Edited version of your written advice

Authorisation Number: 1012905731360

Date of advice: 3 November 2015

Ruling

Subject: Death benefit - interdependency

Questions

1. Was Taxpayer 1 in an interdependency relationship with the Deceased at the time of death?

2. Was Taxpayer 2 in an interdependency relationship with the Deceased at the time of death?

Answers

1. Yes.

2. Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

The Deceased was diagnosed with an illness during the 20XX-YY income year.

At the time of the diagnosis, the Deceased, who had no spouse or children, was living independently and was in employment.

As a result of the Deceased's illness, the Deceased was in and out of hospital going through treatment. During that time, the Deceased stayed with their parents, Taxpayer 1 and Taxpayer 2.

When the Deceased was in hospital undergoing treatment the parents visited and provided the Deceased with care.

During the 20XX-YY income year as the Deceased's health declined rapidly the Deceased went to live with their parents at their home. The Deceased also had major surgery during the 20XX-YY income year, which was debilitating and as a consequence the Deceased could no longer live with any degree of independence and became highly dependent on the parents.

During the period that the Deceased resided at the parents (the period), Taxpayer 1 provided the Deceased with the following domestic support and personal care:

• cooking and preparation of special foods;

• assisting with feeding (which was problematical as the Deceased had radical surgery);

• all laundry;

• assisting with medications;

• driving to and from appointments;

• assisting with chores such as banking, paying bills and attending to correspondence;

• liaising with medical specialists and assisting with the scheduling of treatment and taking the Deceased to and from treatment.

During the period, Taxpayer 2 provided the Deceased with the following domestic support and personal care:

• assisting with household tasks such as cooking and preparing meals;

• driving to and from appointments;

• assisting with chores such as banking and paying bills;

• liaising with medical specialists and assisting with the scheduling of treatment;

• taking the Deceased to and from treatment;

• assisting the Deceased with getting in and out of the car and assisting the Deceased with walking when the Deceased was weak and unsteady on their feet;

• carrying heavier objects when the Deceased was unable to do so;

• generally assisting the Deceased with ambulation and mobility.

Documentation provided shows that Taxpayer 1 provided emotional assistance, companionship, and comfort to the Deceased. From the moment the Deceased awoke, until the moment the Deceased fell asleep, Taxpayer 1 was almost constantly in their company, attending to their needs, and providing the Deceased with companionship and reassurance. This continued after the Deceased residency at the palliative care centre and repeated visits where the palliative care centre is located.

In relation to the provision of physical comfort, Taxpayer 1 instructs that there were numerous such instances, including assisting the Deceased with finding comfortable positions, assisting with feeding, holding their hand, stroking their face and hair, massaging their hands, and in situations where the Deceased was in great pain (which was not infrequent, as the illness provoked exquisite pain), holding the Deceased, hugging the Deceased, massaging their head, and otherwise, by means of physical contact and comfort, endeavouring to alleviate the Deceased's pain, so as to reassure the Deceased that the Deceased was loved and not alone (the deceased had not married, was not in a relationship, and had no children), assisting with the filling and application of the hot water bottle which the deceased used to alleviate the pain.

In relation to the emotional assistance, companionship and comfort that Taxpayer 2 provided the Deceased, documentation shows that Taxpayer 2 spent hour upon hour with the Deceased, conversing with the Deceased, sitting in companionable silence, holding their hands, reassuring the Deceased, and generally endeavouring to provide a loving and supportive environment.

Further, the Deceased, found it difficult to find comfortable positions, which required the involvement of an occupational therapist, and the provision of special pillows and other aids. In order to assist the Deceased to move about in bed, and find comfortable positions, and with a view to avoiding bedsores, Taxpayer 2 assisted the Deceased to move, to adjust their position, to alter the special pillows and special cushions, so as to achieve the desired effect.

During the 20XX-YY income year, the Deceased was admitted to palliative care and died during the 20XX-YY income year, aged over 50 years of age.

During the period of the Deceased's stay at the palliative care unit, the Deceased's parents' travel required considerable time to often visit the Deceased on a daily basis.

