Dependants – for Superannuation and Tax Purposes

Hello Chasers,

We have been dealing with different advice and jobs recently involving the administration of Estates and Superannuation and the different tax implications that arise.

On a person’s death, their superannuation benefits can only be paid directly to one or more “dependants’ as defined for superannuation purposes, unless they are paid to the deceased’s legal personal representative to be distributed in accordance with the deceased’s Will.

Super death benefits can be tax-free to the extent that they are paid (either directly or indirectly) to persons who are ‘dependants’ for tax purposes.

However, the meaning of ‘dependant’ differs slightly for superannuation and tax purposes. For superannuation purposes, a ‘dependant’ of the deceased comprises:

  • their spouse (including de facto spouse);
  • their child (of any age);
  • a person in an ‘interdependency relationship’ as defined with the deceased; and
  • a person who was financially dependent on the deceased.

However, for tax purposes, a ‘dependant’ (or ‘death benefits dependant’) of the deceased includes their spouse or former spouse (including de facto spouse) and only children under the age of 18.

Therefore, super death benefits generally cannot be paid directly to a former spouse, as they are not a dependant for super purposes.

Also, while a child of any age is a dependant for super purposes, only children under the age of 18 are dependants for tax purposes. This means that, while a child of any age may receive super death benefits directly, those benefits will generally only be tax-free if the child is under 18.

Financial dependency is a situation in which one person relies on another person for financial support. This can happen in a variety of relationships, such as between spouses, parents and children, or siblings.

There is no single definition of financial dependency, as it can vary depending on the specific circumstances. However, some factors that may be considered include:

  • The amount of financial support provided by the supporting person.
  • The extent to which the dependent person is able to live independently.
  • The duration of the financial dependency.
  • The reasons for the financial dependency.

In some cases, financial dependency may be temporary, such as when a person is unemployed or going through a divorce. In other cases, it may be more long-term, such as when a person has a disability or other condition that makes them unable to work.

The legal definition of financial dependency can vary depending on the jurisdiction. In Australia, for example, the definition of financial dependency for estate planning purposes is based on the factors mentioned above.

Here are some examples of financial dependency:

  • A stay-at-home parent who relies on their spouse’s income for financial support.
  • A child who is still in school and living at home with their parents.
  • An adult child who is disabled and unable to work.
  • A spouse who is unable to work due to a long-term illness or injury.
  • A person who is retired and has limited income.

It is important to note that financial dependency is not always a negative thing. In some cases, it can be a mutually beneficial arrangement. For example, a stay-at-home parent may provide childcare and other services that allow their spouse to work.

However, financial dependency can also be a source of stress and anxiety. If you are concerned about financial dependency, it is important to talk to your partner, family, or our financial advisors. They can help you develop a plan to manage your finances and achieve your financial goals.

If you are thinking about estate planning with your superannuation, please contact Shannae Hewett on 55612643.

Have a great day!

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