Edited version of private advice

Authorisation Number: 1051960927483

Date of advice: 14 April 2022

Ruling

Subject: Financial dependency

Question

Is the applicant (the Beneficiary) a 'death benefits dependant' of the deceased pursuant to section 302-195(1) of the Income Tax Assesment Act 1997 (Cth)?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Beneficiary is the child of the Deceased.

The Beneficiary was an adult at the time of the Deceased's passing.

The Deceased passed away during the 20XX-XX income year.

The Beneficiary is the sole executor and trustee of the Deceased's estate (the Estate).

The Deceased held a superannuation account, that has paid the lump sum to the Estate.

The Beneficiary acted as the Deceased's carer during this period and significantly more as the time of and severity of the illness increased.

Due to the Deceased's illness, the Beneficiary was only able to work in a limited capacity as their parent required significant care during their illness. As a result of the Beneficiary providing the consistent care, they were unable to work during this period enough to fully support themself.

The Beneficiary lived with the Deceased as they were unable to financially support themself with the minor income that they were able to earn. The Beneficiary's income tax return for the 20XX-XX income year show a relatively low income from their job as a shop assistant cashier.

The Beneficiary had been living with the Deceased from the time they were born up until their parent's death.

The Deceased paid for all general living expenses for the Beneficiary and themself. The Beneficiary did not pay rent, as the property they both resided in, was solely owned by the Deceased. The property was under a mortgage, where the Deceased made weekly loan payments. The Deceased also paid for the council rates and utility bills, although the Beneficiary did make some occasional contributions to the utility bills.

The Deceased provided for the payment of the majority of the Beneficiary's personal expenses including groceries and household supplies.

Bank statements have been provided, which highlight the utility bill, council rates, groceries, household supplies and loan payments made by the Deceased for the Beneficiary. It also shows the occasional contributions the Beneficiary made towards the utility bills. This is for the 12 month period before the Deceased passed away.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment Act 1997 Section 995-1(1)

Income Tax Assessment Regulations 1997 Regulation 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 to which the Beneficiary is entitled to receive, the Beneficiary is considered a death benefits dependant of the Deceased as defined in subsection 302-195(1) of the ITAA 1997.

Detailed reasoning

Death Benefits Dependant in relation to the Superannuation Death Benefit

Subsection 995-1 (1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997.

Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

(1) 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.

The facts of this case demonstrate that paragraphs 302-195(1)(a) or 302-195(1)(b) of the ITAA 1997 do not apply to the Beneficiary.

Therefore, we will determine if the Beneficiary was a dependant of the deceased person just before he or she died in accordance with paragraph 302-195(1)(c) or 302-195(1)(d).

What is an interdependency relationship?

Subsection 302-200(1) of the ITAA 1997 states that two persons (whether 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(2) of the ITAA 1997 states, in addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:

(a)  they have a close personal relationship; and

(b)  they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1(b), (c) and (d) and

(c)   the reason they do not satisfy those requirements is that either or both suffer from a physical, intellectual or psychiatric disability

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.

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.

All the conditions already specified in subsection 302-200(1) of the ITAA 1997 or alternatively in subsection 302-200(2) of the ITAA 1997, must be satisfied for a person to be in an interdependency relationship.

Close personal relationship

A detailed explanation of subsection 302 200(1) of the ITAA 1997 is set out in the Supplementary Explanatory Memorandum (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004. In discussing the meaning of 'close personal relationship' the SEM, as far as relevant, states:

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.

Furthermore, in the explanatory statement (ES) 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.

While this statement in the ES does not absolutely preclude a child from being in an interdependency relationship with a parent it does suggest that it will only exist where there are aspects to the relationship that go beyond what would usually be observed in such a situation.

Given that the Deceased was an adult parent at the time of death, the Deceased and the Beneficiary 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 the Beneficiary was above that of a normal family relationship.

Specifically, the facts provided in this case indicate that there would be a mutual commitment to a shared life between the Deceased and the Beneficiary. The Beneficiary provided the Deceased with ongoing support that was enduring in nature. Due to the Deceased's illness, the Beneficiary was only able to work in a limited capacity as their parent required significant care during their illness. The Beneficiary also lived with the Deceased as they were unable to financially support themself with the minor income that they were able to earn as a result of caretaking. There was an ongoing commitment by the Beneficiary to ensure the well-being of the Deceased and provide the Deceased with emotional support.

The degree of support outlined in your contentions must be considered in accordance with paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997. It is acknowledged that the degree of emotional support provided by the Beneficiary to the Deceased is significant, and goes beyond the level of emotional support that would typically be expected in a relationship between a parent and child. As such, a consideration of paragraph (vii) of subregulation 302-200.01(2) of the ITAR 1997 sufficiently differentiates the situation in this case from others involving a parent and child.

In view of the above it is considered that a close personal relationship existed 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.

Living together

The Deceased and the Beneficiary were living together from the Beneficiary's date of up until the time of death of the Deceased.

Therefore, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance.

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.

In this case, the facts indicate that the Deceased provided financial support to the Beneficiary by providing accommodation, and paying for council rates, utility bills, groceries, and household supplies.

The Beneficiary was only able to work in a limited capacity as the Deceased required significant care during their illness. As a result of the Beneficiary providing the consistent care, they were unable to work during this period enough to fully support themself. The Beneficiary's income tax return for the 20XX-XX income year show a relatively low income from their job as a shop assistant cashier.

Moreover, the Beneficiary occasionally made some contributions towards the utility bills.

Therefore, the requirement specified in paragraph 302-200(1) (c) of the ITAA 1997 has been satisfied in this instance.

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, 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.

In this case, the Beneficiary provided the Deceased with ongoing domestic care, personal care, and emotional support to help them cope with their long-time illness. The fact that the Beneficiary had to reduce their work hours and live with their parent to care for them substantiates this.

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

Conclusion

The Beneficiary and Dependant are considered to be in an interdependency relationship as all of the conditions already specified in subsections 302-200(1) of the ITAA 1997 have been met.

As the Beneficiary is a death benefits dependant of the Deceased under paragraph 302 195(1)(c) of the ITAA 1997,as such, there is no need to consider whether the Beneficiary is a dependant of the Deceased under paragraph 302 195(1)(d) 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.