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Ruling

Subject: Interdependency relationship

Question

Do you have an interdependency relationship, as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with your parent?

Answer

No

This ruling applies for the following period:

2011-12 income year

The scheme commences on:

1 July 2011

Relevant facts and circumstances

Your parent is the sole member of a superannuation fund (the Fund).

You are the trustee of the Fund and the executor of your parent's estate. You also have your parent's power of attorney.

You are under 60 years of age and until 20 years ago stayed at home with your parents. Your two siblings had left the family home several years earlier.

Your parent has not worked outside the home for paid work in your lifetime and they did all the housework, shopping, meal preparation and laundry.

Twenty years ago your parents bought you a granny flat a short distance away from their house. You paid no rent but paid a minimal amount of board. You were dependent on your parent for all housework, cooking etc.

You were diagnosed with an illness several years ago for which you continue to take medication and have kept out of hospital with your parents' help.

From the early 1990s to 20XX you were employed full time for all but a few years when you were supported in those years by your parents. From a specific month during the 2007-08 income year you only worked 4 days a week

In 20XX one of your parent died. In the same week, your other parent was diagnosed with an illness. You looked after your parent when they had the illness. You did the shopping and supervised their cooking and laundry etc. You paid the grocery bills and some other household bills.

Your parent's condition gradually became worse and you arranged for some outside help which was limited to about 1 hour a day.

You received a Carer's allowance from Centrelink for looking after your parent.

In the 20XX-XX income year your parent broke their hip and after being in hospital for a time was admitted to a Nursing Home during the 20XX-XX income year. The Carer's allowance from Centrelink then ceased.

You visit your parent almost every day in the Nursing Home and ring them on the days you do not visit.

You arrange your parent's medical appointments and take them to the dentist, doctor and eye surgery whist they are in the Nursing Home. You also buy your parent any items they may require such as toothpaste.

During this time you have received little or no help from any family members in looking after your parent.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section302-10

Income Tax Assessment Act 1997 Subsection 302-10(2)

Income Tax Assessment Act 1997 Subsection 302-10(3)

Income Tax Assessment Act 1997 Section302-60

Income Tax Assessment Act 1997 Section302-145

Income Tax Assessment Act 1997 Subsection 302-145(2)

Income Tax Assessment Act 1997 Subsection 302-145(3)

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Subsection 302-200(1)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(b)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(c)

Income Tax Assessment Act 1997 Paragraph 302-200(1)(d)

Income Tax Assessment Act 1997 Subsection 302-200(2)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(a)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(b)

Income Tax Assessment Act 1997 Paragraph 302-200(2)(c)

Income Tax Regulations 1997 Regulation 302-200.01(2)

Reasons for decision

Summary of decision

You do not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with your parent.

Detailed reasoning

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased or not and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

Where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income.

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 persons spouse or former spouse; or

(b) the deceased persons 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.

As you cannot qualify under paragraphs (a) or (b) of the above definition, paragraphs (c) and (d) of section 302-195 need to be examined.

Interdependency relationship

Paragraph 302-195(c) of the definition of death benefits dependant refers to interdependency relationship.

Under section 302-200(1) of the ITAA 1997 an interdependency relationship is defined as:

Two persons (whether or not related by family) have an interdependency relationship under this 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.

Section 302-200(2) of the ITAA 1997 states:

In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this 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.

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 2 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 2 persons have, or do not have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997) states as follows:

(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

any evidence suggesting that the parties intend the relationship to be permanent;

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.

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 which inserted former section 27AAB of the ITAA 1936. In discussing the meaning of close personal relationship the SEM 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. 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.

In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted regulation 8A of the Income Tax Regulations 1936, it stated that:

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

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, the relationship between parents and their adult children 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.

From the facts provided, even though you have resided in close proximity to your parent since 19XX until the time your parent went into the Nursing Home in late 20XX, you did move out of the family home in 19XX. This would indicate a move to secure your own independence. In addition, although you are close to your parent, there is nothing in the facts to indicate a level of commitment to a shared life or a level of care above what would be normal or expected from an adult child that lives nearby.

Therefore, it is not accepted that a 'close personal relationship' existed between you and your parent as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997.

Cohabitation:

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states the two persons live together.

Since December 20XX your parent has lived in a nursing home therefore the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been met.

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) 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 your parent has provided you with financial assistance (minimal board, housing, domestic duties) over the years and you are now providing her with toiletries, cosmetics and sleep wear while they is in the nursing home. In this instance, the existence of financial assistance is established and it is not necessary to look at the level of financial support provided, but merely to establish that such support existed.

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, 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…

Whilst looking after your parent from 20XX to December 20XX, the facts show you did provide domestic support in the form of shopping, cooking and cleaning. It is highly likely that you also provided 'personal care' services around mobility and personal hygiene. .

However, in accordance with section 302-195(c) of the ITAA 1997, to qualify as a death benefit dependant in terms of interdependency we must look at support levels in the period 'just before he or she died'. Based on the facts you have provided, this will be the period your parent is in the nursing home. It is considered, since your parent has been in a nursing home, the level of domestic support would be significantly less as would the level of 'personal care', if any at all, as envisaged in the above SEM.

Therefore the condition under paragraph 302-200(1)(d) of the ITAA 1997 has not been met.

Application of subsection 302-200(2):

Essentially, this subsection ensures that where two people have a close personal relationship but because of the physical, intellectual or psychiatric disability of one or both of them they do not satisfy one or more of the requirements in paragraphs 302-200(1)(b) to (d) of the ITAA 1997, they will still be considered to have an interdependent relationship.

However, subsection 302-200(2) of the ITAA 1997 will only apply where the two people satisfy the requirements of paragraph 302-200(1)(a), in accordance with the terms of paragraph 302-200(2)(a).

As discussed above, the requirements specified in paragraph 302-200(1)(a) has not been satisfied so you cannot have an independency relationship under subsection 302-200(2) of the ITAA 1997.