Edited version of private advice

Authorisation Number: 1012680742334

Ruling

Subject: Death Benefit - Interdependency

Question 1

Was there an interdependency relationship between your client and the Deceased at the time of the Deceased's death?

Answer

Yes.

This ruling applies for the following periods:

The year ending 30 June 2014.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

The Deceased died during the 2013-14 income year due to an illness.

Your client is a sibling of the Deceased. Your client is also a beneficiary and an executor of the Deceased's estate.

Prior to the 2013-14 income year the Deceased was diagnosed with a serious illness. Following this, the Deceased lived with your client in your client's residence continuously up until the deceased's death.

Following the Deceased's treatment for their illness, they never fully recovered the use of their legs and was quiet unsteady when walking, requiring support by holding on to another person or furniture to mobilise. Their condition continued to deteriorate and the Deceased required the use of a rollator frame and finally a wheelchair.

You advised that for the 2 years immediately before the Deceased's death, your client provided the following:

• Carer related domestic support - household cleaning, buying groceries, doing regular washing and ironing of clothes and changing of linen, cooked all meals and purchased medications.

• Ongoing personal care - personal hygiene oversight including assistance with showering, drying and helping the Deceased get dressed. Your client also drove the Deceased to all their doctor's appointments and hospital treatment and supervised medication use.

As the Deceased's full time carer, your client received a Centrelink carer allowance.

Over the 2 years immediately before the Deceased's death, your client and the Deceased lived off the Deceased's pension, your client's part time wage and carer's allowance.

Your client paid for all of the food and laundry expenses. Your client would occasionally purchase new clothes for the Deceased.

Although terminally ill, the Deceased would not consider the sale of their own home whilst they lived with your client. The Deceased continued to pay their own household bills whenever they could from their pension monies and in certain circumstances your client paid some of their bills.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195.

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

It is accepted that your client and the Deceased were in an interdependency relationship. Therefore it is considered that your client is a death benefits dependant of the Deceased.

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 who 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, is the superannuation death benefit is considered to be neither assessable income nor 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 your client cannot qualify under paragraphs (a), (b) or (d) of the above definition, paragraph (c) of section 302-195 of the ITAA 1997 needs to be examined.

Interdependency relationship

Paragraph (c) of the definition of 'death benefits dependant' in section 302-195 of the ITAA 1997 refers to the term 'interdependency relationship'.

Under subsection 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.

Subsection 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 conditions in subsection 302-200(2), must be satisfied for a person to be in an interdependency relationship with another person.

To assist in determining whether two 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.

Moreover paragraph 302-200(3)(b) of the ITAA 1997 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).

For the purposes of paragraph 302-200(3)(a) of the ITAA 1997 subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) sets out the matters to be taken into account in determining whether two persons have an interdependency relationship. These matters include

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, …

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.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between siblings because there would not be a mutual commitment to a shared life between the two. In addition, the relationship between siblings would be expected to change significantly over time.

The facts show that the Deceased was a sibling of your client, who was also a beneficiary of their estate. Clearly a familial relationship existed between the Deceased and your client prior to, and at the time of, the Deceased's death. The Deceased had of course known your client for some time.

In this case the Deceased suffered a serious illness. As a result, the Deceased required constant care. Your client would arrange to take the Deceased to their medical appointments, ensure the Deceased took their prescriptions and also assisted with their living arrangements (preparing meals and bathing for example).

In addition, your client was receiving carer's benefits from Centrelink for the care they provided to the Deceased.

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 adult siblings living together. There is evidence of a mutual commitment to a shared life between the Deceased and your client prior to and at the time of the Deceased's 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 the two persons live together.

The facts show that the Deceased lived with your client together in a property owned by your client.

Therefore the requirement under paragraph 302-200(1)(b) of the ITAA 1997 has 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 the Deceased was financially dependent upon your client. You advised that your client paid for all of the food and laundry expenses. At times your client also purchased the Deceased new clothes. The deceased was limited in terms of what money they could contribute towards the house hold bills.

In this instance, both the existence and the level of financial assistance provided in the relationship between the Deceased and your client are established and it is not necessary to look at the level of financial support provided, but merely to establish that such support existed.

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 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.

From the facts provided your client provided domestic support to the Deceased including household cleaning, buying groceries, doing regular washing and ironing of clothes and changing of linen, cooked all meals and purchased medications. Your client also provided personal care in the form of personal hygiene oversight including assistance with showering, drying and helping the Deceased get dressed. Your client also drove the Deceased to all his doctor's appointments and hospital treatment and supervised their medication use.

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

Conclusion

As all conditions have been satisfied, it is accepted that your client and the Deceased had an interdependency relationship. Therefore, in the period prior to and at the time of the Deceased's death your client is considered to be a dependant of the Deceased for the purposes of subsection 302-200(1) of the ITAA 1997.