Edited version of your written advice

Authorisation Number: 1012745500087

Ruling

Subject: Death benefit - interdependency

Question

Was the deceased and a parent of the deceased in an interdependency relationship?

Answer

Yes.

This ruling applies for the following periods:

The year ending 30 June 2015.

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

Your client was a parent of the Deceased who died prior to the 2014-15 income year. The Deceased was less than 30 years of age at the time of death.

The Deceased was diagnosed with a mental illness (the illness) as a child and was under the constant care of a legally qualified medical practitioner.

Due to their illness the Deceased was in receipt of a disability support pension from Centrelink.

Due to their illness the Deceased was unable to work, was unable to drive and had difficulty living with people.

The Deceased was unable to fully support themself financially and was financially dependent on your client for medication, food, clothing, transport, medical insurance and household items as needed. Your client provided the Deceased with financial support on a weekly basis.

Your client provided the Deceased with the following domestic support:

• overseeing medication;

• transport to all medical visits;

• shopping; and

• upkeep of pets and their unit.

Your client provided the Deceased with personal care which included psycho-emotional support, spending two to three hours a day with the deceased, sometimes up to 24 hours a day if required on average.

The Deceased lived by themself for more than five years. This was due to the Deceased finding it impossible to live with others as a result of the illness.

You provided a copy of a letter from a legally qualified medical practitioner which noted that due to the nature of the Deceased's disability, it was not possible for the Deceased to live with their parents.

The Deceased was a member of Australian Superannuation Fund (the Fund).

During the 20XX income year a death benefit was paid by the Fund into 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 302-200.01(2).

Reasons for decision

Summary

The Deceased and your client were in an interdependency relationship. Therefore your client is 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 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, the benefit 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 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.

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 300-195 of the ITAA 1997 refers to the term '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 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.

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.

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.

The facts show that the Deceased was an adult child of your client. Clearly a familial relationship existed between the Deceased and your client prior to, and at the time of, the Deceased's death. Given that the Deceased's age at the time of death, they had of course known each other for some time.

In this case the Deceased suffered from an 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 medication and also assisted with providing the Deceased with pyscho-emotional support up to 24 hours a day as required.

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 child and a parent. 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, even though the Deceased did not live with your client due to nature of the illness.

Therefore, it is accepted that a close personal relationship existed between your client that 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 by themself for over five years until their date of 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) 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 client provided the Deceased with financial support as your client provided the Deceased with financial support on weekly basis.

In this instance, both the existence and the level of financial assistance provided in the relationship between the Deceased and your client is 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 the your client provided domestic support to the Deceased including overseeing medication, transport to all medical visits, cleaning, shopping and upkeep of the Deceased's pets and unit. Your client also provided personal care in the form of pyscho-emotional support to the Deceased, spending on average two to three hours a day with the Deceased, at times up to 24 hours a day as required.

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

Subsection 302-200(2) of the ITAA 1997 applies if the two people do not live together because either or both of them suffer from a disability. It does not specifically state where the disabled person(s) must live.

In this instance paragraph 302-200(1)(b) of the ITAA 1997 was not satisfied as the Deceased did not live with your client. However, the reason for this was because the Deceased suffered from an illness, a psychiatric disability, which did not make it possible for the Deceased to live with other people. This view is supported by a legally qualified medical practitioner who advised that due to the nature of the Deceased's illness it was not possible for the Deceased to live with the Deceased's parents.

Consequently, as paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied and paragraph 302-200(1)(b) was not satisfied because of the illness of the Deceased, it is considered that subsection 302-200(2) of the ITAA 1997 has been met.

Conclusion

As subsection 302-200(2) of the ITAA 1997 has been satisfied, it is accepted that the Deceased and your client had an interdependency relationship. Therefore, in the period prior to and at the time of the Deceased's death your client was a dependant of the Deceased for the purposes of subsection 302-200(1) of the ITAA 1997.