Edited version of your written advice

Authorisation Number: 1013074790949

Date of advice: 18 August 2016

Ruling

Subject: Interdependency

Question

Did the Taxpayer have an interdependency relationship with the Deceased as defined in section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 20ZZ

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

An individual (the Deceased) was diagnosed with a terminal condition in 20XX and passed away in 20YY.

At the time of their passing, the Deceased was survived by their children (the Taxpayer).

The Taxpayer quit their full time employment in 20XX to live with the Deceased and provided full time care, up to the time of passing.

As the Taxpayer was unable to continue their employment, they relied financially on the Deceased's disability pension.

During the time the Taxpayer lived with the Deceased, the Taxpayer assisted the Deceased by:

(a) Providing assistance once the Deceased lost muscular movements of their limbs;

(b) Providing personal assistance with showering, cleaning, personal hygiene and eating and drinking;

(c) Providing medication as required;

(d) Providing social comfort and distraction in times of pain; and

(e) Performing general day-to-day activities.

The Deceased paid for the household expenses as well as the personal expenses of the Taxpayer.

The Deceased's superannuation fund made a death benefit payment to the Taxpayer in 20ZZ. The payment was treated as if it were made to a non-dependant.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-195.

Income Tax Assessment Act 1997 section 302-200.

Income Tax Assessment Regulations 1997 subregulation 302-200.01

Income Tax Assessment Regulations 1997 subregulation 302-200.02

Reasons for decision

Summary

The Taxpayer and the Deceased had an interdependency relationship for the purposes of section 302-200 of the ITAA 1997 just before the Deceased died.

Therefore, the Taxpayer is a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

A superannuation death benefit paid to a death benefits dependant will be tax free.

Detailed reasoning

Section 302-195 of the ITAA 1997 defines death benefits dependant, of a person who has died, as:

(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.

*To find definitions of asterisked terms, see the Dictionary, starting at 995-1

As the Taxpayer is a child of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case. Therefore, to conclude that the Taxpayer is a death benefits dependant of the Deceased, it must be established that the Taxpayer had an interdependency relationship with the Deceased, or that they were a dependant of the Deceased just before the Deceased died.

Interdependency relationship

Subsection 302-200(1) of the ITAA 1997 provides that two persons (whether or not related by family) have an interdependency relationship under that 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, regulation 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 …

(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 …

(ix) any evidence of a suggesting that the parties intend the relationship to be permanent

The 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.

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, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not generally exist between parent and child. This is because the relationship between a parent and child would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where, as in this case, unusual and exceptional circumstances exist, a relationship between a parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

It is considered that the relationship between the Taxpayer and the Deceased was over and above that of a normal family relationship and that a close personal relationship existed as required by paragraph 302-200(1)(a) of the ITAA 1997.

The matters that indicate that the Taxpayer and the Deceased had a close personal relationship prior to the Deceased's death are:

• A close familial relationship existed between the Taxpayer and the Deceased prior to and at the time of the Deceased's death that was over and above that of a normal relationship between a parent and an adult child. This was demonstrated in a number of ways such as the personal care and physical assistance that the Taxpayer provided to the Deceased during their illness.

• During the time the Taxpayer lived with the Deceased, the Taxpayer provided the Deceased with emotional support, personal care and domestic support.

• The Taxpayer arranged medical appointments and administered medication to the Deceased as required.

Living together

The Taxpayer lived with the Deceased from the time of the diagnosis of their condition to the time of their passing. This was on a continuous basis from 20XX to 20YY.

Hence, it is considered that the Deceased and the Taxpayer were living together.

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.

The Deceased provided the Taxpayer with the financial support necessary to meet their household expenses plus the Taxpayer's own personal expenses.

Therefore, it is considered that the Taxpayer provided financial support to the Deceased.

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 activities. Personal care services may commonly consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

The Taxpayer provided the Deceased with domestic support services including household duties, cleaning, laundry and preparation of meals. They also accompanied the Deceased to medical and hospital appointments and provided them with physical and emotional support.

In view of the above it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been met.

Conclusion

As the Taxpayer meets the requirements of section 302-200 of the ITAA 1997, they are a death benefit dependant of the Deceased under paragraph 302-195(1)(c) of the ITAA 1997. It is thus not necessary to determine whether paragraph 302-195(1)(d) of the ITAA 1997 applies in this case.