Edited version of your written advice

Authorisation Number: 1051213003587

Date of advice: 10 April 2017

Ruling

Subject: Death benefits dependant - interdependency relationship

Question

Was the Deceased in an interdependency relationship with a child of the Deceased?

Answer

Yes.

This ruling applies for the following period

Income year ended 30 June 2016

The scheme commenced on

1 July 2015

Relevant facts and circumstances

The Deceased resided on their own until a date in the 2014-15 income year when taken to emergency at their local hospital.

The Deceased was diagnosed with a serious medical condition requiring immediate surgery and was immediately flown interstate at the Deceased's request from the local hospital to a hospital near the Deceased's child (you).

The Deceased had a long stay in hospital which was located less than an hour from your home.

You visited the Deceased daily and incurred financial expenses for the Deceased whilst the Deceased was in hospital.

At the conclusion of the Deceased's hospital stay the Deceased resided with you at your home.

You incurred further financial costs in the form of providing the Deceased with personal items and clothing, which included specific items to provide the Deceased care and comfort given such as specific equipment, clothing and high quality food to meet specific dietary requirements.

You provided the Deceased with domestic support in the form of organising nursing care, filling scripts and organising the necessary medication, meal preparation, taking the Deceased to medical appointments and providing personal care such as assistance with grooming and a number of other tasks.

You have stated that the nature of the Deceased's condition required you to always be available for the Deceased.

The Deceased required ongoing travel to hospital for appointments with medical specialist and treatment. You took the Deceased to and from those appointments.

You have advised that you had to defer your studies as a result of having to care for the Deceased.

During the 2014-15 income year you and the Deceased lodged forms with Centrelink applying for Carer's allowance.

You have provided the paperwork that was sent through to Centrelink which stated amongst other matters that:

(a) You cared for the Deceased seven days a week

(b) The Deceased was diagnosed with a terminal illness

(c) If the treatment was successful the Deceased would be expected to live for more than a specified time period

(d) The Deceased needed:

● attention during the night

● help with dressing

● a lot of help with the Deceased's treatment

In the Centrelink forms was a Medical Report signed by a Medical Professional (the Professional). In the Professional's assessment it stated that though the Deceased's condition was terminal it was expected that the Deceased would live more than a specified time period.

The Deceased did not return to the Deceased's home (the property); hence the property was left idle but you arranged at your expense to have the property maintained.

The Deceased was too unwell and too distressed to make any decision about what to do with the property. You were busy looking after the Deceased who was becoming increasingly unwell to think about what to do in terms of dealing with the property.

In the 2015-16 income the Deceased died from the terminal illness.

In the 2015-16 income year lump sum death benefits were paid to you from a superannuation fund of which the Deceased was a member.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 302-200

Income Tax Regulations 1997 subregulation 302-200.01(2)

Reasons for decision

Summary

It is considered that you were a death benefits dependant of the Deceased as you and the Deceased had an interdependency relationship as defined under section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

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 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 you 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

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.

The facts in this case show that you are a child of the Deceased. Clearly a familial relationship existed between you and the Deceased prior to, and at the time of, the Deceased's death. You provided loving support and assistance to the Deceased when you resided together and you provided emotional support that a child would normally give to their parent. 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 you are a child of the Deceased, you and the Deceased 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 you whilst a normal familial relationship, can be considered to have changed significantly given the seriousness of the illness of the Deceased.

Specifically, the facts provided indicate that there would be a mutual commitment to a shared life between the Deceased and you after the onset of the Deceased illness. Given the terminal nature of the Deceased's illness it is reasonable to expect the Deceased would be living with you in the foreseeable future.

In the circumstances you have outlined, it is not expected that the Deceased would have eventually secured their independence sometime in the future or returned to their home. As indicated by the facts, the Deceased's former residence (the property) remained idle from the time that the Deceased took up residence with you and what to do was undecided due to the Deceased being too unwell and too distressed and you being too preoccupied with caring for the Deceased.

In view of the above it is considered that a close familial relationship existed between you and the Deceased, and it was also 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 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 you and the Deceased lived together until the time of the Deceased's death. Therefore it is accepted that you 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 you provided the Deceased 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 you provided domestic support to the Deceased including preparing meals, attending to medication requirements, transporting the Deceased to appointments and a number of other tasks for the Deceased.

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

Conclusion

As the conditions under subsection 302-200(1) of the ITAA 1997 have been met, you are considered to have been in an independency relationship with the Deceased.

Therefore, you are considered to be a dependant of the Deceased within the meaning of a death benefits dependant in section 302-195 of the ITAA 1997.

Accordingly, under section 302-60 of the ITAA 1997, the death benefit superannuation lump sums received by you are not assessable income and not exempt income.