Edited version of private advice

Authorisation Number: 1051522876472

Date of advice: 28 May 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 2019

The scheme commences on:

1 July 2018

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 2018 after a long illness.

The Beneficiary is a child of the Deceased aged over 18. The Deceased has two other children aged under 18. Following the Deceased's death and in accordance with the Deceased's will, the two minor children are now under the care of the Beneficiary.

In order to care for the Deceased, the Beneficiary unofficially moved into the family home. Although they maintained a lease with their partner, they spent the majority of time at the family home with the Deceased, and resided there most nights.

The Deceased did not have a spousal relationship at the time of their death. Consequently, the Deceased relied heavily on assistance from the Beneficiary, both for emotional support and with the running of the household, their own personal care, and the care of the two minor children.

During this time, the Beneficiary was the primary caregiver for the Deceased. Nursing staff were available to assist during the day while the Beneficiary was at work but did not provide 24-hour care.

The Deceased did not receive any welfare benefits or other financial support. They were no longer working due to their illness. The Beneficiary, who worked full-time, helped to pay for bills and rental expenses.

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

§   acting as the primary caregiver for the Deceased for the duration of their illness;

§   overseeing the dispensation of, and administering, the Deceased's medications;

§   accompanying the Deceased to and from medical appointment;

§   helping to feed the Deceased;

§   providing routine domestic tasks;

§   care of the Deceased's two minor children, including taking them to school; and

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

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) of the ITAA 1997 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) of the ITAA 1997.

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 of the ITAA 1997.

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

Subsection 302-195(1) of the ITAA 1997 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.

What is an 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 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

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 provided full time care for the Deceased during their illness until 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 until the Deceased's death;

§   the Beneficiary provided significant emotional and financial support to the Deceased to assist them with the care of the two minor children, who are the Beneficiary's siblings and have now passed into their care; and

§   the Deceased and the Beneficiary resided together at the time of their death, and shared all household 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 lived together, albeit not in an official capacity. Although the Beneficiary maintained their lease with their partner, they spent the majority of time at the family home with the Deceased, and contributed to the paying of rent. This was in order to provide ongoing care and support, both emotionally and financially, for the Deceased and the two minor children. 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) 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, for example providing support for a person's household and/or medical expenses.

In this case, the facts indicate that the Beneficiary and the Deceased provided financial support to one another. The Beneficiary would often cover the Deceased's share of expenses as the Deceased was no longer working and did not receive any benefits. The Beneficiary also contributed towards household bills and rent.

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 provided the Deceased 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 laundry, providing meals, overseeing the dispensation of and administering of medications as well as driving the Deceased to and from medical appointments and treatments. The Beneficiary also helped the Deceased to care for the two minor children.

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.