Edited version of your written advice

Authorisation Number: 1013050404562

Date of advice: 21 July 2016

Ruling

Subject: Superannuation death benefits

Question

Is a person (the Taxpayer) a death benefits dependant of a person who has died (the Deceased) for the purposes of Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 

Yes

This ruling applies for the following periods:

Income year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Deceased died during the 20XX-YY income year.

The Taxpayer is over 18 years of age and is a child of the Deceased.

The Taxpayer was born with a severe intellectual disability and had lived with their parents (the Deceased and their spouse) for more than 30 years. The Taxpayer required supervision 24 hours a day, seven days a week and was completely dependent on their parents.

During the time the Taxpayer lived with the Deceased, they supported the Taxpayer in all respects - physical, financial and emotional.

In or around 1994, the Taxpayer was forcibly removed from the care of the Deceased who, because of their advanced age, were no longer physically able to care for the Taxpayer.

Under the care of the Public Advocate, the Taxpayer was moved first into a private accommodation attended to by a live-in carer, and then in 19ZZ into a government funded shared accommodation facility, attended to by full-time carers.

After the Taxpayer moved out of the family home, the Deceased continued to provide emotional support to the Taxpayer. The Deceased visited the Taxpayer regularly, initially on a weekly basis and then less frequently until it was no longer physically possible to do so.

The Deceased took the Taxpayer from the shared accommodation facility to stay with the Deceased whenever it could be arranged.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 302

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 302-200

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Regulations 1997 Regulation 302-200.01

Income Tax Assessment Regulations 1997 regulation 302-200.02

Reasons for decision

Summary

The Taxpayer and the Deceased had an interdependency relationship under section 302-200 of the ITAA 1997 just before they died. Therefore, the Taxpayer is a death benefits dependant of the Deceased for the purposes of Division 302 of the ITAA 1997.

Detailed reasoning

The meaning of death benefits dependant

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.

Subsection 302-195(1) of the ITAA 1997 defines 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.

The Taxpayer is a child of the Deceased who was more than 18 years of age when the Deceased died, therefore paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case.

Also, based on the facts of the case, the Taxpayer was not a dependant of the Deceased under paragraph 302-195(1)(d) of the ITAA 1997. Therefore, paragraph 302-195(1)(c) of the ITAA 1997 must be considered to determine whether the Deceased and the Taxpayer had an interdependency relationship under 302-200 of the ITAA 1997 just before the Deceased died.

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.

In accordance with subsection 302-200(2) of the ITAA 1997, two persons may also have an interdependency relationship if they have a close personal relationship but cannot satisfy any of the other requirements of subsection 302-200(1) of the ITAA 1997 because either or both of them suffer from a physical, intellectual or psychiatric disability.

Subsection 302-200(3) of the ITAA 1997 provides that matters and circumstances that are, or are not, to be taken into account in determining whether two persons have an interdependency relationship under that section may be specified in the regulations.

To that effect, subregulation 302-200.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) provides that the matters to be taken into account for the purposes of paragraph 302-200(3)(a) of the ITAA 1997 (where relevant) are all the circumstances of the relationship between the persons, including (in this case):

(i)  the duration of the relationship; and …

(iii) the ownership, use and acquisition of property; and

(iv)  the degree of mutual commitment to a shared life; 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 …

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 - 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.

Close personal relationship:

The definition of 'dependant' in relation to the receipt and taxation of superannuation death benefits was amended by the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004. The Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 Supplementary Explanatory Memorandum (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.

As stated above, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their adult 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.

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

In this case, a close familial relationship existed between the Taxpayer and the Deceased at the time of the Deceased's death. The Taxpayer had lived with the Deceased for more than 30 years. During that time, the Deceased provided 24 hour/seven days a week care required by the Taxpayer. The Deceased provided the Taxpayer with emotional, domestic and financial support to ensure their physical and emotional comfort. Evidence suggests that if not for the fact that the Taxpayer was removed from the Deceased's care because they were no longer physically able to care for the Taxpayer, the Deceased would have continued to provide the same support to the Taxpayer.

The Deceased continued to have a strong familial bond with the Taxpayer after the Taxpayer moved out of the family home they shared with the Deceased. The Deceased visited the Taxpayer regularly providing emotional support until it was no longer physically possible for the Deceased to visit. Although the Taxpayer was under the care of the Public Advocate, the Deceased still took an interest in emotional and physical wellbeing of the Taxpayer.

Consequently, it is considered that a close personal relationship existed between the Deceased and the Taxpayer as envisaged by paragraph 302-200 (1)(a) of the ITAA 1997.

Living together:

The Deceased and the Taxpayer were not living at the same address at the time of the Deceased's death. Therefore, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been satisfied in this instance.

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.

In this case, neither the Taxpayer nor the Deceased provided any financial support to the other.

Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has not 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, the Taxpayer lives in a government funded shared accommodation with full-time carers. As a result, there was no need for the Deceased to provide the Taxpayer with domestic support and personal care. Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has not been satisfied in this instance.

Therefore, applying subsection 302-200(1) of the ITAA 1997 to the Taxpayer's circumstances, the Taxpayer meets the requirements of paragraph 302-200(1)(a) but fails paragraphs (b), (c) and (d) of that subsection. That being the case, subsection 302-200(2) of the ITAA 1997 requires consideration to determine whether the Taxpayer and the Deceased were in an interdependency relationship nonetheless.

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

In accordance with paragraph 302-200(2)(c) of the ITAA 1997, two parties may still have an interdependency relationship if the reason that paragraphs 302-200(1)(b), (c) or (d) of the ITAA 1997 were not met is due to a 'physical, intellectual or psychiatric disability' suffered by one or both parties.

As mentioned above, it is considered that the Taxpayer and the Deceased had a close personal relationship but paragraphs 302-200(1)(b), (c) and (d) of the ITAA 1997 have not been satisfied in this case. Therefore, to conclude that the Taxpayer and the Deceased were in an interdependency relationship just before the Deceased died, it must be established that the reason the Taxpayer did not live with the Deceased; and the reason that neither provided the other with financial support and domestic and personal care was because of the Taxpayer's intellectual disability.

On the basis of the nature of the Taxpayer's disability and the Deceased advanced age, it is considered that the Deceased and the Taxpayer could not live together because of the Taxpayer's disability.

Further, because the Deceased and the Taxpayer did not live together by reason of their disability, they had no joint financial obligations arising from a shared household (such as groceries, utilities, rent or mortgage payments, etc.) which required pooling of their incomes and sharing of their expenses. Consequently, it is considered that the reason neither party provided the other with financial support is that the Taxpayer suffered from an intellectual disability.

Finally, because the Taxpayer, by reason of their disability, lived in a fully supported facility, there was no need for the Deceased to provide them with domestic and personal support.

As the requirements set out in subsection 302-200(2) of the ITAA 1997 have been satisfied in this case, it is considered that the Deceased and the Taxpayer had an interdependency relationship just before the Deceased died.

Consequently, the Taxpayer is a death benefits dependant of the Deceased within the definition of section 302-195 of the ITAA 1997.