Edited version of your written advice

Authorisation Number: 1012906683127

Date of advice: 12 November 2015

Ruling

Subject: Death benefits dependant

Question

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

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 2015.

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

The Deceased died on a certain date in the relevant income year.

The Deceased had no spouse or children.

Your Client is the parent of the Deceased.

The Deceased was a member of an industry superannuation fund.

As a result of the Deceased's death, the trustees of the superannuation fund paid a superannuation death benefit to Your Client on a date in the relevant income year.

The Deceased had a medical condition from birth and had lived in their family home with Your Client for most of their life.

While the Deceased lived with Your Client, Your Client provided the Deceased with ongoing financial and domestic support including:

• cooking meals and laundry;

• providing assistance for medical/hospital appointments;

• support with social activities, holidays, family events and visiting friends; and

• ongoing maintenance of the family home such as ramps for access, disabled bathroom and kitchen benches to accommodate wheelchair access.

Four years prior to their death, the Deceased was advised to try to live independently and obtain support from Government agencies in the event that something happened to their parents and they could not assist the Deceased anymore. The Deceased then moved out of the family home to a residence nearby.

After the Deceased moved out of the family home, Your Client continued to provide the Deceased with financial and domestic support. This included:

• modifying the Deceased's residency to accommodate wheelchair access and assisting with personal mobility;

• purchasing whitegoods, such as a large washing machine and cooking appliances;

• providing transport assistance for medical and hospital appointments;

• providing cooked meals and purchasing groceries;

• providing financial support for social activities, family events and holidays;

• garden maintenance, such as lawn mowing, pruning and sweeping;

• general housekeeping, such as vacuuming, mopping, dusting, bathroom cleaning, and window cleaning; and

• laundry, including washing and changing bedding.

The Deceased was in receipt of a full disability pension from the Australian government.

Your Client was paid a carer's payment by Centrelink for the care provided to the Deceased.

At the time of their death, the Deceased did not live with Your Client.

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 ITAA 1997 existed between the Deceased and Your Client just before the Deceased died. Therefore, Your Client is a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

The term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997 which states:

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 a parent of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable in this case.

Paragraph 302-195(d) of the ITAA 1997 requires that the relevant person [Your Client] be a 'dependant' of the Deceased. The definition of death benefits dependant in paragraph 302-195(1)(d) does not stipulate the nature or degree of dependency, but it is generally accepted that this refers to financial dependence. However, in this case, it is argued that it was Your Client that provided financial support to the Deceased. As such, paragraph 302-195(d) is not satisfied.

Consequently, to be a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997, Your Client must satisfy paragraph 302-195(1)(c) of the ITAA 1997. That is, Your Client must show that they were in an interdependency relationship with the Deceased just before the Deceased died.

Interdependency relationship

Section 302-200(1) of the ITAA 1997 states that two 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.

In accordance with subsection 302-195(2) of the ITAA 1997, two persons also have an 'interdependency relationship' under that 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.

Subsection 302-200(3) of the ITAA 1997 states that the regulations may specify the matters and circumstances 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.

In accordance with regulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) matters that are to be taken into account in determining whether two persons have an interdependency relationship are all of the circumstances of the relationship between the persons, including (as far as relevant):

• the duration of the relationship; and

• the ownership, use and acquisition of property; and

• the degree of mutual commitment to a shared life; and

• the degree of emotional support; and

• the extent to which the relationship is one of mere convenience

Regulation 302-200.02 of the ITAR 1997 sets out the circumstances in which two persons have, or do not have, an interdependency relationship under section 302-200 of the ITAA 1997 and provides that interdependency relationship exists where:

• two persons satisfy the requirements of paragraphs 302-200(1)(a) to (c) and one, or each of them, provides the other with support and care of a type and quality normally provided in a close personal relationship rather than by a friend or flatmate (for example, significant care provided for the other person when they are unwell or suffering emotionally).

• two persons have a close personal relationship and they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because they are temporarily living apart, for example, one of the persons is temporary working overseas.

