Edited version of your written advice

Authorisation Number: 1012859191136

Date of advice: 13 August 2015

Ruling

Subject: Death benefits - interdependency

Question

Was the Taxpayer a death benefits dependant as defined in section 302-195 of the Income Tax Assessment Act 1997 of the Deceased?

Answer

Yes

This ruling applies for the following period:

The income year ended 30 June 2015.

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

Your client is an adult child of the Deceased.

Your client lived independently until returning to the family home to assist the Deceased with the care of the other parent who was suffering from a terminal illness.

The other parent passed away during the 20AA-BB income year.

Following the death of the other parent, your client continued to reside with the Deceased.

The Deceased was a self-funded retiree who was sufficiently wealthy not to require government assistance.

Your client gave up all paid employment during the 20WW-XX income year and was dependent upon the Deceased for a place to live as well as the funds required to cover living expenses.

Your client was not receiving a carer's allowance or any other government benefit.

In the 20XX-YY income year the Deceased was diagnosed with a terminal illness.

During the 20YY-ZZ income year your client married and continued, with your client's spouse, to reside at the Deceased's residence along with the Deceased.

During the 20YY-ZZ income year the Deceased passed away.

Your client was the Deceased's carer and was responsible for the Deceased's day-to-day needs including feeding, clothing and personal hygiene, as well as taking the Deceased to and from medical appointments and hospitals.

Your client is a beneficiary to whom a superannuation death benefits payment is payable from the Deceased's superannuation fund (the Fund).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Income Tax Assessment Regulations 1997 Regulation 302-200.02

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) of the Income Tax Assessment Act 1997 (ITAA 1997) existed between the Deceased and your client as all of the requirements which are set out in the relevant legislation have been satisfied.

Therefore, your client is considered to be a death benefits dependant of the Deceased.

Detailed reasoning

Superannuation death benefits

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 that 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, 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:

(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 is an adult child of the Deceased, paragraphs 302-195(1)(a) and (b) are not applicable.

You have indicated that your client was in an interdependency relationship with the Deceased per paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 states:

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.

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.

Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the matters to be taken into account are 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;…

Accordingly, all of the conditions in subsection 302-200(1) of the ITAA 1997, or alternately subsection 302-200(2), must be satisfied for a person to be in an interdependency relationship with another person.

It is proposed to deal with each of the conditions in 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 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.

In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the ITR 1936, it stated that:

It is not necessary for each of the listed circumstances to be satisfied in order for an interdependency relationship to exist. There are circumstances in which it would be inappropriate to consider certain matters. For example, it would not be relevant to consider whether there was a sexual relationship when determining whether an interdependency relationship existed between siblings.

Each of the matters listed is to be given the appropriate weighting under the circumstances. The degree to which any matter is met or is present or not, as the case may be, does not necessarily of its own accord, confirm or preclude the existence of an interdependency relationship.

….

As stated above, the intention of the law is that 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. It would be expected that the adult child would eventually move out and secure independence from their parents.

In this case, your client is the adult child of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. While your client lived independently from the Deceased as an adult, your client moved back into the family home several years ago, to assist in the care of your client's other elderly parent. Following that parent's death, your client remained in the family home and acted as the Deceased's carer. The Deceased was elderly at that time, and it was not anticipated that your client would resume living independently again.

While acting as the Deceased's carer, the facts show your client provided emotional support and domestic assistance to the Deceased. This included attending to the Deceased's day-to-day needs, such as feeding, clothing, personal hygiene, and transport to and from medical appointments and hospitals.

It is accepted that your client provided a significant degree of support to the Deceased prior to and throughout the course of the Deceased's illness and that there was a mutual commitment to a shared life between them prior to, and at the time of, the Deceased's death.

Accordingly, it is considered that overall the relationship between your client and the Deceased is of the type envisioned by the legislation.

Accordingly, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has 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 that two persons live together.

Prior to and at the time of the Deceased's death, the Deceased and your client, along with your client's spouse, were living together at the Deceased's property. Further, your client and the Deceased had been living together for several years at the time of the Deceased's death.

Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied 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 the two persons provides the other with financial support.

Financial support under paragraph 302-200(1)(c) is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

The facts provided show that the Deceased provided your client with significant financial support during the course of their relationship. In particular, your client ceased paid employment in order to care for the Deceased, and relied exclusively on the Deceased to provide accommodation, meals and living expenses.

Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied.

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 facts presented show your client clearly provided domestic and personal care on an ongoing basis as by attending to the Deceased's daily needs which included feeding, clothing, personal hygiene, and driving the Deceased to and from medical appointments.

In view of the above, and taking into account the Deceased's advanced age and illness, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

Conclusion

All of the requirements which are set out in section 302-200(1) of the ITAA 1997 have been satisfied in this case. Consequently it is considered that the Deceased and your client were in an interdependency relationship in the period prior to, and at the time of, the Deceased's death.

As your client was in an interdependency relationship with the Deceased, just before their death, your client is a death benefits dependant as defined under section 302-195 of the ITAA 1997.