Edited version of private advice

Authorisation Number: 1052054234438

Date of advice: 8 December 2022

Ruling

Subject: Superannuation death benefit - interdependency

Question 1:

Was the beneficiary a death benefits dependant of the deceased person according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997), due to being in an interdependency relationship with the deceased person under section 302-200 of the ITAA 1997?

Answer:

No

This ruling applies for the following periods

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances:

The Beneficiary is the parent of the deceased person.

The Deceased died on X XX 20XX, unexpectedly.

The Deceased was born on X XX 19XX and was therefore older than 18 years when the Deceased died.

The Beneficiary received death benefit payments from the Deceased's superannuation fund, X Fund. The X Fund did not withhold tax from the death benefit payments and specified that tax liability may exist.

You applied for a private ruling.

You provided the information in the facts listed below.

•         The Deceased had some severe medical conditions that resulted from a X accident in around 19XX. The Deceased took a multiple-year period of leave then returned to work.

•         The Beneficiary and the Deceased shared a home in City B for which the Deceased owned in early 20XX. The Beneficiary then purchased that property from the Deceased later that year and the Deceased subsequently bought another home.

•         In around 20XX, the Beneficiary and the Deceased actively looked for a house to purchase which would enable them living together. However, before they found a suitable property, the Deceased had a job opportunity in City A. The Deceased consequently moved to City A from City B.

•         The Deceased owned a home with a mortgage in City A.

•         In around 20XX, the Deceased's medical condition worsened, which resulted in undergoing operations that year. One of the operations left the Deceased with a number of medical issues.

•         Due to the medical issues, the Deceased did not return to full-time work.

•         The Deceased was then deemed unfit to continue in their employment, in around 20XX. The Deceased was not able to return to part-time employment after that.

•         The Beneficiary's usual home remains in City B.

•         The Deceased established a trusted medical support network in City A while the Beneficiary made enquires but did not find possible to secure the care that the Deceased needed in City B. The Deceased therefore did not choose to move to City B to live with the Beneficiary.

•         The Beneficiary also cared for another family member who resides in City B with a usual place of residence separate from the Beneficiary's, and also requires support due to medical condition. The Beneficiary therefore did not choose to move to City A but 'split the time between City B and City A'.

•         As supported by the credit card statements, the Beneficiary visited/stayed with the Deceased in the following periods:

-       X November 20XX to X December 20XX (short visit)

-       X January - X January 20XX (short visit)

-       X February - X February 20XX (short visit)

-       X July - X November 20XX (under 4-month stay)

-       X July - X October 20XX (under 3-month stay)

•         The Beneficiary and the Deceased did not have any joint assets or liabilities.

•         The financial liability that the Deceased had was the mortgage repayment on the City A property. The Deceased did not have other financial liability.

The Beneficiary was not financially dependent on the Deceased.

The Deceased was not substantially financially dependent on the Beneficiary as the deceased person received similar level of income from X and superannuation income streams after cessation of employment compared to the salary and wages income in prior years, as shown in the income tax returns of the Deceased.

The Beneficiary cared for the Deceased by providing, at various times:

(a)  financial support, including

•         $XX to help the deceased with mortgage repayments

•         further lending between $X - $X

•         other help of daily living expenses

•         gifted a 20XX model car to the Deceased in 20XX

•         no formal agreement or requests for repayments of the above financial support

(b)  domestic support and personal care when staying with the deceased, including attending to cooking, shopping, extra cleaning and accompany the Deceased to all the medical appointments.

(c)   emotional support.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-145

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 302-200.01

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 302-200.02

Reasons for decision:

Meaning of death benefits dependant

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:

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 Deceased is the adult child of the Beneficiary, paragraphs 302-195(1)(a) and (b) of the ITAA 1997 are not applicable.

The definition of death benefits dependant does not stipulate the nature or degree of dependency required to be a dependant of the deceased person in paragraph 302-195(1)(d) of the ITAA 1997. However, it is generally accepted that this paragraph refers to financial dependence.

The Beneficiary was not financially dependent on the deceased person and therefore, paragraph 302-195(1)(d) of the ITAA 1997 is not applicable.

To meet the definition of a death benefits dependant, the Beneficiary must have been in an interdependency relationship with the Deceased, in accordance with paragraph 302-195(1)(c) of the ITAA 1997.

Interdependency relationship

Under subsection 302-200(1) of the ITAA 1997, an interdependency relationship is defined as:

Two persons (whether or not related by family) have an interdependency relationship under this section 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 of them suffer from a physical, intellectual or psychiatric disability.

To assist in determining whether two people have an interdependency relationship, paragraph 302-200(3)(a) of the ITAA 1997 provides that the regulations may specify the matters that are or are not to be taken into account.

Subregulation 302-200.01(2) of the Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) states the matters to be taken into account. These matters are all of the circumstances of the relationship between the persons, including (where relevant):

•         the duration of the relationship

•         the ownership, use and acquisition of property

•         the degree of mutual commitment to a shared life

•         the degree of emotional support

•         the extent to which the relationship is one of mere convenience

•         any evidence that the parties intend the relationship to be permanent; and

•         the existence of a statutory declaration signed by one of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was in an interdependency relationship with the other person.

Paragraph 302-200(3)(b) of the ITAA 1997 states that the regulations may specify the circumstances in which two people have, or do not have an interdependency relationship.

