How do you determine if someone is a dependant?
Superannuation law requires that the trustees of a superannuation fund can only pay benefits to:
Members
- Members’ dependants
- Members’ legal personal representative (usually the executor of their will)
Different tax treatment applies to each class of beneficiary – and determining who is a dependant for tax purposes is crucial.
Death benefits paid in a lump sum from the superannuation fund, or from the estate, are tax free if they are paid to dependants.
Dependants can also be paid a pension from the fund for as long as they meet the definition of dependant. Non-dependants can only be paid from the estate and will pay 16.5% on the taxable component of the benefit.
The Income Tax Assessment Act and the Superannuation Legislation both define who is a dependant (but with differences) – and these definitions should be reflected in the trust deed of the fund.
Broadly speaking, a Dependant is either:
- A spouse
- A child
- Anyone else who is financially dependent on the member at the date of death
- Anyone else with whom the deceased was in an interdependency relationship at the time of the member’s death
Spouse
Spouse means a person who lives with you on a genuine domestic relationship as a couple. This includes someone of the same or the opposite sex and includes a de facto spouse. The definition can include a former spouse (although a former spouse will only be treated as a dependent if they are financially dependent upon you).
Child
Child means any child, natural, posthumous, step or adopted of any age, according to the Superannuation Legislation. However, for tax purposes only
- a child who is under the age of 18 or
- a financially dependent child over the age of 18 but under the age of 25
is treated as a dependant. Note that the death of a step parent may mean that the child is no longer a dependant for death benefit payment purposes unless the child has been formally adopted.
Anyone else who is financially dependent on the member at the date of death
This covers disabled adult children, parents, former spouses and anyone else who is financially dependent at the date of death. Financial dependence means the deceased member contributed necessary financial support to maintain the dependent.
Anyone else with whom the deceased was in an interdependency relationship at the time of the member’s death
An interdependent relationship is a close personal relationship between two people who live together, where one or both provides for the financial, domestic and personal support of the other.
Unless a valid Binding Death Benefit Nomination is in place, the trustees can use their discretion to decide who are dependants and the proportion of benefit to be paid to dependants. Note that if the trustees are unable to find any beneficiaries who fill the definition of dependant, they must pay the member’s benefits to his or her estate.
If you have any doubt please contact us on 02 9318 6400 or fred.tortora@surrypartners.com.au.
Sources
Australian Taxation Office – Definitions – www.ato.gov.au
Copyright ClientComm 2014