Private ruling: Death benefit - interdependency
Published: April 2014
Ruling period: Income year ending 30 June 2014.
Date scheme commenced: During the income year ending 30 June 2014.

Ruling: Q1: Were the Taxpayer and the Deceased in an interdependency relationship just before the Deceased died? | A1: Yes

Relevant facts and circumstances: The Taxpayer is the natural child of the Deceased. The Deceased died in the 2012-13 income year. The Taxpayer has teenage children and has been a single parent for some years. The Deceased had assisted the Taxpayer with the care and support of the Taxpayer's children over many years, including providing before and after school care and providing financial support when necessary. In 20xx, the Deceased became seriously ill and required extensive treatment for many months. The Taxpayer provided daily care for the Deceased including cooking meals, transport to medical appointments and to hospital for treatments, cleaning and home maintenance. As the illness progressed, the Deceased became unable to climb the stairs. Consequently, the Deceased and the Taxpayer decided to purchase a home jointly so that the Taxpayer could take care of the Deceased and the Deceased could assist with the Taxpayer's children. Both the Taxpayer and the Deceased contributed financially to the home and it was purchased in their joint names. They also contributed jointly to the costs of running the household including the payment of land rates, home insurance, electricity, gas, maintenance and food. Due to the progress of the Deceased's illness, the Deceased's mobility had deteriorated and the Deceased needed to use a walking frame. The Taxpayer was also required to assist the Deceased with dressing as the Deceased had by then lost the use of much of the left side of their body. The Taxpayer made all of Deceased's meals, cut up the deceased's meals and assisted the Deceased with eating. After a number of falls, the Deceased's walking frame was replaced by a wheelchair and, because of further restrictions on the Deceased's mobility, the Taxpayer was required to provide the Deceased with the following on an on-going basis: n living arrangements - cooking, feeding, washing clothes, using the toilet, showering and dressing; n transport arrangements - shopping for food and all medical and hospital appointments; n managing their medication and doctors' appointments; and n physical and emotional comfort. In the last months prior to the Deceased's death, the Deceased needed to be lifted from the bed by a hoist to access the wheelchair and to use a commode chair when they required the use of the toilet. On a daily basis, the Deceased also received a specified number of hours of care from a care service provider. As it always required two persons to move the Deceased with the hoist, the Taxpayer was the second person on hand to assist with that task when the care service person was present. At other times, the Taxpayer and the Taxpayer's children attended to this task. The Taxpayer received a Centrelink carer's allowance for most of the last two years of the Deceased's life.

Relevant legislative provisions: Income Tax Assessment Act 1936 Former section 27AAB | Income Tax Assessment Act 1997 Division 302 | Income Tax Assessment Act 1997 Section 302-60 | Income Tax Assessment Act 1997 Section 302-195. | Income Tax Assessment Act 1997 Subsection 302-195(1) | Income Tax Assessment Act 1997 Section 302-200. | 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 Regulations 1997 Regulation 302-200.01(2).

