Edited version of your written advice

Authorisation Number: 1013080576519

Date of advice: 30 August 2016

Ruling

Subject: Interdependency relationships

Question 1

Was the Deceased and the father of the Deceased in an interdependency relationship?

Answer

No

Question 2

Was the Deceased and the mother of the Deceased in an interdependency relationship?

Answer

No

This ruling applies for the following periods:

Income year ended 30 June 2014; and

Income year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The Deceased died in the 2012-13 income year aged in his early twenties in an accident.

The Deceased, who was employed at the time of death, was the only child of your clients.

Your clients are the legal personal representatives of the Deceased’s Estate.

The Deceased, up to the time of death, lived at home with your clients for most of the Deceased’s life.

The only time that the Deceased did not live with your clients was during a two year period. During this period the Deceased lived interstate while completing a university course.

Your clients paid some money towards the total cost of the Deceased’s course and accommodation while the Deceased lived interstate.

Over the years your clients bought the Deceased various items and paid for expenses which included, amongst other items, a computer, TV, work gear and a motor vehicle.

The Deceased also paid various expenses for your clients.

At the time of the Deceased’s death, the three members of the household (your clients and the Deceased) shared their living expenses (such as amounts for food, electricity per quarter, council rates and water charges per year) equally.

Your clients provided the Deceased with domestic support in the form of preparing meals, doing laundry, cleaning, and a number of other tasks for the Deceased. In turn the Deceased helped your clients by performing tasks around the house.

In relation to personal care, your clients and the Deceased provided each other with love, care affection and psychological assistance.

At the time of the Deceased’s death, your clients had just begun to convert their garage into a private living space for the Deceased. Some money was spent on the conversion prior to the Deceased’s death and a further amount of money was spent after the Deceased’s death as work had already commenced and needed to be completed.

The Deceased’s superannuation fund paid a superannuation death benefit to the Deceased’s Estate in early 2014.

Your clients are expected to benefit from the superannuation death benefit.

You clients presented additional facts in a Statutory Declaration (the Declaration) to support the contention that:

● The Deceased was an only child

● Your clients and the Deceased were a migrant family, which depended upon each other in the way common for such families. Neither of your clients had other family in the state they lived, so the family was quite isolated, consisting only of your clients and the Deceased

● The family garage was being converted into a long-term living space for the Deceased. Rather than being close to moving out, the objective intention was that the Deceased would reside with your clients for the foreseeable future.

● Your clients and the Deceased “provided each other with domestic support and personal care, as well as with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.”

● Your clients suffered Major Depressive Disorder and Inconsolable grief as a result of the Deceased death. You contend that “this would not be expected following the death of someone with whom they did not have a close personal relationship”. Furthermore, your client’s have responded to the Deceased death in a way that goes well beyond mere grief at the loss of a child, according to a medical professional, it is because the relationship was so close and interdependent that the Applicants suffered such a decline following the Deceased death.

Further Statutory Declarations have been provided by family friends that contain declarations in support of the contention that the Deceased and your clients were a close family that provided financial and emotional support to each other.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 302-200

Income Tax Assessment Act 1997 subsection 302-200(1)

Income Tax Assessment Act 1997 paragraph 302-200(1)(a)

Income Tax Assessment Act 1997 paragraph 302-200(1)(b)

Income Tax Assessment Act 1997 paragraph 302-200(1)(c)

Income Tax Assessment Act 1997 paragraph 302-200(1)(d)

Income Tax Assessment Act 1997 subsection 302-200(2)

Income Tax Regulations 1997 Subregulation 302-200.01(2)

Reasons for decision

Summary of decision

It is considered that your clients did not have an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997) the Deceased. Therefore your clients were not death benefits dependants of the Deceased.

Detailed reasoning

Section 302-10 of the ITAA 1997 applies to the trustee of a deceased estate who receives a superannuation death benefit.

Under subsection 302-10(2) of the ITAA 1997:

to the extent that 1 or more beneficiaries of the estate who were *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the *superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

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

Under section 302-60 of the ITAA 1997, a superannuation lump sum received because of the death of a person of whom you are a death benefits dependent is not assessable not exempt income.

In other words, if a death benefit is received by the trustee of a deceased estate, it will be tax free to the extent that a death benefits dependant of the deceased is expected to benefit from the payment.

