Edited version of your written advice

Authorisation Number: 1051358594730

Date of advice: 2 July 2018

Ruling

Subject: Death benefit- interdependency

Question

Was Your Client a death benefits dependant of the Deceased as defined in 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 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Deceased passed away in the 2015-16 income year.

The Deceased was an adult and had no spouse or children.

Your Client is a parent of the Deceased.

The Deceased was a member of a superannuation fund (the Fund).

In the 2016-17 income year the trustees of the Fund paid a superannuation death benefit to the Deceased’s estate.

The Deceased had lived in their family home with Your Client for most of the Deceased’s life.

The Deceased attempted to live independently by moving out of the family home only to return a short time later due to a parent’s passing away in the 2012-13 income year.

The Deceased returned to the family home to take care of a younger sibling (the sibling), aid in the domestic duties and assist Your Client with the family property. This assistance included:

● feeding livestock, shifting, yarding and drafting;

● picking up deliveries from suppliers; and

● driving the tractor

Your Client states that the Deceased’s presence and assistance enabled Your Client to continue to operate the operations on the family property.

The Deceased has a part time job to assist with supporting the family.

Your Client and the Deceased provided each other access to their bank accounts. Your Client also provided the Deceased with financial support by giving the Deceased free board and paying for other household bills.

While the Deceased lived with Your Client, the Deceased provided Your Client with ongoing financial and domestic support including:

● Cooking meals, laundry and cleaning the house.

● Taking care of the sibling.

● Driving the sibling to school, social and sporting commitments.

● Purchasing groceries.

The Deceased also took care of a grandparent with a terminal illness.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) of the Income Tax Assessment Act 1997 (ITAA 1997) existed between the Deceased and Your Client just before the Deceased died. Therefore, Your Client is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997

Detailed reasoning

The term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997 which states:

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.

The facts show that for the purposes of section 302-195 of the ITAA 1997, that paragraph 302-195(1)(c) of the ITAA 1997 is the relevant part of the provision which Your Client must satisfy. That is, Your Client must show that Your Client was in an interdependency relationship with the Deceased just before the Deceased died.

Interdependency relationship

Section 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.

In accordance with subsection 302-195(2) of the ITAA 1997, two persons also have an ‘interdependency relationship’ under that 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.

In accordance with regulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) matters that are to be taken into account in determining whether two persons have an interdependency relationship are all of the circumstances of the relationship between the persons, including (as far as relevant):

● the duration of the relationship; and

● the ownership, use and acquisition of property; and

● the degree of mutual commitment to a shared life; and

● the degree of emotional support; and

● the extent to which the relationship is one of mere convenience

Regulation 302-200.02 of the ITAR 1997 sets out the circumstances in which two persons have, or do not have, an interdependency relationship under section 302-200 of the ITAA 1997 and provides that interdependency relationship exists where:

● two persons satisfy the requirements of paragraphs 302-200(1)(a) to (c) and one, or each 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 friend or flatmate (for example, significant care provided for the other person when they are unwell or suffering emotionally).

● two persons have a close personal relationship and they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because they are temporarily living apart, for example, one of the persons is temporary working overseas.

● two persons have a close personal relationship and they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because either or both of them suffer from a disability.

Two persons do not , however, have an interdependency relationship if domestic support and personal care is provided by one person to the other under an employment contract or contract for services or on behalf of another person or organisation such as a charitable organisation (subregulation 302-200.01(5) of the ITAR 1997).

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.

Based on the above, two people who have a close personal relationship but who cannot satisfy all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, still have an interdependency relationship.

Close personal relationship

The expression ‘close personal relationship’ is not defined in the ITAA 1997 or ITAR 1997. 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 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:

15. the duration of the relationship;

16. the degree of mutual commitment to a shared life;

17. 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.

As stated above, generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between parents and children. This is because one expects the child to establish their independence and eventually move out of the parental home. That is, whilst it is convenient that young adults will live with their parents and be supported financially, domestically and emotionally, it is generally expected that they would move out eventually.

However, where, as in this case, unusual and exception circumstances exist, a relationship between parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

In this particular case, a close familial relationship existed between Your Client and the Deceased at the time of the Deceased’s death that was over and above that of a normal relationship between a parent and adult child. This was demonstrated through ongoing financial, personal and emotional support provided to Your Client.

The Deceased had lived with Your Client for almost all of the Deceased’s life except for when the Deceased moved out briefly to live independently. During that time away one of the Deceased’s parents passed away which resulted in the Deceased moving back into the family home. The Deceased continued to provide Your Client with financial, personal and emotional support and assisted Your Client with running the property, household, caring for the sibling and an ill grandparent.

Your Client and the Deceased both had access to each-others bank accounts, allowing both parties to use each-others funds to pay for bills and groceries.

It is also noted that Your Client had stated that the Deceased’s presence and assistance enabled Your Client to continue to operate the operations on the family property.

Based on the above, it is considered that a close personal relationship between the Deceased and Your Client was enduring and would have endured had the Deceased not have passed. Accordingly, it is considered that Your Client and the Deceased had a close personal relationship and, as such, 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 for an interdependency relationship is specified in paragraph 302-200(1)(b) of the ITAA 1997, and requires that two parties live together.

In this case, the Deceased lived with Your Client for almost all of the Deceased’s life and the facts show that the Deceased was residing at the family home with Your Client up to the date of death. Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance.

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.

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.

According to the evidence provided, the Deceased provided some degree of financial support during the course of their relationship. In particular, the Deceased would purchase groceries. Your Client provided the Deceased free board and paid for all the other household bills.

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:

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, Your Client was provided with domestic support by the Deceased on an ongoing basis. The Deceased attended to general housekeeping, cooking, taking care of the sibling, an ill grandparent and grocery shopping and the facts indicate that the Deceased provided Your Client with emotional support.

Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

As Your Client meets the requirements of section 302-200 of the ITAA 1997, Your Client is a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

Death benefits paid to the trustee of a deceased estate

Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the trustee of a deceased estate. Subsection 302-10(1) of the ITAA 1997 states:

This section applies to you if:

(a) you are the trustee of a deceased estate; and

(b) you receive a superannuation death benefit in your capacity as trustee.

As the payment in this case was a superannuation death benefit received by the trustee of the deceased estate, section 302-10 of the ITAA 1997 will apply to the trustee.

Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with whether the beneficiaries were or were not death benefit dependants of the deceased.

Effectively, where beneficiaries who are dependants of the deceased are expected to receive part or all of a superannuation death benefit, that part of the death benefit will not be subject to tax in the hands of the executor as if the executor was a dependant of the deceased.

According to section 302-60 of the ITAA 1997, superannuation death benefit lump sums received by a dependant is not assessable income and is not exempt income.

Similarly, where beneficiaries who are not dependants of the deceased are expected to receive part or all of a superannuation death benefit, that part of the death benefit will be subject to tax in the hands of the executor as if the executor was not a dependant of the deceased.

According to subdivision 302-C of the ITAA 1997, if a death benefit lump sum is received by someone who is not a dependant, the tax-free component will be tax free while the taxable component of the benefit will be assessable income in the year of receipt. An offset will apply to ensure that the rate of tax on the element taxed in the fund does not exceed 15% and that the rate of tax on the element untaxed in the fund does not exceed 30%.

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