Private ruling: Death benefits dependant
Date of advice: 1 March 2019
Published: May 2019
Ruling period: Income year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is your Client a death benefits dependant of 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? | A1: Yes.

Relevant facts and circumstances: The Deceased, who is the child of Your Client, passed away in 2017 as a result of a medical illness. The Deceased had no spouse or children. The Deceased’s superannuation fund had a life insurance amount payable. The superannuation death benefit was paid to Your Client, and tax was withheld from this payment. The Deceased and Your Client lived together in a series of rented premises. The Deceased was in receipt of wages from an apprenticeship. As these wages were low, Your Client provided the Deceased with financial support. Rent was paid by Your Client, along with the majority of household expenses, including groceries. Your Client provided domestic support to the Deceased. Domestic and cooking duties were shared. Your Client also drove the Deceased to medical appointments. Your Client provided emotional support to the Deceased.

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) | Income Tax Assessment Regulations 1997 Regulation 302-200.02 All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: An interdependency relationship as defined under subsection 302-200(1) existed between the Deceased and Your Client just before the Deceased died. Therefore, in relation to the death benefit paid to the estate of the Deceased, Your Client is considered a death benefits dependant of the Deceased as defined in subsection 302-195(1). | Detailed Reasoning - Death benefits dependant: 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. In this case, the facts show that for the purposes of subsection 302-195(1) the relevant provision that needs to be satisfied is paragraph 302-195(1)(c). That is, an interdependency relationship needs to be established between The Deceased and Your Client just before The Deceased passed away. | Detailed Reasoning - Interdependency relationship: Under subsection 302-200(1) 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) 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. Accordingly, all of the conditions in subsection 302-200(1), or alternatively subsection 302-200(2), must be satisfied for a person to be in an interdependency relationship with another person. To assist in determining whether two persons have an interdependency relationship, paragraph 302-200(3)(a), states 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 Regulations 1997 (ITAR 1997) states the matters to be taken into account are as follows: (a) all of the circumstances of the relationship between the persons, including (where relevant): (i) the duration of the relationship; and (ii) whether or not a sexual relationship exists; and (iii) the ownership, use and acquisition of property; and (iv) the degree of mutual commitment to a shared life; and (v) the care and support of children; 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. | Detailed Reasoning - Close personal relationship: The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997. It states that 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 1997. 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 inserted former section 27AAB of the Income Tax Assessment Act 1936 (ITAA 1936). In discussing the meaning of close personal relationship the SEM states: 2.12 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. 2.13 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). 2.14 The above indicators do not form an exclusive list, nor are any of them a requirement for a close personal relationship to exist. 2.15 It is not intended that people who share accommodation for convenience (e.g. flatmates), or people who provide care as part of an employment relationship or on behalf of a charity should fall within the definition of close personal relationship. In the explanatory statement to the Income Tax Amendment Regulations 2005 (No. 7) which inserted Regulation 8A into the ITR 1936, it stated that: ‘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.’ As stated above, the intention of the law is that a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not normally exist between parents and their children because there would not be a mutual commitment to a shared life between the two. In addition, an adult child's relationship with their parents 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 child may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997. In this case, Your Client is the parent of the Deceased. It is clear that a close family relationship existed prior to, and at the time of the Deceased's death. Your Client lived with the Deceased at successive rental properties, and provided emotional and financial support to the Deceased during the course of their life. In typical circumstances, while a parent and child would likely remain an important part of each other’s lives, it would be expected that this relationship would change over time. However, in this case, while prior to their death the Deceased had begun to earn wages as a apprentice and thus taken steps to begin an independent adult life, the nature of their illness resulted in Your Client and the Deceased having a close relationship above and beyond that which would be expected for a parent and child. There can be no doubt that a loving and supportive relationship existed between Your Client and the Deceased. Due to the Deceased’s ongoing health issues and emotionally fragile state, which tragically culminated in their death, the relationship between Your Client and the Deceased was beyond that of a typical parent and child. It is considered that overall the relationship between them is of the type envisioned by the legislation. 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. | Detailed Reasoning - 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 this case, the Deceased lived with Your Client in a series of rented premises in order to provide ongoing emotional support, and were living together at the time of the Deceased’s death. It is considered that the Beneficiary and the Deceased had committed to a shared life together and intended the relationship to be permanent. Consequently, it is considered that paragraph 302-200(1)(b) of the ITAA 1997 has been satisfied in this instance. | Detailed Reasoning - Financial support:: The third requirement to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, and states that one or each of these two persons provides the other with financial support. Financial support under paragraph 302-200(1)(c) of the ITAA 1997 is satisfied if some level of financial support (not necessarily substantial) is being provided by one person (or each of them) to the other. According to the evidence provided, Your Client provided the Deceased with some degree of financial support during the course of their relationship. In particular, rent was paid by Your Client, along with the majority of household expenses, including groceries. Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied in this instance. | Detailed Reasoning - 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. From the facts presented, domestic and cooking duties were shared. Your Client also drove the Deceased to medical appointments. | Detailed Reasoning - Conclusion: Therefore, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance. Based on the above, Your Client meets all the requirements of an interdependency relationship for the purposes of subsection 300-200(1) of the ITAA 1997. Therefore Your Client is a death benefits dependent of the Deceased for the purposes of section 302-195 of the ITAA 1997.