Edited version of your written advice

Authorisation Number: 1012700516163

Ruling

Subject: Death benefit - interdependency

Question 1

Was the deceased and their father in an interdependency relationship?

Answer

No.

Question 2

Was the deceased and their mother in an interdependency relationship?

Answer

No.

This ruling applies for the following period:

The year ended 30 June 2014.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

The Deceased passed away prior to the 2013-14 income year.

The Deceased's parents are the legal administrators for the estate of their adult child and are also the beneficiaries of the Deceased's estate.

The Deceased was diagnosed with an illness. During the Deceased's adult life the Deceased was hospitalised on numerous occasions.

For a significant period of time during the Deceased's adult life the Deceased lived with their parents as the Deceased depended upon them for both moral and financial support as the Deceased was unable to work on a continuous basis due to their illness.

More than three years prior to the Deceased's death, the Deceased's parents purchased a property for the Deceased to live in. The property was located in a nearby street to the parents' residence.

The Deceased had the majority of their evening meals provided and consumed at the parents' residence and would also sleep over there three to four nights a week.

All of the Deceased's ironing and laundry was undertaken by one of the Deceased's parents as well as the cleaning of the Deceased's property.

All of the Deceased's medical appointments were organised and paid for by the Deceased's parents. The parents also attended these appointments with the Deceased to provide support.

Due to the Deceased's illness the parents would provide constant counselling and comforting to keep the Deceased as well as possible. It was not uncommon for the Deceased's parents to talk to the Deceased's for prolonged periods of time to get the Deceased to the point of being able to settle enough to go to sleep. The Deceased's parents were constantly trying to give the Deceased encouragement, confidence, support and direction.

Several years prior to the Deceased's death, the Deceased was employed for varying periods. At the time of the Deceased's death they had been employed for a short period of time. The Deceased wanted to work but relapsed into the illness and subsequent unemployment.

The Deceased's parents provided financial support especially during the extended periods when the Deceased was unable to work.

There were no other carers looking after the Deceased.

During the 2013-14 income year a superannuation lump sum death benefit was paid to the estate of the Deceased.

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 subregulation 302-200.01(2).

Reasons for decision

Summary

It is considered that the Deceased's father and mother did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) with the Deceased.

Accordingly, neither of the Deceased's parents was a death benefits dependant of the Deceased.

Detailed reasoning

Division 302 of the 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, 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 the Deceased's father and mother 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 300-195 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.

Accordingly, 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), 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.

In addition, 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.

In discussing the meaning of 'close personal relationship, a detailed explanation is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004. 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.

It is clear from the facts that a familial relationship existed prior to, and at the time of the Deceased's death and that the Deceased's parents provided the Deceased with the loving emotional support and assistance that a parent would normally give to their child. This however does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation.

The facts would indicate the relationship between the Deceased and the Deceased's parents was a normal familial relationship for an adult child occasionally living at home. The Deceased's parents had purchased the Deceased their own property and the Deceased lived in that property apart from the periods each week the Deceased would sleep at their parents' house.

Clearly, there was no commitment to a shared life as envisaged by the legislation. Whilst both the Deceased and the Deceased's father and mother may have intended to remain an important part of each other's lives, it is reasonable to assume that the relationship would have changed significantly over time. The fact that the Deceased had moved out of the family home is indicative of the Deceased attempting to become independent of their parents and live an ordinary life expected of an adult child.

Therefore, it is considered that the relationship between the Deceased and the parents was one that a person would expect between a parent and their child, but it was not a close personal relationship for the purposes of paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, it is not accepted that a 'close personal relationship' existed between the Deceased and the 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 the two persons live together.

From the facts provided, the Deceased died whilst at the parent's residence. However, it was advised that the Deceased had their own property where the Deceased lived and that for a period each week would spend nights at the parents' residence. Though at times the Deceased would stay at the parents' house, it is not accepted that the Deceased and the parents lived together at the time of the Deceased's death.

Therefore the requirement under 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) 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.

It is clear from the facts presented that the Deceased's parents provided the Deceased with financial assistance including paying many of the Deceased's expenses.

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.

From the facts provided the Deceased's parents prepared the majority of the Deceased's evening meals. Further domestic support was provided to the Deceased by one of the Deceased's parents.

The Deceased's parents also provided personal care in the form of counselling, comfort and support at medical appointments.

Due the Deceased's health issues the personal care services that parents provided are above that expected in an ordinary familial 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 for one of the Deceased's parents. However, due to the lack of evidence provided in relation to domestic support this requirement has not been met by the Deceased's other parent.

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).

Further it should be noted that the reasons why the requirements in paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997 are not satisfied should arise from at least one of the persons in the relationship having a physical, intellectual or psychiatric disability which requires them to be in a special care facility or shared accommodation, for example a nursing home, medical facility etc. This is not the situation in this case.

Consequently, as subsection 302-200(1)(a) of the ITAA 1997 has not been satisfied, consideration of the other conditions is therefore not necessary.

Accordingly, subsection 302-200(2) of the ITAA 1997 has not been met.

Conclusion

Neither of the Deceased's parents are considered to be dependants of the Deceased within the definition of death benefit dependant in section 302-195 of the ITAA 1997 as they were not in an interdependency relationship with the Deceased.

Therefore, the Deceased's parents are considered to be non-dependants of the Deceased for the purposes of the income tax legislation.