Further to the care provided to the Deceased in the hospital, there was much the parents did for the Deceased by way of 'extras' to generally make their life more comfortable. This included assisting with:

• washing of clothes and clothes management generally;

• feeding and nutrition;

• chores, such as their banking and other financial matters;

• taking the Deceased on outings;

• liaison with medical specialists and key staff at the palliative care facility;

• medications; and

• liaison with friends and family in relation to visits and their condition generally.

As the Deceased was no longer able to work due their illness, the Deceased had little income other than a small allowance. The Deceased used some of the allowance to hire a cleaner to help their parents around the house in the last few months of living with them when the Deceased was no longer able to help.

During the time with the Deceased's parents they contributed financially to the Deceased's:

• food and personal items;

• additional expenses relating to their medical appointments and medications;

• travel expenses to and from hospital and other specialist appointments; and

• any other miscellaneous expenses that the Deceased could not pay for.

A lump sum payment was paid by the superannuation fund to the Estate of the Deceased during the 20YY-ZZ income year. Under the provisions of the Will, a large proportion of this amount was paid out to the Deceased's parents during the year ended 30 June 20ZZ.

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).

Reasons for decision

Summary

It is accepted that Taxpayer 1 and Taxpayer 2 were each in an interdependency relationship with the Deceased. Hence, they were death benefits dependants 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, as Taxpayer 1 and Taxpayer 2 are not the Deceased's spouse, former spouse or the Deceased's child aged less than 18, it must be determined if they 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 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 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.

Regulation 302-200.01(2) of the Income Tax Regulations 1997 (ITR 1997), which sets out the matters that are to be taken into account in determining an whether two persons have an interdependency relationship states:

(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;…

In view of the above, 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 either of the parents 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) Bill 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 Taxpayer 1 and Taxpayer 2 were the parents of the Deceased.

We will now discuss whether each of the parents meet the requirement under paragraph 302-200(1)(a) of the ITAA 1997 of a close and personal relationship with the Deceased.

Taxpayer 1

The facts show that Taxpayer 1 provided emotional assistance, companionship and comfort to the Deceased on a continual basis from the time that the Deceased came to live with the Deceased.

From the time the Deceased was awake Taxpayer 1 was almost constantly in the Deceased's company attending to their needs and providing the Deceased's with companionship and reassurance. This continued after the Deceased was admitted to palliative care by means of repeated phone calls during the day, and repeated visits to the palliative care centre.

Taxpayer 1 also provided physical comfort for the Deceased which included making the Deceased comfortable, cooking and preparing special foods for the Deceased and assisting the Deceased with feeding. Further, Taxpayer 1 did the Deceased's laundry, ironing, changing and making the bed.

Taxpayer 1 also assisted with medications, liaising with medical specialists and assisting with the scheduling of the Deceased's treatment and taking the Deceased to and from treatment.

The above shows that the relationship between Taxpayer 1 and the Deceased was over and above that of a normal family relationship for an adult child living at home with their parent.

Further it considered that there was an ongoing commitment to the emotional support and well-being of the two parties and there was a mutual commitment to a shared life between Taxpayer 1 and the Deceased prior to and at the time of the Deceased's death.

Taxpayer 2

Taxpayer 2 provided emotional assistance, companionship and comfort to the Deceased as evidenced by Taxpayer 2 spending many hours with the Deceased, conversing with the Deceased, sitting in companionable silence, holding their hands, reassuring the Deceased, and generally endeavouring to provide a loving and supportive environment.

Further Taxpayer 2 provided physical comfort for the Deceased which included making the Deceased comfortable, assisting the Deceased with household tasks such as cooking and preparing meals and driving the Deceased to and from appointments.

Taxpayer 2 also liaised with the Deceased's medical specialists and assisted with the scheduling of treatment, assisting the Deceased with walking when the Deceased was weak and unsteady on their feet, carrying heavier objects when the Deceased was unable to do so and generally assisting the Deceased with ambulation and mobility.

The above shows that the relationship between Taxpayer 2 and the Deceased was over and above that of a normal family relationship for an adult child living at home with their parent.

