Edited version of your private ruling

Authorisation Number: 1012472748966

Ruling

Subject: Death benefit - Interdependency

Question

Is your client in an interdependency relationship with the Deceased at the time of death?

Advice/Answers

No

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

The Deceased was diagnosed with a medical condition in early childhood.

The Deceased struggled to maintain employment and cope with normal day to day life pressures. Prior to their death the Deceased was in receipt of a Disability Support Pension.

The Deceased was diagnosed with a terminal illness. The Deceased was hospitalised and then moved to a nursing home prior to their death.

The Deceased's mother (your client) was appointed as the Deceased's medical guardian and was responsible for all medical decisions relating to their treatment and care.

Your client took leave from their employment to care for the Deceased.

Your client visited the Deceased daily and provided personal care including showering, shaving, brushing their teeth and took care of transportation to and from medical appointments. Your client also provided emotional support to the Deceased until their death.

Your client provided domestic support to the Deceased including cleaning, laundry, cooking and grocery shopping.

Your client contributed significantly to the living and medical expenses of the Deceased for a large portion of their adult life. This included assisting with rent, bill paying and shopping.

Your client and the Deceased maintained separate residences. However, there were numerous occasions when the Deceased lived with your client due to financial and medical reasons.

Prior to hospitalisation the Deceased resided with their child. Apart from the Deceased's child the Deceased had not lived with anyone else for many years.

The idea that the Deceased live with your client had been discussed. The Deceased explained that Court orders required them to reside at their current address unless those orders were changed. The Deceased was not in a financial or physical position to change those orders. Further, there was not enough room for your client.

Your client is the executor of the Deceased's estate.

Your client is a beneficiary of the Deceased's estate and the trustee for the Deceased's dependent child who is also a beneficiary of the Deceased's estate.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27AAB

Income Tax Assessment Act 1997 Division 302

Income Tax Assessment Act 1997 Section 302-195.

Income Tax Assessment Act 1997 Subsection 302-195(1).

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

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

Income Tax Assessment Act 1997 Subsection 302-200(3).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Regulations 1997 Regulation 302-200.01(2).

Further issues for you to consider

None.

Does Part IVA apply to this ruling?

Reasons for decision

Summary

As all conditions have not been satisfied, namely your client and the Deceased did not live together, your client and the Deceased were not in an interdependency relationship. Therefore, in the period prior to and at time of the Deceased's death your client is not considered to be a dependant of the Deceased.

Detailed reasoning

Under section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

This means that where a dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a dependant of the deceased, and the benefit is taken to be income to which no beneficiary is presently entitled.

Where a person that is not a dependant is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled.

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.

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997. Section 302-195 of the ITAA 1997 defines a 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 this case, your client was not the Deceased's spouse, former spouse or the Deceased's child aged less than 18. It will now be determined if your client had an interdependency relationship with the Deceased.

Interdependency relationship

The term interdependency relationship is defined in section 302-200 of the ITAA 1997. Section 302-200 of the ITAA 1997 states:

(1) Subject to subsection (3), for the purposes of this Subdivision, 2 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.

(2) In addition, 2 person (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 the other requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability;

(3) The regulations may specify:

(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.

Paragraph 302-200(3)(a) of the ITAA 1997,above, states that the regulations may specify the matters that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under subsections 302-200(1) and (2) of the ITAA 1997.

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. 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

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

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternately 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 your client to be able to claim that she had an interdependency relationship.

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 Income Tax Assessment Act 1936 (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.

The explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted regulation 8A of the Income Tax Regulations 1936 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, an adult child's relationship with their parents would be expected to change significantly over time.

The facts show that your client was the mother of the Deceased. Clearly a familial relationship existed between your client and the deceased prior to, and at the time of, the Deceased's death.

In this case, the Deceased was diagnosed with a medical condition in early childhood. Further, the Deceased had been diagnosed with a terminal illness and was hospitalised. Your client took leave from their employment to care for the Deceased. Your client visited the Deceased daily and provided personal care to the Deceased. Your client also provided emotional support to the Deceased until their death.

The facts of this case show that the relationship between the Deceased and your client was over and above that of a normal family relationship for an adult. Your client had assisted the Deceased with showering, shaving, brushing their teeth and took care of transportation to and from medical appointments. Your client also provided emotional support to the Deceased until their death.

Therefore, it is accepted that a close personal relationship existed between your client and the Deceased 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 that two persons live together.

It is noted that there were numerous occasions when the Deceased lived with your client due to financial and medical reasons. In addition, the idea that the Deceased live with your client had been discussed.

However, the Deceased explained that Court orders required him to reside at their current address unless those orders were changed. The Deceased was not in a financial or physical position to change those orders. Further, there was not enough room for your client.

Your client and the Deceased maintained separate residences and apart from the Deceased's child the Deceased had not lived with anyone else for many years.

Therefore the requirement specified in paragraph 302-200(1)(b) has not 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.

Unlike the situation prior to 1 July 2004 where financial dependency (substantial support) needs to be satisfied, 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.

In this case your client contributed significantly to the living and medical expenses of the Deceased for a large portion of his adult life. This included assisting with rent, bill paying and shopping.

It is considered that above shows some level of financial assistance was provided by the Deceased to your client.

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

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 case Dridi v. Fillmore 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…

Your client took leave from her employment to care for the Deceased. Your client visited the Deceased daily and provided personal care to the Deceased including showering, shaving, brushing their teeth, took care of transportation to and from medical appointments, cleaning, laundry, cooking and grocery shopping. Your client also provided emotional support to the Deceased until their death.

Due to the Deceased's health issues the personal care services and domestic support that your client provided to the Deceased are above that expected in an ordinary parent and adult child relationship.

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.

Application of subsection 302-200(2)

Essentially, this subsection ensures that where two people have a close personal relationship, however, because of the physical, intellectual or psychiatric disability of one of 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.

In this case, there is a close personal relationship between the Deceased and your client.

However, the requirement that two persons live together as specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been met.

The reason the living together condition has not been met is due to a Court order concerning access to the Deceased's child. This required the Deceased to reside at their current address and the Deceased was not in a position to change those orders. There was not enough room at the Deceased's unit for your client.

As the reasons for not living together are not due to the Deceased's disability subsection 302-200(2) of the ITAA 1997 does not apply.

Conclusion

As all conditions have not been satisfied, your client and the Deceased were not in an interdependency relationship. Therefore, in the period prior to and at time of the Deceased's death your client is not considered to be a dependant of the Deceased for the purposes of subsection 302-200(1) of the ITAA 1997.