Regulation 302-200.02 of the ITAR 2021 sets out the circumstances in which two people have an interdependency relationship.

Subregulation 302-200.02(2) of the ITAR 2021 provides that an interdependency relationship exists between two people where:

•         they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the ITAA 1997; and

•         one or both 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 mere friend or flatmate, for example one person provides significant care for the other person when they are unwell or suffering emotionally.

Subregulation 302-200.02(3) and (4) of the ITAR 2021 provide that an interdependency relationship also exists between two people where:

•         they have a close personal relationship; and

•         they do not satisfy one or more of the other requirements set out in subsection 302-200(1) of the ITAA 1997 because:

-   they are temporarily living apart, for example because one of them is temporarily working overseas or in gaol; or

-   one (or both) of them suffers from a disability.

Subregulation 302-200.02(5) of the ITAR 2021 states that two persons do not have an interdependency relationship if one of them provides domestic support and personal care to the other:

•         under an employment contract or a contract for services; or

•         on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively, subsection 302-200(2) of the ITAA 1997, or one of the tests in regulation 302-200.02 of the ITAR 2021 must be satisfied for a person to be in an interdependency relationship with another person.

Close personal relationship

The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that the two persons (whether or not related by family) must have a close personal relationship.

This requirement is common to all of the tests specified in section 302-200 of the ITAA 1997 and regulation 302-200.02 of the ITAR 2021.

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, which 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.

•         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).

The above indicators are not an exclusive list and none of them are required for a close personal relationship to exist.

People who share accommodation for convenience (such as flatmates) or people who provide care as part of an employment relationship or on behalf of a charity are not intended to fall within the definition of a close personal relationship

The Explanatory Statement to the Income Tax Amendment Regulations 2005 (No. 7) stated that:

•         Generally speaking, it is not expected that children will be in an interdependency relationship with their parents.

While this statement does not preclude a child from being in an interdependency relationship with a parent, it suggests that interdependency only exists where the relationship goes beyond the usual relationship between an adult child and a parent.

A close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between a parent and an adult child because there would not be a mutual commitment to a shared life between the two. In addition, the relationship between parents and their adult children would be expected to change significantly over time. It would be expected that the adult child would eventually move out and secure independence from their parents.

However, where unusual and exceptional circumstances exist, a relationship between a parent and an adult child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997.

The relevant factors considered in this case are:

•         the duration: the parent and adult child relationship is an ongoing relationship. But the total duration that the Beneficiary 'lived' with the Deceased was not ongoing. The 'lived together' periods represented less than half of the relevant periods covered by the credit card statements.

•         more importantly, the degree of mutual commitment to a shared life is not considered high, as for the majority proportion of the periods leading to the passing of the Deceased, they lived fairly independently even though the Deceased received some help from the Beneficiaries. The fact that the Beneficiaries and the Deceased did not have any joint assets or liabilities is another indicator of the lower degree of 'shared life'. In addition, there was no visible intention or plan that the mutual commitment to a shared life would become permanent (if the Deceased did not pass away).

•         the reputation and public aspects of the relationship is less relevant for the parent - adult child relationship.

The relationship between the Beneficiary and the Deceased was not over and above a normal family relationship between a parent and an adult child.

Living together

The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and states that two interdependent persons (whether or not related by family) live together.

The term 'live' 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. In the context of paragraph 302-200(1)(b) of the ITAA 1997, the living arrangements must have some degree of permanency that is only disturbed by the death of one of the persons.

Towards the Deceased's death, the Beneficiary and the Deceased did not live together.

Consequently, the requirement specified in paragraph 302-200(1)(b) of the ITAA 1997 has not been satisfied in this case.

Subregulation 302-200.02(4) of the ITAR 2021 provides relief in that two persons still have an interdependency relationship if:

•         they have a close personal relationship; and

•         the reason they do not satisfy the other requirements (live together, etc) is that either or both of them suffer from a disability.

Disability

Subsection 302-200(2) of the ITAA 1997 provides that where two people have a close personal relationship but cannot satisfy one or more of the requirements in paragraphs 302-200(1)(b), (c) or (d) of the ITAA 1997 because one or both of them has a physical, intellectual or psychiatric disability, they are still considered to have an interdependency relationship. This aligns with the relief in subregulation 302-200.02(4) of the ITAR 2021 as mentioned above.

From the facts presented, the Deceased had serious medical issues, but it is not considered the only reason that prevented them from living together. Although it was explained that the Beneficiary's one other family member also required support, it still associated with a choice that the Beneficiary chose to have their usual home in City B rather than choosing to move (or move the family) to City A.

Conclusion

The Commissioner is therefore of the view that

•         the first requirement 'close personal relationship' was not met, and

•         neither the relief in subregulation 302-200.02(4) of the ITAR 2021 or subsection 302-200(2) of the ITAA 1997 the reason not living together was met.

As not all of the requirements in section 302-200 of the ITAA 1997 or subregulation 302-200.02(2) of the ITAR 2021 have been satisfied, the Deceased and Beneficiary were not in an interdependency relationship in the period just before the Deceased's death.

As the Beneficiary was not in an interdependency relationship with the Deceased, the Beneficiary is not a death benefits dependant as defined under section 302-195 of the ITAA 1997.