Edited version of private advice

Authorisation Number: 1051569437206

Date of advice: 18 December 2019

Ruling

Subject: Death Benefit interdependency

Question

Is the Beneficiary a death benefits dependant 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 with the Deceased?

Answer

Yes

This ruling applies for the following period

Income year ended 30 June 2018.

The scheme commences on

1 July 2017

Relevant facts and circumstances

The Deceased died during the income tax year ending 20XX.

The Beneficiary was the only living child of the Deceased.

The Deceased was widowed in 20XX and had no other living children.

The beneficiary would accompany the Deceased on holidays.

After the Deceased was widowed they became reclusive and did not like to leave their home.

The Beneficiary would visit the Deceased at least 3 days a week to assist with personal and home matters, cleaning the home and pool, and taking them out of the home.

The beneficiary would accompany the Deceased to all medical appointments.

The Deceased was diagnosed with a terminal illness in 20XX.

The Beneficiary resigned from their full time position to care full time for the Deceased and started receiving a carer's pension. The carer's pension provided a low level of income that could not sustain the Beneficiary's living expenses.

The Beneficiary moved in with the Deceased with the intention to stay for the remaining life of the Deceased.

The Deceased and The Beneficiary made their friends and family aware of the new living arrangements.

The Beneficiary contacted government departments to change the address on their records including Centrelink and the Electoral office.

The Beneficiary arranged for bank statements to be directed to a PO Box closer to the Deceased's home.

The Deceased provided the Beneficiary with ongoing financial support including the following:

·                 Paying for the groceries and household bills such as rates, electricity and water, and also for some personal items including prescription glasses.

·                 Providing cash regularly to the Beneficiary to assist with living expenses.

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

·                 All of the domestic household functions including shopping, cooking, cleaning and laundry

·                 Accompanying the Deceased to all medical appointments and hospital for treatments ( five days a week)

·                 All personal care needs for the Deceased including assisting with showering, brushing of hair and teeth, toilet needs, ensuring the Deceased was eating and helping the Deceased get dressed.

The Deceased passed away and the superannuation fund paid a lump sum death benefit (the Benefit) to the Beneficiary in the 2017-18 financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

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

An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the Beneficiary just before the Deceased died. Therefore, the Beneficiary is a death benefits dependent of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

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.

For the Beneficiary to be a death benefits dependant of the Deceased, as paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case, it must be established that the Beneficiary was in an 'interdependency relationship' with the Deceased, or that the Beneficiary was a 'dependant' of the Deceased just before the Deceased died.

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 of the Income Tax Assessment Regulation 1997 (ITAR 1997) state that in considering subparagraph 302-200(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.

The facts provided indicate that the Beneficiary and the Deceased had an interdependency relationship in that:

·                 they had a close personal relationship;

·                 they lived together; and

·                 the Beneficiary provided the Deceased with domestic support and personal care and the Deceased provided the Beneficiary with financial support as required by subsection 302-200(1).

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'.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR 1997.

A detailed explanation of subsection 302-200(1) of the ITAA 1997 is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 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.

2.15 It is not intended that people who share accommodation for convenience (e.g. flat mates), 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.

The explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) states:

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

As stated above, the intention of the law is that a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents would be expected to change significantly over time. It would be expected that the adult child would eventually move out and secure independence from their parents. However, where unusual and exceptional circumstances exist, a relationship between a parent and adult child may be treated as an interdependency relationship.

It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. The Beneficiary is the only child of the Deceased. The Beneficiary was separated from their spouse and did not have any children. The Deceased was widowed in 20XX and became reclusive. After the Deceased was widowed the Beneficiary would visit the Deceased at least 3 days a week to assist with personal and home matters, cleaning the home and pool, and taking them out of the home. The Beneficiary lived with the Deceased in the family home prior to the Deceased's death.

The Deceased suffered from ill health and was diagnosed with a terminal illness in 20XX. The Beneficiary resigned from work to care for the Deceased and moved in to the Deceased's home. The Beneficiary provided a significant level of care for the Deceased that exceeded the usual level provided by an adult child to a parent or by friends or flatmates. Further details of the care provided are set out below. As the Beneficiary was unable to work full time they were financially reliant on payments from the Deceased.

It is considered that due to the family circumstances and the Deceased's ongoing illness, the relationship between the Deceased and the Beneficiary was above and beyond what would be expected for a parent and child. Overall the relationship between them is of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together

The facts show that the Deceased lived with the Beneficiary shortly before the Deceased's death. The Beneficiary left their employment and moved in with the Deceased to live and to act as a carer, while the Deceased was dealing with a terminal illness. The Beneficiary intended to live with the Deceased until their death, as evidenced by the Beneficiary redirecting their mail and updating their address details with the electoral office.

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 beneficiary with accommodation, food and care free of charge. The Deceased paid for the groceries and household bills such as rates, electricity and water, and also for some personal items including prescription glasses

The Beneficiary has stated they received the carer's pension from Centrelink but it was not sufficient to support themselves financially. The Deceased made regular payments in order to assist the Beneficiary with her living expenses.

It is clear that the Deceased provided the Beneficiary with financial support for a period of time prior to the Deceased's death 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, laundry and like services.

The facts presented in this case show the Beneficiary provided domestic support and personal care to the Deceased on an ongoing basis. This consisted of undertaking household shopping, cooking, cleaning, laundry, assisting with the daily hygiene needs, including showering, toilet needs and the brushing of hair and teeth for the Deceased. The Beneficiary also provided the Deceased with emotional support and took the Deceased to medical appointments 5 days a week.

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

Conclusion

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

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