Recent cases on parent/child interdependency

There have been two recent cases which considered whether a parent/child had an interdependency relationship.  The first is a Federal Court Case and the second is a decision of the Administrative Appeals Tribunal.

Williams v IS Industry Fund Pty Ltd [2016] FCA 524

In this case, the child died age 31 without a spouse or children.  The child lived with his father from May 2011 intending to stay for 2 weeks.  Due to illness the stay was extended and the child was then admitted to hospital in June 2011 for palliative care and subsequently transferred to a hospice in late September 2011 dying in early November 2011.

The child was a member of an industry fund (by reason of being employed for a number of months at a Queensland resort) which provided insurance cover.  The trustee of the fund decided to pay the death benefit to the legal personal representative of the estate (the deceased’s brother) and not to the deceased’s father.  The trustee considered that the father was not a dependant of the deceased child.

The father objected to the trustee’s decision and lodged a complaint with the Administrative Appeals Tribunal.  The Tribunal affirmed the decision of the Trustee that the father was not a dependant by reason of being in an interdependency relationship with the child.

The father then appealed to the Federal Court.  An appeal from the Tribunal to the Federal Court can only be on a question of law.  While the father raised a number of issues, the Court held that the various issues raised only two questions of law: being

• first -  whether the Tribunal was required to determine whether the interdependency relationship existed immediately before the son’s death in November 2011;  and
• secondly, whether the Tribunal was required to consider that the only reason the father and son were not living together immediately before the son’s death was due to the physical disability of the son.

The Court held that the Tribunal was required to but failed to consider whether the interdependency relationship existed immediately before the son’s death.  The Court also held that the Tribunal was required to but failed to consider whether the only reason they were not living together was due to the illness of the son.

On this basis the Tribunal’s decision was defective and that the decision was set aside so that the matter be remitted to the Tribunal for reconsideration.

Implications

The father has simply won the first battle but must still win the second battle: ie convince the Tribunal that his relationship with this son transcended a normal father/son relationship by means of specifically addressing the seven relevant matters.

Consequently, to win the second battle the father will have to show that:

• from May 2011 until the son was admitted to hospital – there was a close and personal relationship and that relationship continued after the admission to hospital – such as by regular and constant visits;

• that while the son originally intended to have a short stay with his father before leaving for work, the son’s diagnosis of cancer during his short stay and subsequent alteration in plans meant that the close personal relationship while it commenced during that stay continued after the son’s admission to hospital; and

• that the father provided support (whether financial or other) to his son while the son was hospitalised.

The father will also have to consider how the living together requirement is to be satisfied.  This may be a weakness in the father’s position: if the son was not ill, then the son would not be living with the father and so a key element would not be satisfied.  However this reasoning is suspect.  It is not a matter of assuming away the illness of the son and considering whether the healthy son would be living with the father.  The proper approach is asking “what is the reason for the son not living with the father?” and the reason is the illness.  

AAT Case – TBCL v Commissioner of Taxation   [2016] AATA 264

This case arose from a request for a private binding ruling as to whether the parents were each in an interdependency relationship with the deceased son.  The ruling had been requested by the parents (in their capacity as the legal personal representatives of their son).

The son was a member of a superannuation fund which provided an insured death benefit of $500,000.  The trustee of the superannuation fund paid the death benefit to the parents in their capacities as the administrators of the estate of their son.  As the only beneficiaries were the parents, the payment would be made to them.  If the parents were in an interdependency relationship with the son, then the death benefit would be received by them tax free.  If not, then they (in their capacity as administrators) would have to withhold tax from the taxable component of the death benefit and they (as beneficiaries) would have to include the taxable component of the death benefit as part of their assessable income and would be liable for tax (with a tax credit for the tax withheld at the estate level).

A private ruling is a written opinion provided by the ATO as to the application of tax laws to a specified factual situation (referred to as “scheme”).   The ATO may decline to provide a private ruling.  If a private ruling is issued, then the taxpayers who requested the ruling may (assuming they are dissatisfied with the ruling) seek a review of the ruling by referring the ruling to the Administrative Appeals Tribunal.

A critical feature of private rulings is that they are issued on the basis of a particular factual situation.  Once the ruling is issued, the content of the particular factual situation can be modified.  Consequently, in the application for a private ruling the correct specification of the factual situation is vital as it cannot be subsequently changed.  If the factual situation is incorrect or incomplete a new ruling request will have to be made.

The ATO issued the requested private binding ruling and determined that on the factual situation specified in the application, the parents were not in an interdependency relationship with their son.

The parents referred the private binding ruling to the Tribunal which affirmed the ATO’s position.  In short, the Tribunal found that on the basis of the facts set out as comprising the scheme, the facts did not satisfy the requirements of an interdependency relationship as set out in taxation legislation (which are identical to the requirements set out in the SIS legislation).

What is the significance of the case?

The case is significant for two reasons.  

First, it shows that the factual situation set out in the application for the ruling cannot be subsequently altered by the inclusion of additional information or additional documents.  Consequently, the drafting of the private ruling request is critical.

Secondly, in drafting the factual situation a proper understanding of the nature of an interdependency relationship is required.  In the factual situation provided to the ATO, the situation established that the child was dependent upon the parents but the factual situation failed to address the key elements of an interdependency relationship.