Edited version of private advice

Authorisation Number: 1051541929405

Date of advice: 23 July 2019

Ruling

Subject: Interdependency

Question

Was X 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:

Income year ended 30 June 20XX

The scheme commences on:

30 May 20XX

Relevant facts and circumstances

The Deceased died between XX/mth/20XX and XX/mth/20XX.

The Deceased was single and had no children.

The Mother lived with the Deceased four days a week, and would assist the Deceased seven days a week.

The Deceased was a member of several super funds.

As a result of the death of the Deceased, two super funds paid lump sum death benefits to the estate of the Deceased.

One super fund however paid a lump sum death benefit directly to the Mother.

The Mother was granted probate and is the trustee for the deceased estate. She is the only beneficiary to the estate.

The Deceased had a severe work accident in 20XX, which even after several operations left the Deceased unable to look after oneself, also the Deceased could hardly walk. The Deceased lived in a granny flat and the Mother would stay with the Deceased overnight between Monday and Thursday each week right up until the Deceased's death.

The Mother, due to the Deceased's injuries would take the Deceased to doctor's appointments, physiotherapy and other medical appointments.

The Mother would also prepare meals for the Deceased, and clean the Deceased's premises on a daily basis, and provided the Deceased with constant domestic support and care.

The Deceased in return for this care would pay from the Deceased's own funds the Mother's rent, medication, bills, fuel and other expenses.

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

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person who 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.

Section 302-60 of the ITAA 1997 states:

A superannuation lump sum that you receive because of the death of a person of whom you are death benefits dependent is not assessable income and is not exempt income.

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.

As we are concerned with the Mother of the Deceased paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case, it must be established that the Mother was in an 'interdependency relationship' with the Deceased under paragraph 302-195(1)(c) of the ITAA 1997, or that she was a 'dependant' of the Deceased just before the Deceased died under paragraph 302-195(1)(d) of the ITAA 1997.

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 the matters and circumstances which are to be considered in determining whether an interdependency relationship exists between two persons under that section may be specified in the regulations.

To that effect, regulation 302-200.01(2) of the Income Tax Assessment Regulation 1997 (ITAR 1997) state that in determining whether two persons have an interdependency relationship for paragraph 203-200(3)(a) of the ITAA 1997, matters to be taken into account are all the 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.

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 30-200(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 30-200(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).

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:

-       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.

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 the Mother 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 the Deceased during their life.

Accordingly, it is considered that the Mother 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

As stated above, the Mother lived with the Deceased shortly before the Deceased's death for four nights a week.

Accordingly, paragraph 302-200(1)(b) of the ITAA 1997 is satisfied as the Deceased and the Mother were 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.

The facts show that the Deceased provided the Mother with financial assistance by paying her rent, medication, and some 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

Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attention to the household shopping, cleaning, and laundry and like services.

The facts presented in this case show the Mother provided domestic support and personal care to the Deceased on an ongoing basis. This consisted of undertaking household shopping, completing routine domestic tasks for the Deceased and the Mother provided the Deceased with personal care which included emotional support and stability to the Deceased.

Based on the above, the Mother meets all the requirements of an interdependency relationship for the purposes of section 300-200 of the ITAA 1997. Therefore, the Mother is a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

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