Interdependency & the ATO: A tale of two views
The question of whether an adult child and an ageing parent can be classified as being in an "interdependency relationship" is a highly complex and frequently misunderstood area of tax and superannuation law. From the perspective of the Australian Taxation Office (ATO), establishing this relationship seems highly unlikely in most standard familial scenarios. The ATO generally takes the strict view that an adult child and a parent cannot satisfy the crucial "close personal relationship" requirement necessary to formalise an interdependency relationship.
The ATO’s interpretation appears to equate a "close personal relationship" with a mutual, unwavering commitment to a shared life that extends significantly above and beyond the standard, expected dynamics of a traditional parent/child relationship. But this raises an important question for trustees and estate planners: is the ATO's exceptionally strict view fully supported by a broader reading of the relevant legislation?
The term "interdependency relationship" is formally defined in section 302-200 of the Income Tax Assessment Act 1997. Crucially, when this exact term is utilised within the Superannuation Industry (Supervision) Act 1993 (the SIS Act), it carries an identical definition. The primary distinction is application: the Tax Act dictates the taxation treatment of a death benefit, whereas the SIS Act governs whether that death benefit is legally permitted to be paid out as an ongoing income stream to the beneficiary.
Legislative History and Requirements
The concept of an "interdependency relationship" was initially introduced by the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004. Originally placed in the 1936 Tax Act, it was later transferred to the 1997 Act (becoming s302-100). Interestingly, the term has seen no material amendments since its introduction almost two decades ago.
In 2005, regulations were introduced providing a comprehensive "shopping list" of matters that should be considered, where relevant, to determine if such a relationship genuinely exists (now Regulation 302-200.1 of the Income Tax Assessment (1997 Act) Regulations).
The legal definition outlines four mandatory requirements. For an interdependency relationship to be legally recognised, all four of the following must be satisfied:
Domestic Support and Personal Care
Financial Support
Living Together
Close Personal Relationship
Let's examine how each requirement might be scrutinised in the specific scenario of an adult child providing care for a parent.
1. Domestic Support and Personal Care
The "domestic support" element is satisfied if the adult child provides substantial assistance with daily household management. This encompasses tasks like comprehensive household cleaning, doing the laundry (washing, ironing, folding), managing household shopping, preparing regular meals, and actively attending to the household's finances and bill payments.
The "personal care" element requires a much higher level of direct physical assistance. This is satisfied if the adult child helps the parent with significant daily living activities, such as assistance with mobility around the home, helping them dress, maintaining personal hygiene, strictly supervising the administration of medications, and regularly escorting the parent to medical or hospital appointments.
Importantly, both domestic support and personal care must be provided simultaneously. To establish this, the adult child usually needs to provide a highly detailed, itemised log (often daily or weekly) of the support given on a regular and constant basis. Furthermore, this care must be provided personally by the adult child, rather than being outsourced to professional nursing staff or carers.
2. Financial Support
This requirement is met if either party provides verifiable financial support to the other. It is vital to note that "financial support" is a considerably less stringent legislative hurdle than establishing full "financial dependency."
The financial support does not necessarily have to be a massive sum, but it must be regular in nature and sustained over an extended period. Because financial support is easily verifiable, robust documentary evidence is required. This should include bank statements, transfer receipts, and proof of payment for various shared expenses, household bills, or personal items.
3. Living Together
This requirement is strictly interpreted by the regulator. It is satisfied only if the adult child and the parent share the exact same primary residence, and crucially, this sharing arrangement must be undertaken specifically to enable the adult child to provide the required domestic support and personal care.
Sharing a residence for financial convenience or other external reasons—such as allowing the adult child to save for a house deposit, or because the adult child unexpectedly lost their own accommodation—will not satisfy this requirement. Furthermore, merely living on the same block of land (for example, the adult child in the main house and the parent in a separately metered granny flat) is generally considered insufficient by the ATO.
4. Close Personal Relationship
This final requirement is notoriously the most difficult to satisfy in a parent/child context. The difficulty stems from two factors: the expression itself lacks precise, universally accepted legal definition, and proving it relies heavily on drawing inferences from the ongoing, historical conduct of both parties.
While introduced in 2004 largely to recognise same-sex couples in marriage-like arrangements, the legislation clearly allows for a broader application. The regulations explicitly state that the marriage-like indicators are only to be taken into account "where relevant." The fact that a child/parent relationship could constitute an interdependency relationship (even if exceptional) proves the concept isn't strictly limited to romantic couples.
However, if an adult child makes monumental personal sacrifices—such as relocating across the country, putting their career on indefinite hold, or altering their personal life extensively to care for a parent—this significant personal cost arguably establishes an exceptional relationship that goes far beyond standard familial duty. The focus should arguably remain on whether the relationship is exceptionally close and personal, rather than the ATO strictly looking for traditional marriage-like indicators.
For further information, or to book an appointment to ensure your business/trust affairs are in order, give Humble Goode Financial a call on 08 7477 8252 or email planning@hgfp.com.au.
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