Edited version of your written advice

Authorisation Number: 1012876514966

Date of advice: 10 September 2015

Ruling

Subject: Death benefit - interdependency

Questions

Was your client in an interdependency relationship with the Deceased at the time of death?

Advice/Answers

Yes

This ruling applies for the following period

Year ending 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts and circumstances

The Deceased had been diagnosed with a medical condition.

Your client, the Deceased's child, left their employment in another state to live with the Deceased so they could care for the Deceased.

The Deceased and your client resided together from the 20WW-XX income year until the Deceased's death. Your client was unemployed during this time.

The Deceased passed away in the 20WW-XX income year, 12 months after diagnosis of their illness.

The Deceased paid money regularly into your client's bank account.

The Deceased paid all the utility costs of their rented premises. All other expenses were shared between your client and the Deceased.

The Deceased was unable to care for or walk by themselves.

Your client assisted with household duties including household shopping, the laundry and cooking.

Your client transported the Deceased to their treatments as they were unable to drive.

Your client and the Deceased provided moral support to each other.

The Deceased was very ill in the last few months preceding their death and had no other carers, relationships or partners.

A PAYG payment summary - superannuation lump sum for the 20YY-ZZ income year shows a death benefit was made to your client. The PAYG payment summary further shows the death benefit comprised a taxed element, an untaxed element and amount of tax withheld.

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).

Further issues for you to consider

Not applicable.

Anti-avoidance rules

Not applicable.

Reasons for decision

Summary

It is accepted that your client and the Deceased was in an interdependency relationship. Hence, your client is a dependant of the Deceased in the period prior to and at time of the Deceased's death.

Detailed reasoning

Division 302 of the Income Tax Assessment Act 1997 (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 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.

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.

In this case, your client is not the Deceased's spouse, former spouse or the Deceased's child aged less than 18. It will now be determined if your client had an interdependency relationship 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 your client 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 your client is the child of the Deceased. Clearly a familial relationship existed between your client and the Deceased prior to, and at the time of, the Deceased's death. In addition, your client and the Deceased had of course known each other for some time.

Your client left their employment in another state to live with the Deceased so they could care for the Deceased. The Deceased was unable to care for or walk by themselves. Your client was unemployed during the time they had returned to support and look after the Deceased.

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

Therefore, it is accepted that a close personal relationship existed between your client and 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 that two persons live together.

The facts show that your client moved to live with the Deceased. The Deceased and your client resided together in the 20WW-XXincome year until the Deceased's death. Your client made the move home to support the Deceased.

Therefore the requirement specified in paragraph 302-200(1)(b) has been satisfied in 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 paid money regularly into your client's bank account. The Deceased paid all the utility costs of the premises that your client and the Deceased rented. All other expenses were shared between your client and the Deceased.

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

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 was unable to care for or walk by themselves. Your client assisted with household duties including household shopping, the laundry and cooking. Your client transported the Deceased to their treatments as they were unable to drive. Your client provided domestic support and personal care to the Deceased.

Further, your client and the Deceased provided moral support to each other. You state that the Deceased was very ill in the few months preceding their death and had no other carers, relationships or partners.

The personal care and domestic support that was provided by your client to 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, it has already been established that there is a close personal relationship between your client and the Deceased.

Conclusion

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