Further it considered that there was an ongoing commitment to the emotional support and well-being of the two parties and there was a mutual commitment to a shared life between Taxpayer 2 and the Deceased prior to and at the time of the Deceased's death.

It is therefore accepted that a close personal relationship existed between each of the parents 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 the Deceased moved in with their parents in during the 20XX-YY income year until the Deceased was admitted to palliative care during the 20XX-YY income year where the Deceased died during the 20XX-YY income year.

Therefore the requirement specified in paragraph 302-200(1)(b) has not been satisfied in this instance as the Deceased was not living with the parents at the Deceased's time of death.

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 persons claiming to be in an interdependency relationship 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) 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.

In this case it has been established that some level of financial assistance was provided by the parents to the Deceased as the facts show that during the Deceased's time with the parents they bought for the Deceased's food and personal items and covered additional expenses relating to the Deceased's medical appointments, medications and travel expenses.

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 diagnosed with an illness and had major surgery during the 20XX-YY income year. As a consequence of the surgery the Deceased could no longer live with any degree of independence and became highly dependent on their parents.

We will now discuss Taxpayer 1 and Taxpayer 2's domestic support and personal care for the Deceased to determine if they each satisfy this requirement.

Taxpayer 1

Taxpayer 1 provided personal care to the Deceased on a continual basis and, as previously discussed, this continued after the Deceased was admitted to palliative care by means of repeated phone calls during the day, and repeated visits to the palliative care centre.

Further, Taxpayer 1 provided physical comfort to the Deceased by assisting the Deceased to find comfortable positions, adjusting pillows, sheets and blankets and assisting with feeding. Taxpayer 1 also provided continual comfort to the Deceased by holding their hand, stroking their face and hair, massaging their hands, hugging the Deceased, and massaging their head to alleviate the Deceased's pain.

Domestic and personal care, as previously discussed, was provided by Taxpayer 1 as evidenced by Taxpayer 1:

• cooking and preparing special foods for the Deceased

• doing the Deceased's laundry and ironing;

• changing and making the Deceased's bed;

• assisted with the Deceased's medications and appointments; and

• banking and paying bills.

The personal care and domestic support provided by Taxpayer 1 to the Deceased is considered to be above that expected in an ordinary parent and adult child relationship.

Taxpayer 2

Taxpayer 2 provided personal care to the Deceased on a continual basis and, as evidenced in the facts, spent many hours with the Deceased, conversing with the Deceased, sitting in companionable silence, holding their hands, reassuring the Deceased, and generally endeavouring to provide a loving and supportive environment.

Further, as the Deceased found it difficult to find comfortable positions, which required special pillows and other aids, Taxpayer 2 assisted the Deceased to move, adjust their position or alter the special pillows and special cushions with a view to the Deceased avoiding bedsores.

In addition to the above it is noted that Taxpayer 2 liaised with the Deceased's medical specialists and assisted with the scheduling of treatment. Further, Taxpayer 2 generally assisted the Deceased with their ambulation and mobility problems, due to their weakened condition, by driving the Deceased to and from appointments, helping the Deceased walk and carrying heavier objects when the Deceased was unable to do so.

In relation to domestic care Taxpayer 2 assisted the Deceased with household tasks and chores such as cooking and preparing meals, paying bills and shopping for the Deceased.

The personal care and domestic support that was provided by Taxpayer 2 to the Deceased is considered to be 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 for both parents.

Application of subsection 302-200(2) of the ITAA 1997

Essentially, this subsection ensures that where two people have a close personal relationship, but due to the physical, intellectual or psychiatric disability of one of both of the persons, 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 been determined that both parents had a close personal relation with the Deceased. Although the Deceased was admitted to palliative care during the 20XX-YY income year and the requirement in paragraph 302-200(1)(b) of the ITAA 1997 was not satisfied, the application of subsection 302-200(2) ensures that each of the parents and the Deceased will still be considered to have an interdependent relationship.

Conclusion

As all conditions have been satisfied, it is accepted that each of the parents were in an interdependency relationship with the Deceased for the purposes of section 302-200 of the ITAA 1997.