Edited version of your written advice

Authorisation Number: 1051177512723

Date of advice: 9 January 2017

Ruling

Subject: Death Benefit

Question

Was your client 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 periods:

The income year ended 30 June 20ZZ

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

Your client is the parent of the Deceased.

Prior to their death, the Deceased was a member of an industry superannuation fund.

The Deceased passed away in mid 20XX under their preservation age and your client was paid a death benefit employment termination payment from the Deceased's superannuation fund.

While the Deceased lived with your client, the Deceased provided your client with ongoing financial and domestic support including:

● Cooking meals and laundry

● Providing assistance and transportation for medical/hospital appointments

● Support with social activities, household chores activities, and family events; and

● Ongoing maintenance of the family home such as personal furnishings and heavy lifting required around the house.

There was considerable amount of mutual emotional support between your client and the Deceased as the family had experienced significant tragic events after the parent left the family home in 19XY

The Deceased resided with your client for their entire life.

Assumptions

None.

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

1. 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

2. 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.

3. 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.

4. 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.¹ From the facts, it was established that the Deceased provided financial support to your client. As such, paragraph 302-195(d) is satisfied.

5. 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

6. 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.

7. In accordance with subsection 302-200(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.

8. 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.

9. 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

10. 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 30-200(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 30-200(1) of the ITAA 1997 because either or both of them suffer from a disability.

11. 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.

12. 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.

13. 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

14. 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.

15. 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.

16. 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.

17. 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.

18. The Deceased had lived with Your Client almost the entirety of the Deceased's life. During that time, the Deceased had provided domestic support to your client; assisted your client when they attended medical/hospital appointments; and supported your client with household chores and maintenance activities of the family house.

19. Based on the above, 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.

20. 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:

21. 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.

22. However, both subsection 302-200(2) of the ITAA 1997 and subregulations 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.

23. In this case, the Deceased lived with Your Client for 32 years and had only lived apart from your Client for three weeks when the Deceased lived with a friend. Your Client continued to provide the Deceased with financial, personal and emotional support of the nature previously provided in the Deceased's family home.

24. Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance.

Financial support:

25. 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.

26. 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.

27. According to the evidence provided, the Deceased provided Your Client with some degree of financial support during the course of their relationship. In particular, the Deceased modified their and the Deceased's home to accommodate Your Client's mobility needs, and purchased household items for Your Client. The Deceased also paid for Your Client's transport, social activities, and groceries

28. 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:

29. 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.

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

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

32. 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.

ATO view documents

ATO ID 20014/22 Income Tax death benefits dependant - adult child caring for terminally ill parent

Other references (non ATO view)

Supplementary Explanatory Memorandum Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004

Explanatory Statement Income Tax Amendment Regulations 2005 (No 7)

¹ ATO ID 2014/22