29/06/2016

The scope of an interdependent relationship has been defined as requiring a close personal relationship, living together, one or each providing the other with financial, and/or domestic support and personal care.

The case of TBCL and Commissioner of Taxation [2016] AATA 264 (“the case”) considered whether the parents of a 22-year-old man (“the Deceased”) who passed away in a motorbike accident could satisfy the Administrative Appeals Tribunal of Australia (“AAT”) that they were ‘death benefit dependents’ of their son, the Deceased. Upon his death, TAL Superannuation and Insurance Fund paid $500,000.00 to the Deceased’s estate. The benefit of being regarded as a dependant is the tax treatment of the benefit.  A lump sum death benefit received by a death benefit dependent is not taxed, and money paid as an income stream is taxed favourably.

The Tribunal considered the nature of an interdependency relationship under the Income Tax Assessment Act 1997 (Cth) and the accompanying Income Tax Assessment Regulations 1997 (Cth) in determining if that relationship existed prior to the Deceased’s death. Interestingly, the Tribunal distinguished that a relationship between parents and children will not (generally) be considered interdependent. In considering the relevant factors, such as ownership, use and acquisition of property, the duration of the relationship, the degree of mutual commitment to a shared life, the extent to which the relationship is one of mere convenience, and the degree of emotional support (amongst others), the Tribunal ultimately found that an interdependent relationship did not exist.

Key considerations of the Tribunal
The Tribunal held that the evidence that the garage of the parents’ home was being converted into a living space for the Deceased did not satisfy ‘ownership, use and acquisition of property’ as a result of the Deceased being described as “using” the property only, and the overarching premise that the parents had not relinquished any part of ownership.

Further, the relationship between the parties with regard to personal care was deemed to be insufficient in the sense that this element was included in the legislation to deal with cases where ‘significant care (was) being provided when a person is unwell or suffering emotionally’, and goes beyond the scope of ordinary familial relations. The legislation specifically distinguishes the relationship of a mere friend or flatmate. The Tribunal stopped short of comparing the parents to a flatmate, however the decision reflects that there was no mutual commitment to a shared life or the permanency of the relationship which is more consistent with friend/flatmate.

Previous case law has seemed to show that a mutual dependence between the parties as to shared house expenses (mortgage, electricity, etc) would be enough to satisfy the financial dependence. Interestingly, the Tribunal upheld that this element was satisfied but was not enough to indicate an interdependent relationship.

Of course, the comment has been made that a statutory declaration signed by the parties prior to the death of the Deceased would have been persuasive, however as is often the case, this precautionary measure was not taken, and in any case a statutory declaration is only an evidentiary element and does not in and of itself guarantee compliance with the requirements for dependency.

The key point to take away from this matter is that the views of the Tribunal are shifting, given the nature of the tax benefits it seems, and the test to show interdependency is getting stricter.  The AAT will need to be genuinely convinced that the surviving dependent fits into that category if they are to award as such.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.