Edited version of your written advice

Authorisation Number: 1051370249850

Date of advice: 5 July 2018

Ruling

Subject: Interdependency relationship

Question

Are the Beneficiaries a death benefit dependant of the (the Deceased) in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997) by virtue of being in an interdependency relationship pursuant to section 302-200 of the ITAA 1997 with the Deceased?

Answer

Yes.

This ruling applies for the following period

Income year ended 30 June 2017.

The scheme commences on

1 July 2016

Relevant facts and circumstances

The Deceased died early 2015 while overseas and without a Will.

The Beneficiaries are the parents of the Deceased.

The Deceased lived with the beneficiaries full-time except when in Australia for study and employment.

The Deceased lived alone in XXX for a period of time.

The Deceased’s sole source of income was a job in Australia.

The Deceased was suffering emotionally while in Australia due to being alone.

The Deceased was resigned from their job and disposed of furniture, crockery and other household items

The Deceased returned to lived overseas with beneficiaries until passing away.

The Beneficiaries provided the Deceased with ongoing financial and domestic support and personal care including the following:

● contributing to living expenses

● assisting the Deceased with routine domestic tasks such as shopping, laundry, cleaning; and

● providing the Deceased with companionship and emotional support.

The Deceased provided the Beneficiaries with ongoing financial and domestic support and personal care including the following:

● contributing towards the groceries and household bills; and

● cooking and preparing meals for the household

The Deceased’s superannuation fund paid a lump sum death benefit (the Benefit) to the Trustee of the Deceased Estate (the Trustee). This was subsequently distributed to the Beneficiaries by the Trustee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-60

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.

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the Beneficiaries just before the Deceased died. Therefore, the Beneficiaries are death benefits dependent of the Deceased as defined in section 302-195 of the ITAA 1997.

Detailed reasoning

Section 302-60 of the ITAA 1997 states:

A superannuation lump sum that you receive because of the death of a person of whom you are death benefits dependent is not assessable income and is not exempt income.

Subsection 302-195(1) of the ITAA 1997 defines a ‘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 just before he or she died.

For the Beneficiaries to be a death benefits dependant of the Deceased, as paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case, it must be established that the Beneficiary was in an ‘interdependency relationship’ with the Deceased under paragraph 302-195(1)(c) of the ITAA 1997, or that the Beneficiary was a ‘dependant’ of the Deceased just before the Deceased died under paragraph 302-195(1)(d) of the ITAA 1997.

Interdependency relationship

Subsection 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.

Subsection 302-200(3) of the ITAA 1997 provides the matters and circumstances which are to be considered in determining whether an interdependency relationship exists between two persons under that section may be specified in the regulations.

To that effect, regulation 302-200.01(2) of the Income Tax Assessment Regulation 1997 (ITAR 1997) state that in determining whether two persons have an interdependency relationship, matters to be taken into account are all the relevant circumstances of the relationship between the persons, including (in this case):

(a) the duration of the relationship; and

(b) the degree of mutual commitment to a shared life; and

(c) the degree of emotional support; and

(d) the extent to which the relationship is one of mere convenience.

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.

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).

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, 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.

However, where, as in this case, unusual and exception 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.

In this particular case, a close familial relationship existed between the Beneficiaries 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.

Accordingly, it is considered that the Beneficiaries 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

As stated above, the Deceased lived with the Beneficiaries shortly before the Deceased’s death.

Accordingly, paragraph 302-200(1)(b) is satisfied as the Deceased and Beneficiaries were living together at the time of the Deceased’s death.

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 facts show that the Beneficiaries provided the Deceased with accommodation, food and care free of charge and that the Deceased contributed some money towards household expenses from time to time.

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

Domestic support and personal care will commonly be of a frequent and ongoing nature. For example, domestic support services will consist of attention to the household shopping, cleaning, and laundry and like services.

The facts presented in this case show the Beneficiaries provided domestic support and personal care to the Deceased on an ongoing basis. This consisted of undertaking household shopping, completing routine domestic tasks for the Deceased and the Beneficiaries providing the Deceased with personal care which included emotional support and stability to the Deceased.

Based on the above, the Beneficiaries meets all the requirements of an interdependency relationship for the purposes of section 300-200 of the ITAA 1997. Therefore the Beneficiaries is a death benefit dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.