How do you determine if someone is a dependant?

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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 is crucial.

The Income Tax Assessment Act and the Superannuation Legislation both define who is a dependant – and these definitions should be reflected in the trust deed of the fund.

For superannuation law a dependent is either:

  • A spouse

  • A child of any age (including a step child)

  • Anyone else who is financially dependent on the member at the date of death

  • Anyone in an interdependent relationship with the member

For Income Tax purposed a Dependant is either:

  • A spouse

  • A child under the age of 18

  • A financially dependent child over the age of 18

  • Anyone else who is financially dependent on the member at the date of death

  • Anyone in an interdependent relationship with the member

 Spouse

Spouse means a person who lives with you on a genuine domestic relationship as a couple. It does not matter whether you are married or not, or whether the person is the opposite sex or the same sex. Spouse 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, who is under the age of 18. However, 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.

Financially dependent child over the age of 18

This definition covers children over the age of 18 who are students and who are financially dependent. Children over the age of 25 will no longer comply with this definition.

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.

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.

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.

Addison Partners has a dedicated team that concentrates on Superannuation lead by superannuation specialist Jane Thomson. Addison Partners provide advice on developing and implementing superannuation strategies to reduce your tax and increase your savings for retirement. To arrange for a review, please contact your usual Addison Partners contact or call 02 4995 7300 to arrange an appointment.

 

Sources

Australian Taxation Office – Definitions – www.ato.gov.au

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