• two persons have a close personal relationship and they do not satisfy the other requirements set out in subsection 302-200(1) of the ITAA 1997 because either or both of them suffer from a disability.

Two persons do not , however, have an interdependency relationship if domestic support and personal care is provided by one person to the other under an employment contract or contract for services or on behalf of another person or organisation such as a charitable organisation (subregulation 302-200.01(5) of the ITAR 1997).

Explanatory Statement to the Income Tax Amendment Regulations 2005 (No 7) which introduced regulations that specified matters that are, or are not, to be taken into account in determining whether two people have an interdependency relationship for the purposes of former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936) - the immediate predecessor of section 302-200 of the ITAA 1997 - states:

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.

Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

Based on the above, two people who have a close personal relationship but who cannot satisfy all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, still have an interdependency relationship.

Close personal relationship'

The expression 'close personal relationship' is not defined in the ITAA 1997 or ITAR 1997. 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 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.

As stated above, generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between parents and children. This is because one expects the child to establish their independence and eventually move out of the parental home. That is, whilst it is convenient that young adults will live with their parents and be supported financially, domestically and emotionally, it is generally expected that they would move out eventually.

However, where, as in this case, unusual and exceptional circumstances exist, a relationship between parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

In this particular case, a close familial relationship existed between Your Client and the Deceased at the time of the Deceased's death that was over and above that of a normal relationship between a parent and adult child. This was demonstrated through ongoing financial, personal and emotional support provided to the Deceased during their life.

The Deceased had lived with Your Client for most of their life. During that time, Your Client had modified the family home to accommodate the access by the Deceased's wheelchair; provided domestic support to the Deceased; assisted the Deceased when they attended medical/hospital appointments; and supported the Deceased with social activities. After the Deceased moved away from the family home, Your Client continued to provide the Deceased with financial, personal and emotional support and assisted the Deceased with everyday living activities.

Based on the above, it is considered that because of the physical symptoms of the Deceased's illness, and the lifetime dependence it gave rise to, the close personal relationship between the Deceased and Your Client was enduring and would have endured had the Deceased not died. Therefore, there is, in this case, evidence of a demonstrated and ongoing commitment to the emotional support and well-being of the Deceased.

Accordingly, it is considered that Your Client and the Deceased had a close personal relationship and, as such, the first requirement specified in paragraph 302-200(1)(a) of the ITAA 1997 has been satisfied in this case.

Living together:

The second requirement for an interdependency relationship is specified in paragraph 302-200(1)(b) of the ITAA 1997, and requires that two parties live together.

However, both subsection 302-200(2) of the ITAA 1997 and subregulation 302-200.01(3) and (4) of the ITAR 1997 provide that an interdependency relationship can exist if the two parties who have a close personal relationship do not live together because one or both of them suffer from a physical, intellectual or psychiatric disability.

In this case, the Deceased lived with Your Client for most of their life and had lived on their own for approximately four years prior to their death. The Deceased moved out of the family home into a separate residence close by because their illness had made them over-reliant on Your Client and they had to try to regain some independence because Your Client was getting older and could not be relied on to care for the Deceased indefinitely. While living on their own, Your Client continued to provide the Deceased with financial, personal and emotional support of the nature previously provided in the Deceased's family home.

Based on the above, it is considered that the physical symptoms of the Deceased's illness, and the need for some measure of independence from Your Client, made living together not possible.

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 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 of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other.

According to the evidence provided, Your Client provided the Deceased with some degree of financial support during the course of their relationship. In particular, Your Client modified their, and then the Deceased's home, to accommodate the Deceased's mobility needs, and purchased household items for the Deceased such as a washing machine, hotplate/grill, and microwave. Your Client also paid for the Deceased's transport, social activities, and groceries

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:

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.

From the facts presented, Your Client clearly provided domestic support and personal care to the Deceased on an ongoing basis. Your Client attended to general housekeeping, garden maintenance, laundry and weekly grocery shopping. Your Client also assisted the Deceased with mobility and attending social activities thereby attending to the physical and emotional support of the Deceased.

Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

As Your Client meets the requirements of section 302-200 of the ITAA 1997, Your Client is a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.