Private ruling: Death benefit and interdependency.
Published: March 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did an interdependency relationship exist between the Deceased and the Deceased's sibling (the sibling), in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997 ) ? | A1: Yes.

Relevant facts and circumstances: The Deceased, was born with a severe physical disability. In recent years up to the time of death, the Deceased was confined to a wheelchair. Prior to that, the Deceased walked with the assistance of crutches and frames. The Deceased died in the relevant income year and was over 60 years of age. The Deceased and the sibling have always resided together. They were the only people who resided at the property where the Deceased died. The sibling is mildly retarded intellectually. The Deceased provided financial support to the sibling while residing together, in the form of allowing their sibling to live at the Deceased's residence rent free and paying for all utilities, telephone expenses and body corporate fees. No carers were engaged to attend the pair during the time they resided together. The Deceased's sibling is over 60 years of age. The Deceased's sibling was unable to perform certain every day functions without the direction of the Deceased and consequently now requires someone to assist with paying their bills and daily services to assist with cooking and cleaning. The Estate of the Deceased has received payments from a superannuation pension account (Pension Account) held by the Deceased. In the relevant income year, the trustee of the Pension Account issued a decision that all of the benefit is to be paid to the Estate of the Deceased. The last Will and Testament of the Deceased bequeathed property owned by the Deceased and a certain percentage of the estate residue to the sibling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 302-195. | 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 Subsection 302-200(3). | Income Tax Regulations 1997 Regulation 302-200.01(2).

Reasons for decision: Summary: An interdependency relationship existed between the Deceased and the sibling in the period just before the Deceased's death. Therefore, the sibling is considered to be a dependant of the Deceased. | Detailed Reasoning - Superannuation death benefits: Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997), sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that received the superannuation death benefit is a dependant of the deceased and whether the death benefit is paid as a superannuation lump sum or a superannuation income stream. 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. Section 302-195 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. In this case, as the sibling of the Deceased does not satisfy paragraphs (a) or (b) of the above definition, paragraphs (c) and (d) of section 302-195 need to be considered. | Detailed Reasoning - Interdependency relationship: Paragraph 302-195(c) of the definition of death benefits dependant, refers to an '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. Accordingly, all of the conditions in subsection 302-200(1) of the ITAA 1997, 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) of the ITAA 1997, 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 Regulations 1997 (ITR 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. It is proposed to deal with each of the conditions in subsection 302-200(1) of the ITAA 1997 in turn. | Detailed Reasoning - Close personal relationship: The first requirement to be met is specified in paragraph 302-200(1)(a) of the ITAA 1997, which states that two persons (whether or not related by family) must 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 (SEM) to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 . 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 (for example 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. The facts of this case show that the Deceased resided with the sibling for many years in a property owned by the Deceased. Clearly a familial relationship existed between the Deceased and the sibling prior to, and at the time of, the Deceased's death. Given the ages of the Deceased and the sibling at the time of death, the Deceased and the sibling had of course known each other for a significant period of time. The Deceased contributed financially towards the sibling's household expenses. The Deceased also provided direction to the sibling in aspects of running a home. The sibling in turn, at the direction of the Deceased, would do the shopping, cooking, washing and cleaning on a daily basis and pay ongoing accounts on time. The facts of this case show that a close personal relationship existed between the Deceased and the sibling and that there was a mutual commitment to a shared life between the Deceased and the sibling prior to, and at the time of, the Deceased's death. Therefore, it is accepted that a close personal relationship existed between the Deceased and their sibling as envisaged by paragraph 302-200(1)(a) of the ITAA 1997. | Detailed Reasoning - Cohabitation: The second requirement to be met is specified in paragraph 302-200(1)(b) of the ITAA 1997, and states that the two persons live together. As mentioned above, the facts show the Deceased and the sibling, were residing together at the time of the Deceased's death. The pair resided together in a property owned by the Deceased for many years. Prior to that, they resided together in the family home. Therefore the requirement specified in paragraph 302-200(1)(b) 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 the two persons provides the other with financial support. Financial support under paragraph 302-200(1)(c) 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 provided the sibling with financial assistance including allowing the sibling to live with the Deceased rent free and paying for all utilities and body corporate fees. In this instance, the existence of financial assistance provided by the Deceased to the sibling has been established and therefore paragraph 302-200(1)(c) of the ITAA 1997 has been satisfied. | Detailed Reasoning - Domestic support and personal care: The fourth requirement to be met is specified in paragraph 302-200(1)(d) of the ITAA 1997, and states 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. The term 'personal care' was also discussed in the New South Wales Supreme Court in Dridi v. Fillmore [2001] NSWSC 319. Master Macready stated, in regards to the term 'domestic support and personal care,' that: The expression [personal care] seems to be directed to a different level of reality such as assistance with mobility, personal hygiene and physical comfort. Such activities obviously however will include an element of emotional support. From the facts provided the Deceased provided direction to the sibling in aspects of running a home, including: organising the daily menu and shopping lists; and directing the sibling in cooking and cleaning activities; as well as the payment of accounts. The sibling provided personal care in the form of: helping the Deceased with mobility (and vice versa); laying out the Deceased's clothes; cooking and cleaning on a daily basis; as well as doing the washing. The sibling was also emotionally very dependent on the Deceased for every day to day decision the sibling made. Consistent both with the ordinary meaning of the words 'domestic support and personal care' in the context of paragraph 302-200(1)(d) of the ITAA 1997, and with the meaning of these words as discussed in paragraph 2.16 of the SEM, it is considered that the Deceased's sibling provided the Deceased with significant personal care services in the period before their death. 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: From the facts presented, it is considered that an interdependency relationship in accordance with subsection 302-200(1) of the ITAA 1997 existed between the Deceased and the sibling in the period prior to, and at the time of, the Deceased's death.