Death benefits dependant

Section 302-195 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.

In your clients’ case, and from the facts provided, the relevant definition which needs to be examined is that in paragraph 302-195(c) of the ITAA 1997, that is, whether your clients were in an interdependency relationship with the Deceased.

Interdependency relationship

Section 302-200(1) of the ITAA 1997 states:

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.

Under subsection 302-200(2) of the ITAA 1997 two people who have a close personal relationship but cannot satisfy all of the other requirements of an interdependency relationship because of a physical, intellectual or psychiatric disability, may still have an interdependency relationship.

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 condition in subsection 302-200(2), of the ITAA 1997 must be satisfied for a person to be in an interdependency relationship with another person.

To assist in determining whether two persons have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 states that the regulations may specify the matters that are, or are not, to be taken into account.

In addition, 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.

Subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) states the following matters are to be taken into account in determining whether two persons have an interdependency relationship:

(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;

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.

It is proposed to deal with each condition of subsection 302-200(1) of the ITAA 1997 in turn.

Close personal relationship

You have contended that:

● There fact that ‘close personal relationship’ is not defined does not mean that it is ambiguous or obscure. Rather, it is in no need of definition precisely because it is so clear and unambiguous.

● An ordinary person would easily know what the phrase ‘close personal relationship’ means. An ordinary person could easily identify people with whom they are in a close personal relationship including, but not limited to, their parents, children and spouse. It is submitted that parents and their children would always satisfy this test, unless there was evidence of estrangement. Therefore, you contend that the Deceased and your Clients had a close personal relationship, satisfying paragraph 302-200(1)(a) of the ITAA 1997.

● Given the clear and recent guidance of the High Court concerning statutory interpretation, the phrase ‘close personal relationship’ should be given its literal, plain and ordinary meaning. Therefore, the Deceased and your Clients had a close personal relationship.

● The Deceased would not necessarily have had to commit to living with parents forever for the relationship to be interdependent ‘just before the Deceased died,’ which is the relevant time according to section 302-195 of the ITAA 1997.

● The Deceased’s pursuit of the Deceased own career and other interests is not inconsistent with a shared life with your clients. In fact, they were pleased with these activities and since the Deceased’s father was working at an employer he could assist the Deceased to find work there. Their life was so shared and mutual that the Deceased and the father of the Deceased often even drove to work together.

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

The expression ‘close personal relationship’ is not defined in the ITAA 1997. However, the meaning of the term is discussed in 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. According to the SEM:

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.

Furthermore, in the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7), it states that:

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

The explanatory statement also provides a detailed example of a relationship between an adult child and their parents and the relevant considerations that are to be taken into account:

Example

Daniel died at age 23, leaving behind a superannuation benefit of $30,000. Daniel was not married, nor did he have any children, and lived with his parents and younger brother in his parent’s home.

Given that Daniel was 23, he and his parents had of course known each other for some time (subparagraph (1)(a)(i)). While both parties may have intended to remain an important part of each other’s lives, it is reasonable to assume that the relationship would have changed significantly over time. That is neither Daniel, nor his parents, would have expected to be providing each other the same level of domestic support and personal care that they did prior to Daniel’s death, for the next forty years, had he not died (subparagraphs (iv) and (viii)).

He did not own the house, nor was he a mortgagee (subparagraph (iii)).

While Daniel sometimes cooked dinner for his younger brother and provided other care and support to him, it was no more than would generally be expected of an older sibling and was far less than the care and support that his parents provided (subparagraph (v)).

Friends, neighbours and associates of Daniel and his parents all considered that the relationship between Daniel and his parents was a reasonably normal, healthy, relationship for a young man living with his parents. They attended family functions together and occasionally attended functions organised by each other’s friends. For example, when Daniel’s long time friend was married, Daniel’s parents were also invited to attend. However, generally speaking, they did not socialise together (subparagraph (vi)).

When his mother’s close friend died three month’s prior to Daniel’s death, he provided emotional support to his mother, however, it was Daniel’s father who took time off work and who cancelled social and sporting engagements in order to be with her and provide support (subparagraph (vii)).

It would be reasonable to expect that Daniel would have moved out of his parent’s home at some stage. That is, it was convenient (and possibly expected) on a number of fronts for Daniel as a young adult to live with his parents, including financially, domestically and emotionally. However, while it was never specifically discussed, it was generally accepted that he would move out eventually (subparagraphs (viii) and (iv)).

