The tax treatment of the payment of superannuation after a member dies, can vary significantly depending on who receives them (and whether they qualify as a death benefit dependant in the Income Tax Assessment Act 1997 (“Tax Act”). It can mean the difference between a zero tax rate and up to 30%.
Adult children and parents are not usually categorised as “dependants” under the Tax Act, unless they fall within the category of financial dependant, or are in an interdependency relationship. Key factors in assessing whether there is an interdependency relationship include:
- Living under the one roof;
- A close personal relationship; and
- One or each of them provides the other with financial support, domestic support and care.
In some recent private rulings, the ATO has considered the question of whether parents and adult children living in the same house qualify as inter-dependants in the context of members who are terminally ill, and in some cases have moved back in together for support and care. The table below summarises 5 cases as examples:
| | 1 | 2 | 3 | 4 | 5 |
| Deceased member | Adult
child | Adult child | Adult child | Parent | Adult Child |
| Beneficiary | Parent | Parent | Parent | Adult Child | Parent |
| Domestic or emotional support provided | Yes | Yes | Yes | Yes | Yes |
| Financial support provided | Not significant | Yes | Yes | Yes | Yes |
| Living apart before illness | Yes | Yes, but not for long | Yes | Yes | Yes |
| Period living together prior to death | Short | Most of their lives | 24 years | Not stated | Not stated |
| Interdependant? | NO | YES | YES | YES | NO |
In each of these cases the focus was on whether there was a “close personal relationship” between the parties which is a key factor to establishing inter-dependence. Consistently the ATO stated that generally such a relationship would not exist between a parent and a child, because the relationship would be expected to change over time and no mutual commitment to a shared life would exist.
In all but example 1 and 5, the ATO found that the definition of “interdependent relationship” was satisfied. In example 1 and 5, it was found that the facts did not support anything beyond usual family arrangements, and no commitment to a mutual life.
What can we take away from these decisions?
- For a parent/child relationship to qualify as an interdependency relationship, there needs to be more than just loving familial relationships under the one roof.
- The test of mutual commitment to an shared life is more likely to be satisfied where:
- The period of time of living together is lengthy;
- Either or both parties have made or changed their arrangements so as to enable to mutual commitment to be permanent. For example, in case 4 above where inter-dependence was found, the child had changed career and moved the parents into his house in order to care for them.
- If in doubt, a private ruling application might be appropriate. This is particularly the case for executors of an estate, because they bear the liability when the death benefits are paid via the estate.
How we can help
For more information, or if you would like access to the specific private edited rulings, please do not hesitate to contact us.