Edited version of your written advice

Authorisation Number: 1012853472916

Date of advice: 4 August 2015

Ruling

Subject: Death benefit - interdependency relationship

Question

Did the Deceased have an interdependency relationship with their parent under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

2014-15 income year

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The Deceased passed away during the 20CC-DD income year from an ongoing illness.

The Deceased had resided at a relative's house several years before the Deceased was admitted to hospital with the illness.

A parent of the Deceased is the beneficiary of the Deceased's lump sum superannuation payment.

After the Deceased was discharged from hospital care the Deceased moved in with their parent.

The Deceased resided with the parent for a short period of time during the 20CC-DD income year.

You advised that the Deceased moved in with their parent during the 20CC-DD income year with the intention of living there for the rest of their life. The Deceased's parent provided the Deceased with all the necessary care including financial and emotional support.

The Deceased was re-admitted to hospital where the Deceased passed away a few days later.

The Deceased's parent assisted the Deceased with all forms of mobility required on a daily basis which included walking around the residence and transport to and from the hospital for medical treatment where the parent supported the Deceased through the procedures during these visits.

The Deceased's parent performed domestic support in the form of cooking, cleaning and shopping for the Deceased.

The Deceased did not provide their parent with any financial support in the 20AA-BB or 20BB-CC income years or at the date of death.

The Deceased's parent did not provide any financial support to the Deceased in the 20AA-BB or the 20BB-CC income years. However, The Deceased's parent provided full financial support to the Deceased during the short period of time the Deceased resided with the parent.

The Deceased's parent would have weekly contact with the Deceased by means of telephone conversations or visits to where the Deceased resided. During these visits the Deceased's parent provided emotional and verbal support during their interactions.

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 Regulations 1997 Regulation subregulation 302-200.01(2).

Reasons for decision

Summary

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

Accordingly, the Deceased's parent is not 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 parent 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.

The facts show that the Deceased was the child of the beneficiary. Clearly a familial relationship existed between the Deceased and their parent prior to, and at the time of, the Deceased's death. Given that the Deceased was over 21 years old at the time of death, the Deceased and their parent had of course known each other for some time.

In this case the Deceased suffered from an ongoing battle with an illness. As a result, the Deceased became very ill and was hospitalised. After the Deceased was discharged from hospital care the Deceased moved in with their parent. The Deceased moved in with their parent with the intention of living there for the rest of the Deceased's life. However, after a short period the Deceased was re-admitted to hospital where the Deceased passed away a few days later.

Although the Deceased had weekly contact with their parent where the parent provided emotional support, it is considered that the Deceased had lived a predominantly independent life from their parent prior to being hospitalised. The Deceased's relationship with their parent was such that it cannot be said that there was a mutual commitment to a shared life before the Deceased was hospitalised.

During the time the Deceased resided with their parent, the parent provided the Deceased with all the necessary care including financial and emotional support. The Deceased's parent assisted the Deceased with all forms of mobility required on a daily basis and domestic support in the form of cooking, cleaning and shopping for the Deceased.

It is accepted that the Deceased's parent provided a significant degree of support to the Deceased during short period of time that the Deceased lived with the parent. However, as the duration of the relationship is an indicator of a close and personal relationship, the fact that the Deceased and their parent only lived together for a short period of time makes it difficult to establish that there was a mutual commitment to a shared life.

It is not doubted that a loving and supportive relationship existed between the Deceased and their parent. However, although there are some aspects of a 'close personal relationship' evident between the Deceased and their parent, it is considered that overall the relationship between them is not of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has not been satisfied in this case.

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 the beneficiary from March 20DD to March 20DD. The Deceased was then admitted to hospital and passed away a few days later.

As the Deceased and their parent lived together, 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) 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.

From the facts presented that the Deceased's parent provided the Deceased with financial assistance when the Deceased resided with their parent prior to the Deceased's death.

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' was 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.

You advised that the Deceased moved in with their parent prior to their death. The Deceased's parent provided the Deceased with all the necessary care including financial and emotional support. After 12 days the Deceased was re-admitted to hospital where the Deceased passed away a few days later.

The beneficiary performed domestic support for the Deceased in the form of cooking, cleaning and shopping for the Deceased.

The Deceased's parent also provided personal care by assisting the Deceased with all forms of mobility required on a daily basis including walking around the residence and transport to and from the hospital for medical treatment where the parent would support the Deceased through the procedures during these visits.

Due the Deceased's health issues, the domestic support and personal care services that their parent 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.

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

As not all of the conditions have been satisfied by the Deceased's parent, it is not accepted that the Deceased and their parent had an interdependency relationship.

Therefore, the Deceased's parent is not considered to be a death benefits dependant of the Deceased for the purposes of the income tax legislation.