Edited version of your written advice

Authorisation Number: 1051453970423

Date of advice: 13 November 2018

Ruling

Subject: Superannuation death benefits

Question 1

Is Child A a death benefits dependant of the deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Is Child B a death benefits dependant of the deceased in accordance with section 302-195 of the ITAA 1997?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased passed away in the 20XX-XX income year as a result of an illness which was diagnosed in late 20XX.

The Deceased was divorced and from 20XX until death resided alone.

The Deceased spent multiple extended periods in hospital between their diagnosis and their death.

The Deceased had adult children, Child A and Child B who did not reside with the Deceased.

Child A resided alone throughout the period of the Deceased’s illness.

Child A spent a lot of time with the Deceased at hospital for the purposes of assisting with the Deceased’s general financial management, and personal and emotional care. Child A did not incur out of pocket expenses on the Deceased’s behalf.

Child B resided with their partner and their young children.

After the diagnosis, Child B temporarily moved to a relative’s residence to be closer to the Deceased and assist with the Deceased’s personal and emotional care and affairs.

As part of the move, Child B brought their young children. Child B’s partner remained in their property. During this period, Child B’s property continued to be leased by Child B and the partner.

During the period Child B was temporarily residing at the relative’s residence and assisted the Deceased by:

a. escorting the Deceased to medical and other appointments;

b. visiting the Deceased’s residence to assist with cleaning and general upkeep; and

c. providing the Deceased with general care and emotional support.

You state that Child B intended to live with the Deceased in the lead up to passing away but did not because:

a. the effects of the Deceased treatment was dangerous for her young children;

b. due to the Deceased’s illness, Child B was unable to provide the physical care required; and

c. it would have caused financial hardship to Child B’s family if Child B moved back to the Deceased’s residence when the Deceased was diagnosed.

In the 20XX-XX income year payments representing the Deceased’s superannuation entitlements from superannuation funds were paid to the Estate of the Deceased.

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 subsection 302-200(2)

Income Tax Assessment Act 1997 subsection 302-200(3)

Income Tax Assessment Regulations 1997 subregulation 302-200.01

Income Tax Assessment Regulations 1997 subregulation 302-200.02

Reasons for decision

Summary

Child A and Child B are each not a death benefits dependant of the Deceased for the purposes of section 302-195 of the ITAA 1997.

Detailed reasoning

Death benefits dependant

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 Child A and Child B are adult children of the Deceased, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply in this case. Therefore, to conclude that they are each a death benefits dependant of the Deceased, it must be established that they each had an interdependency relationship with the Deceased just before the Deceased died, 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 section 302-200 of the ITAA 1997 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 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 …

(iii) the ownership, use and acquisition of property; 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 suggesting that the parties intend the relationship to be permanent, and …

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 wording of subsection 302-200(1) of the ITAA 1997 has a cumulative effect, that is, all the conditions in that subsection are joined and must be read together. Therefore, for an interdependency relationship to exist, all the conditions of subsection 302-200(1) must be met. If any one of the specified conditions in that subsection is not met, there is no interdependency relationship.

The first condition that must be satisfied is that there was a close and personal relationship (paragraph 302-200(1)(a) of the ITAA 1997).

Generally, a close personal relationship as specified in paragraph 302-200(1)(a) 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 and there would be no mutual commitment to a shared life between the two. However, where unusual and exceptional circumstances exist, a relationship between parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

Further, in cases where a person has moved in with an elderly parent to assist with their care but they usually reside elsewhere, for example with their partner, they would not be considered to have a commitment to a shared life with their parent. Instead the living arrangement, and the associated care, generally would be temporary with the person continuing to maintain their normal place of residence.

In this case, the facts show that the Deceased resided by themselves, and the relationship between Child A and the Deceased was not over and above that of a normal parent-child relationship. Similarly, the relationship between Child B and the Deceased was not over and above that of a normal parent-child relationship.

While we note both children supported the Deceased following the diagnosis, there is nothing to indicate a mutual commitment to a shared life or evidence of a permanent relationship with ongoing emotional support and care.

Hence, we consider that a close personal relationship did not exist between Child A and the Deceased, nor did one exist between Child B and the Deceased, as required by paragraph 302-200(1)(a) of the ITAA 1997.

In this case, the first condition of subsection 302-200(1) of the ITAA 1997 is not met. Therefore, neither Child A and the Deceased, nor Child B and the Deceased had an interdependency relationship under section 302-200 of the ITAA 1997 just before the Deceased died.

Notwithstanding the above, it is also noted that:

(a) neither of the children were residing with the Deceased just prior to the Deceased’s death, hence paragraph 302-200(1)(b) of the ITAA 1997 was not satisfied;

(b) there was no evidence of any financial support (the level of which does not have to be substantial under paragraph 302-200(1)(c) of the ITAA 1997) provided by one person (or each of them) to the other;

(c) no domestic support was provided by Child A to the Deceased nor was that provided by Child B to the Deceased of frequent and ongoing nature as contemplated by subsection 302-200(1) of the ITAA 1997.

In view of the above, the children did not have an interdependency relationship with the Deceased under section 302-200(1) of the ITAA 1997 just before the Deceased died.

Further, based on the facts provided, there is nothing to indicate that either Child A or Child B were financial dependants of the Deceased at the time of death.

Therefore, Child A and Child B are each not a death benefits dependant of the Deceased as defined in section 302-195 of the ITAA 1997.