his parents were not in an interdependency relationship.

The facts show that the Beneficiary is the parent of the Deceased. Clearly a familial relationship existed between the Beneficiary and the Deceased prior to, and at the time of, the Deceased's death. The Beneficiary provided loving support and assistance to the Deceased when they resided together and the Beneficiary provided emotional support that parents would normally give to their child. This however does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation.

Instead, the various considerations outlined in Subregulation 302-200.01(2) of the ITAR 1997 must be considered.

The Deceased and the Beneficiary had known each other for some time. However, the 'duration of a relationship’ in and of itself is not sufficient to categorize a relationship as 'close and personal.’ The other considerations must also be taken into account.

Of particular importance in this case are the related matters outlined in paragraphs (iv), (viii) and (ix) of subregulation 302-200.01(2) of the ITAR 1997. The facts in this case indicate that the relationship between the Deceased and the Beneficiary was a normal familial relationship for a young person living with parents. Whilst both the Deceased and the Beneficiary may have intended to remain an important part of each other’s life, it is reasonable to assume that the relationship would change significantly over time.

Specifically, the facts provided in this case do not indicate that there would be a mutual commitment to a shared life between the Deceased and the Beneficiary. Even though the Beneficiary has provided a Statutory Declaration contending that the Deceased would be living with the Beneficiary in the foreseeable future, nothing in the facts indicate that the Deceased would not eventually move out. Despite the fact that the Deceased was against sending the Beneficiary to a nursing home or aged care facility, it is expected that the Deceased would eventually secure their independence sometime in the future and perhaps start their own family.

The statements made in the Statutory Declaration outline the degree of emotional support which must be considered in accordance with paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997. While it is acknowledged that the degree of emotional support provided by the Deceased and the Beneficiary to each other is significant, it does not go beyond the level of emotional support that would typically be expected in a relationship between parents and their adult child. As such, a consideration of paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997 does not sufficiently differentiate the situation in this case from others involving parents and their adult child (such as the example of Daniel outlined above).

The statements made in the Statutory Declaration state that the all friends, relatives and neighbours were aware of the close personal relationship they had among themselves. These statements similarly do not go beyond confirming that the relationship between the Deceased and the Beneficiary was a normal, healthy, relationship typical of that of a young person living with their parents.

In view of the above it is considered that a close familial relationship existed between the Beneficiary and the Deceased, but, it was not a close personal relationship as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

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

Cohabitation:

The facts show the Beneficiary and the Deceased did not live together at the time of the Deceased’s death.

Furthermore, there is no strong indication of whether the Deceased had completed their tertiary education or intended to continue studying at the same University. There is no evidence to suggest that the Deceased intended to reside with the Beneficiary.

Accordingly, the requirement under paragraph 302-200(1)(b) of the ITAA 1997 has not been met.

Temporarily living apart:

On the facts, the Beneficiary’s relationship with the Deceased does not satisfy the requirements of subsection 302-200(1) of the ITAA 1997. However, the Statutory Declaration provided by the Beneficiary indicate that the Beneficiary and the Deceased were only temporarily living apart. As such, their interdependency relationship still existed by virtue of subsection 302-200(3) of the ITAA 1997 and subregulation 302-200.02(3) of the Income Tax Assessment Regulations 1997 (ITAR 1997).

Financial support:

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.

Paragraph 302-200(1)(c) of the ITAA 1197 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.

It is clear from the facts presented that the Beneficiary provided the Deceased with financial assistance.

Therefore the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has been met.

Domestic support and personal care:

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, and 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.

The term 'personal care’ is also discussed in the New South Wales Supreme Court in Dridi v. Fillmore [2001] NSWSC 319. Master Macready stated, in regards to the term 'domestic support and personal care’, that:

The expression [personal care] seems to be directed to a different level of reality such as assistance with mobility, personal hygiene and physical comfort. Such activities obviously however will include an element of emotional support.

The facts show that the Beneficiary provided domestic support to the Deceased including preparing meals, doing laundry, cleaning, and a number of other tasks for the Deceased. In addition, the Statutory Declaration indicated that the Deceased would provide nursing and care to the Beneficiary when the Beneficiary was unwell.

Therefore the requirement of domestic support and personal care under paragraph 302-200(1)(d) of the ITAA 1997 has been met.

Conclusion

As some of the conditions under subsection 302-200(1) of the ITAA 1997 have not been met, the Beneficiary is not considered to have been in an independency relationship with the Deceased as defined under the income tax legislation.

The Beneficiary is not considered to be dependant of the Deceased within the meaning of a death benefits dependant in section 302-195 of the ITAA 1997 as the Beneficiary does not satisfy any of the relevant conditions.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).