Kids are staying home for longer, but when is a “dependant” really dependent?

Many adult children continue to stay in mum and dad’s house because it’s generally cheaper than the alternative and probably a lot more comfortable. Although many stay-at-home grown-up kids can most likely support themselves, the familial home in most instances can provide the higher standard of living. When is a “dependant” really dependent?
But this isn’t financial dependency, according to the ATO, with regard to the rules for super death benefits. Instead, it’s merely a normal domestic arrangement that doesn’t demonstrate financial dependency.

Dependants generally qualify for taxation consideration — that is, no tax — with regard to lump sum payments as death beneficiaries. But according to the ATO, the definition of a dependant is slightly different for:

  • who you can pay a death benefit to (superannuation law)
  • how the death benefit will be taxed (taxation law).

The ATO with its super hat on says that under superannuation law a death benefit dependant includes:

  • the deceased’s spouse or de facto spouse
  • a dependent child of the deceased (any age)
  • a person in an interdependency relationship with the deceased
    • this 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. For example, see section 10A of the SIS Act for a definition of “interdependency relationship”.

However the ATO with its tax hat on says that a death benefit dependant includes:

  • the deceased’s spouse or de facto spouse
  • the deceased’s former spouse or de facto spouse
  • a child of the deceased under 18 years old
  • a person financially dependent on the deceased
  • a person in an interdependency relationship with the deceased.

(And with regard to an “interdependency” relationship, this isn’t broken if, say, a couple would have satisfied these rules but were separated because of physical, intellectual or psychiatric disability.)

As a young adult child still living at home may be considered a dependant for super fund death benefit purposes, and the super law allows these benefits to be paid directly to that child, the key issue in this case is the amount of tax, if any, that may be payable.

The table below, which is from the 2016-17 Tax Summary, summarises the tax status in various death benefit dependant scenarios.

kids-sdbtable

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