Edited version of your written advice

Authorisation Number: 1051481167867

Date of advice: 11 February 2019

Ruling

Subject: Interdependency

Question

Is a person (the Beneficiary) a death benefits dependant a person who has died (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 with the Deceased under section 302-200 of the ITAA 1997 just before they died?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Deceased passed away in the 20XX-XX income year from a terminal medical condition.

The Beneficiary is a child of the Deceased, aged over 18.

In the months prior to the Deceased’s diagnosis, the Deceased, the Beneficiary and their spouse (the Spouse), and the Beneficiary’s other parent all moved into a rental property (the Premises) together. The Beneficiary contends this was to assist in a reduced rent for all parties.

A month later, the Beneficiary gave birth to a child (the Child) who was diagnosed with a disability.

The Deceased did not have a spousal relationship at the time of their death.

A few months after their birth, the Child was hospitalised due to a medical condition and required surgery. Following discharge from hospital the Child required daily nursing visits for a period.

The Beneficiary’s marriage broke down under the financial and emotion strain of caring for their sick child and the Spouse moved out.

The Beneficiary relied heavily on the emotional and financial assistance from the Deceased and their other parent, as the Spouse provided no support (financially or otherwise).

Rental expenses for the property were split between the parties with the Deceased subsidising the Beneficiary’s share of the rent. There were often times when the Beneficiary could not afford the rent and the Deceased would pay for the Beneficiary’s share.

Household expenses were spilt. However, on many occasions, the Deceased supported the Beneficiary by paying their share of these costs as well as covering other large expenses such as motor vehicle registration and insurances

The Beneficiary had been receiving Family Tax Benefits and worked part time from home to supplement their income. Following the Deceased’s diagnosis, the Beneficiary ceased employment to care full-time for the Deceased.

Following the Deceased’s diagnosis, they undertook light duties with their Employer while undergoing treatment. However, the Deceased was subsequently instructed that, they could no longer drive or work.

The Deceased underwent a clinic trial which required long treatment cycles that had severe side effects. They attended various hospitals for ongoing scans and monitoring of tumours and treatments. During this time, the Beneficiary became the primary caregiver for the Deceased.

The Deceased underwent surgery in the 20XX-XX income year. Following the surgery they attended regular doctors’ appointments with treating physicians. During this time, the Deceased required constant supervision. Medication was required to be administered by another adult due to the side effects of the tumours causing dementia like confusion. The Beneficiary provided this care.

Subsequently, the Deceased required palliative care. The palliative care was provided at the Premises by the Beneficiary along with their other parent until the Deceased passed away.

The Beneficiary provided the Deceased with ongoing financial and domestic support and personal care, including:

● contributing to living expenses such as household bills and groceries;

● acting as the primary caregiver during the Deceased significant period of illness;

● caring for the Deceased by assisting with showering, personal grooming, dressing;

● overseeing the dispensation of the Deceased’s medications and providing the Deceased with meals;

● booking medical appointments for the Deceased and accompanying the Deceased to and from medical appointments;

● providing routine domestic tasks such as shopping, laundry, ironing and vacuuming; and

● providing the Deceased with companionship and significant emotional support during their illness.

The Deceased provided the Beneficiary with ongoing financial support and personal care, including:

● Contributing to living expenses and providing financial assistance when needed; and

● Providing the Beneficiary with ongoing emotional support and assistance in caring for the disabled child.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Subsection 302-195 (1)

Income Tax Assessment Act 1997 Paragraph 302-195 (1) (c)

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 Assessment Act 1997 Paragraph 302-200 (3) (a)

Income Tax Assessment Regulations 1997 Subregulation 302-200.01(2)

Reasons for decision

Summary

An interdependency relationship as defined under subsection 302-200 (1) existed between the Deceased and the Beneficiary just before the Deceased died.

Therefore, in relation to the death benefit paid to the estate of the Deceased, the Beneficiary is considered a death benefits dependant of the Deceased as defined in subsection 302-195 (1).

Detailed reasoning

Superannuation death benefits paid to the trustee of a deceased estate

A payment made by a superannuation fund to a deceased estate after the death of the deceased is assessed as a death benefit under section 302-10.

The taxation arrangements that apply to this superannuation death benefit are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

For example, where a dependant of the deceased receives part, or all of, a superannuation death benefit and has benefited, or is expected to benefit, the trustee will not be subject to tax on that part of the benefit paid to the dependant as if it were paid to a dependant of the deceased.

Death benefits dependant

1. Subsection 302-195(1) defines a 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.

As the Beneficiary is a child of the Deceased aged over 18, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 do not apply. Therefore, to conclude that the Beneficiary is a death benefits dependant of the Deceased, it must be established that the Beneficiary had an ‘interdependency relationship’ with the Deceased or that they were a ‘dependant’ of the Deceased just before the Deceased died.