Based on the facts of this case, Daniel and his parents were not in an interdependency relationship.

The facts show that your clients were the parents of the Deceased. Clearly a familial relationship existed between your clients and the Deceased prior to, and at the time of, the Deceased's death. Your clients provided loving support and assistance to the Deceased when they resided together and your clients provided emotional support that parents would normally give to their child. This however does not necessarily indicate that a close personal relationship existed for the purposes of the tax legislation.

Instead, the various considerations outlined in Subregulation 302-200.01(2) of the ITAR 1997 must be considered.

Given that the Deceased was aged in the early twenties at the time of death, the Deceased and your clients had of course known each other for some time. However, the ‘duration of a relationship’ in and of itself is not sufficient to categorize a relationship as ‘close and personal.’ The other considerations must also be taken into account.

Of particular importance in this case are the related matters outlined in paragraphs (iv), (viii) and (ix) of subregulation 302-200.01(2) of the ITAR 1997. The facts in this case indicate that the relationship between the Deceased and your clients was a normal familial relationship for a young person living with parents. Whilst both the Deceased and your clients may have intended to remain an important part of each other’s life, it is reasonable to assume that the relationship would change significantly over time.

Specifically, the facts provided in this case do not indicate that there would be a mutual commitment to a shared life between the Deceased and your clients. Even though your clients have provided evidence of the conversion of their garage into a living space for the Deceased and contend that the Deceased would be living with your clients in the foreseeable future, nothing in the facts indicate that the Deceased would not eventually move out. It is expected that the Deceased would eventually secure their independence some time in the future and perhaps start their own family.

The statements made in the Statutory Declaration outline the degree of emotional support which must be considered in accordance with paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997. While it is acknowledged that the degree of emotional support provided by the Deceased and your clients to each other is significant, it does not go beyond the level of emotional support that would typically be expected in a relationship between parents and their adult child. As such, a consideration of paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997 does not sufficiently differentiate the situation in this case from others involving parents and their adult child (such as the example of Daniel outlined above).

The statements made in the Statutory Declaration made by family friends were also considered. These statements similarly do not go beyond confirming that the relationship between the Deceased and your clients was a normal, healthy, relationship typical of that of a young man living with parents.

In view of the above it is considered that a close familial relationship existed between your clients and the Deceased, but, it was not a close personal relationship as envisaged by paragraph 302-200(1)(a) of the ITAA 1997.

Accordingly, paragraph 302-200 (1)(a) of the ITAA 1997 has not been satisfied .

Cohabitation

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states that the two persons must live together.

The facts show your clients and the Deceased lived together until the time of the Deceased’s death. Therefore it is accepted that your clients and the Deceased lived together at the time of the Deceased’s death.

Accordingly, the requirement under paragraph 302-200(1)(b) of the ITAA 1997 has been met.

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.

Paragraph 302-200(1)(c) of the ITAA 1197 is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other.

It is clear from the facts presented that your clients and the Deceased provided each other with financial assistance.

Therefore the requirement specified in paragraph 302-200(1)(c) of the ITAA 1997 has been met.

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, and 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 New South Wales Supreme Court in Dridi v. Fillmore [2001] 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 facts show that your clients provided domestic support to the Deceased including preparing meals, doing laundry, cleaning, and a number of other tasks for the Deceased. In addition, the Statutory Declaration indicated that the Deceased would provide nursing and care to your clients during several injuries and while they were suffering emotionally.

Therefore the requirement of domestic support and personal care under paragraph 302-200(1)(d) of the ITAA 1997 has been met.

Conclusion

As some of the conditions under subsection 302-200(1) of the ITAA 1997 have not been met, your clients are not considered to have been in an independency relationship with the Deceased as defined under the income tax legislation.

Your clients are not considered to be dependants of the Deceased within the meaning of a death benefits dependant in section 302-195 of the ITAA 1997 as your clients do not satisfy any of the relevant conditions.

Accordingly, subsection 302-10(2) of the ITAA 1997 does not apply to the superannuation death benefit paid to the Trustee of the Deceased’s Estate. Subsection 302-10(3) of the ITAA 1997 will apply instead.