Edited version of your written advice

Authorisation Number: 1012685141804

Ruling

Subject: Death benefit - Interdependency

Questions

Are the parents of the Deceased in interdependency relationships with the Deceased at the time of death?

Advice/Answers

Yes

This ruling applies for the following period

Year ending 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

The Deceased passed away in the relevant income year.

The Deceased was over 50 years of age at the time of their death.

The Deceased's is an only child.

The superannuation lump sums have been made to the Deceased's estate. The trustees of the Deceased's estate wishes to distribute payments to the Deceased's parents.

The Deceased's parent is 90 years of age.

The Deceased's parent is over 90 years of age.

In 20ZZ the Deceased moved to live with at their parents' property (the Property). The Deceased made the move home to support their parents.

The Deceased had no intention to move out and had intended the living arrangements to continue indefinitely.

In the relevant income year the Deceased's parent suffered a medical condition and was forced to move out of the Property.

The Deceased and the Deceased's other parent resided together until their death.

In the subsequent income year, after the Deceased's death, the Deceased's parent sold the Property and moved to live with the Deceased's other parent.

The Deceased made financial contributions to their parents. The Deceased paid for council rates, electricity bills, telephone bills and household groceries.

The Deceased assisted with household duties including the laundry and maintenance of the residence they lived in with their parents.

The Deceased provided domestic support and personal care to their parents. The Deceased frequently cooked meals for the household.

The Deceased took their parents to their medical appointments.

The Deceased looked after their parents whenever they were unwell.

The Deceased emotionally supported their parents. The Deceased emotionally supported their parents whenever there was a family funeral.

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).

Reasons for decision

Summary

It is accepted that the Deceased's parents were in interdependency relationships with the Deceased. Hence, the Deceased's parents are dependants of the Deceased, in the period prior to and at time of the Deceased's death.

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:

26. the deceased person's spouse or former spouse; or

27. the deceased person's child, aged less than 18; or

28. any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

29. any other person who was a dependant of the deceased person just before he or she died.

In this case, the Deceased's parents were not the Deceased's spouse, former spouse or the Deceased's child aged less than 18. It will now be determined if the Deceased's parents had interdependency relationships 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 the Deceased's parents to be able to claim that they had an interdependency relationship with the Deceased.

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 the Deceased's parents are the parents of the Deceased. Clearly a familial relationship existed between the Deceased's parents and the Deceased prior to, and at the time of, the Deceased's death.

Given that the Deceased was over 50 years of age at the time of their death, they and their parents had of course known each other for some time.

In 20XX the Deceased moved to live with their parents at their property (the Property). The Deceased made the move home to support their parents.

In this case, at the time of the Deceased's death their parent was almost 90 years of age and their other parent was over 90 years of age. The Deceased took both their parents to their medical appointments and looked after their parents whenever they were unwell.

You state that the Deceased had no intention to move out and had intended the living arrangements to continue indefinitely.

This shows that the relationship between the Deceased and their parents was over and above that of a normal family relationship for an adult child living at home with their parents. There is evidence of a mutual commitment to a shared life between the Deceased and their parents prior to and at the time of the Deceased's death.

Therefore, it is accepted that a close personal relationship existed between the Deceased and their parents 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.

The facts show that in 20XX the Deceased moved to live with their parents at the Property. The Deceased made the move home to support their parents.

You state that the Deceased had no intention to move out and had intended the living arrangements to continue indefinitely. The Deceased and their parent resided together until their death.

Therefore the requirement specified in paragraph 302-200(1)(b) has been satisfied in regards to John in this instance.

At the time of the Deceased's death, their parent had been forced to move out of the Property due to a medical condition suffered in the relevant income year.

Therefore the requirement specified in paragraph 302-200(1)(b) has not been satisfied in regards to the Deceased's mother 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, the Deceased made financial contributions to their parents. The Deceased paid for council rates, electricity bills, telephone bills and household groceries.

In this instance, it is considered that above shows some level of financial assistance was provided by the Deceased to their parents.

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…

The Deceased assisted with household duties including the laundry and maintenance of the residence they lived in with their parents. The Deceased provided domestic support and personal care to their parents. The Deceased frequently cooked meals for the household. The Deceased took their parents to their medical appointments. The Deceased looked after their parents whenever they were unwell.

Further the Deceased emotionally supported their parents. The Deceased emotionally supported their parents whenever there was a family funeral.

Due to the Deceased's parents' ages the personal care services and domestic support that provided by the Deceased was 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 their parent. However, the requirements in paragraphs 302-200(1)(b) of the ITAA 1997 have not been met due to their mother's medical condition.

Accordingly, subsection 302-200(2) operates to establish an 'interdependency relationship'.

Conclusion

As all conditions have been satisfied, it is accepted that the Deceased had interdependency relationships with their parents. Therefore, in the period prior to and at time of the Deceased's death the Deceased's parents are considered to be dependants of the Deceased for the purposes of subsection 302-200(1) of the ITAA 1997.