Interdependency relationship

2. 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.

3. Subsection 302-200(3) of the ITAA provides that the regulations may specify:

(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship; and

(b) circumstances in which 2 persons have, or do not have, an interdependency relationship

4. To that effect, regulation 302-200.01 of the Income Tax Assessment Regulation 1997 (ITAR 1997) states that in considering paragraph 302-200(3)(a) of the ITAA 1997, matters to be taken into account are all relevant circumstances of the relationship between the persons, including (in this case):

● 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; and

● any evidence suggesting that the parties intend the relationship to be permanent.

Close personal relationship

A close personal relationship is generally one that involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. Indicators of a close personal relationship may include the duration of the relationship and the degree of mutual commitment to a shared life.

In accordance with regulation 302-200.02 of the ITAR 1997, two persons have an interdependency relationship if they satisfy the requirements of paragraphs 302-200 (1) (a) to (c) of the ITAA 1997 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 a mere friend or flatmate. For example, significant care provided to another person when they are unwell or when they are suffering emotionally.

Generally, ‘a close personal relationship’ as specified in subsection 302-200(1) of the ITAA 1997 would not exist between a parent and a child. This is because the relationship between a parent and a child would be expected to change significantly over time and there would be no mutual commitment to a shared life between the two. However, where, as in this case, unusual and exceptional circumstances exist, a relationship between a parent and child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

In this case, it is considered that the relationship between the Deceased and the Beneficiary was over and above that of a normal family relationship, and beyond what might be expected of a friend or flatmate. A close personal relationship existed as required by paragraph 302-200(1)(a) of the ITAA 1997.

The matters that indicate that the Deceased and the Beneficiary had a close personal relationship are:

● the Beneficiary was the live in carer for the Deceased from the time of their diagnose with their medical condition till their death;

● significant personal, and emotional support was provided by the Beneficiary to the Deceased during the time the Deceased suffered from a serious illness and up to the Deceased death;

● significant emotional and financial support was provided to the Beneficiary by the Deceased to assist them in coping with the care of the Child; and

● the parties demonstrated a mutual commitment to a shared life by choosing to live together and share living expenses.

Living together

The phrase ‘live together’ is not defined in the ITAA 1997 or accompanying regulations. According to the Macquarie Dictionary, the term ‘live’ means to dwell or reside. The term ‘reside’ is defined as the action of dwelling in a particular place permanently or for a considerable time.

Therefore, as paragraph 302-200(1)(b) of the ITAA 1997 requires that the persons live together, it is considered in the context of the provision, that the living arrangements must have some degree of permanency.

In determining if the persons live together it is relevant to have regard to ‘the degree of mutual commitment to a shared life’ and ‘any evidence suggesting that the parties intend the relationship to be permanent’. In this instance, the Deceased and the Beneficiary rented a home together in order to provide ongoing care and support, both emotionally and financially, for the Beneficiary’s disabled child. It is considered that the Beneficiary and the Deceased had committed to a shared life together and intended the relationship to be permanent.

Therefore, it is considered that the Beneficiary and the Deceased lived together

Financial support

Financial support under paragraph 302-200 (1) (c) is satisfied if some level (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other, for example providing support for a person’s household and/or medical expenses.

In this case, the Beneficiary was being supported financially by the Deceased when the lived together. The Deceased paid rent, utility and household expenses, on occasion covering the Beneficiary’s share as the Beneficiary was on a low income. The Deceased paid as well as some of the Child’s medical and pharmaceutical expenses. By sharing a home the Deceased and Beneficiary were able to pay less rent each than if they had lived separately.

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 attending to the household shopping, cleaning, laundry and like activities. Personal care service may consist of assistance with mobility, personal hygiene and generally ensuring the physical and emotional comfort of a person.

The facts presented indicate that the Beneficiary and the Deceased provided one another with domestic support and personal care on an ongoing basis. The Beneficiary assisted the Deceased with the basic necessities following the Deceased’s diagnosis such as showering, toileting, laundry, providing meals, overseeing the dispensation of and administering medications as well as driving the Deceased to and from medical appointments and treatments as well as anywhere else the Deceased needed to go.

In return, the Deceased provided emotional support to the Beneficiary to assist them cope with a disabled Child.

Conclusion

It is therefore considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance.

Based on the above, the Beneficiary meets all the requirements of an interdependency relationship for the purposes of subsection 300-200(1) of the ITAA 1997. Therefore the Beneficiary is a death benefits dependent of the Deceased for the purposes of section 302-195 of the ITAA 1997.

Consequently, it is not necessary to consider whether the Beneficiary is a dependant of the deceased under paragraph 302-195(1)(d) of the ITAA 1997