Reasons for decision: Summary: It is considered that the Deceased and the Taxpayer had an interdependency relationship under section 302-200 of the ITAA 1997 just before the Deceased died. Therefore, the Taxpayer is a death benefits dependant of the Deceased in accordance with section 302-195 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the tax treatment of superannuation death benefits received from complying superannuation plans. This treatment depends on whether the person who receives the superannuation death benefit is a dependant of the deceased or not, and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit. In accordance with section 302-60 of the ITAA 1997, where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income of the person. Subsection 302-195(1) of the ITAA 1997 defines 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. | Detailed Reasoning - Interdependency relationship': In accordance with subsection 302-200(1) of the ITAA 1997, 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. Section 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. All of the conditions in subsection 302-200(1) of the ITAA 1997, or alternatively, the conditions in subsection 302-200(2) of the ITAA 1997, 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, subsection 302-200(3) of the ITAA 1997 states that the regulations may specify the matters that are, or are not, to be taken into account under sections 302-200 of the ITAA 1997. For the purposes of paragraph 302-200(3)(a) of the ITAA 1997, subregulation 302-200.01(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) sets out the matters to be taken into account in determining whether two persons have an interdependency relationship. These matters include: 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, … It is proposed to deal with each condition of subsection 302-200(1) of the ITAA 1997 in turn. | Detailed Reasoning - Close personal relationship:: The first condition to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997. It requires that two persons (whether or not related by family) have a close personal relationship. A detailed explanation of subsection 302-200(1) of the ITAA 1997 is set out in the Supplementary Explanatory Memorandum to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 (SEM) which inserted former section 27AAB of the 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. Generally, a close personal relationship as specified in subsection 302-200(1) of the ITAA 1997 would not exist between parents and adult children who live together. This is because the relationship between parents and adult children 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 exception circumstances exist, a parent/child relationship may be treated as an interdependency relationship for the purposes of subsection 302-200(1) of the ITAA 1997. The relationship between the Deceased and the Taxpayer was over and above that of a normal family relationship for a parent and an adult child living together. They purchased a home in joint names, shared household expenses and had lived together for a number of years. Therefore, there is, in this case, evidence of a mutual commitment to a shared life between the Deceased and the Taxpayer. The facts show that a close familial relationship existed between the Taxpayer and the Deceased, not only at the time of the Deceased's death, but also for a number of years prior to the death. This was demonstrated in a number of ways such as the emotional and well-being support that the Taxpayer and the Deceased provided to each other, and the on-going personal care and support the Taxpayer provided to the Deceased during the time the Deceased suffered from a very serious and debilitating illness. In addition, the Taxpayer was receiving carer's benefits from Centrelink for the care the Taxpayer provided to the Deceased for the last two years prior to the Deceased's death. Therefore, it is considered that a close personal relationship existed between the Taxpayer that the Deceased as envisaged by paragraph 302-200(1)(a) of the ITAA 1997. | Detailed Reasoning - Cohabitation:: The second condition to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997 and requires that two persons live together. From 20xx to the time of the Deceased's death, the Deceased and the Taxpayer were living together in a residence which was jointly owned by the Taxpayer and the Deceased. Therefore the requirement under paragraph 302-200(1)(b) of the ITAA 1997 has been met. | Detailed Reasoning - Financial support:: The third condition to be met is specified in paragraph 302-200(1)(c) of the ITAA 1997, and requires 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 (not necessarily substantial) of financial support is being provided by one person (or each of them) to the other. It is clear from the facts presented that the Deceased and the Taxpayer provided each other with financial support. This is demonstrated by the fact that the Deceased provided financial support to the Taxpayer to help with the Taxpayer's children and that the Deceased and the Taxpayer each contributed financially to the home they shared, including the costs of living and household expenses. In this instance, both the existence and the level of financial assistance provided in the relationship between the Deceased and the Taxpayer is established. Consequently, it is considered that paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied. | Detailed Reasoning - Domestic support and personal care:: The fourth condition to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997 which requires that one or each of these two persons provides the other with 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 view of the household activities performed by the Taxpayer, the domestic support requirement has been met. Assistance provided by the Taxpayer to the Deceased in times of illness demonstrates an on-going concern for the Deceased's emotional and physical wellbeing and comfort. The Taxpayer also provided personal care in the form of showering and feeding the Deceased. The domestic support and personal care services that the Taxpayer provided are above what is expected in an ordinary familial relationship. On the facts provided, it is considered that the requirement in paragraph 302-200(1)(d) of the ITAA 1997 has been satisfied in this instance. | Detailed Reasoning - Conclusion: As all the conditions of subsection 302-200(1) of the ITAA 1997 have been satisfied, it is considered that the Deceased and the Taxpayer had an interdependency relationship just before the Deceased died. Therefore, the Taxpayer is considered to be a death benefits dependant of the Deceased for the purposes of subsection 302-195(1) of the ITAA 1997.