Why is the meaning of dependant for super and tax purposes important?
The meaning of dependant is particularly important in relation to the payment and tax treatment of superannuation death benefits.
There are different requirements for each of the following purposes:
- eligibility to receive a member’s death benefits directly from a super fund (subject to the fund’s governing rules)
- eligibility to receive a member’s death benefits in pension form (subject to the fund’s governing rules)
- the availability of the death benefit dependant tax concessions, and
- a superannuation fund’s eligibility to claim a tax deduction to fund an anti-detriment payment for death benefit lump sums (generally only applicable before 1 July 2017).
Receiving a member’s death benefits directly from a super fund – SIS dependant
Under the Superannuation Industry (Supervision) Act 1993 (SIS), benefits may generally be paid to one or more of the member’s dependants or their legal personal representative (LPR), ie the estate, subject to the fund’s governing rules.
A dependant for these purposes (known as a SIS dependant) includes:
- the member’s spouse
- the member’s child (of any age), and
- someone with whom the member has an interdependency relationship (generally someone with whom the member has a close personal relationship and lives with, and where one or each of them provides the other with domestic support and personal care).
A SIS dependant also includes someone who is a dependant within the ordinary meaning of that term (an ‘ordinary meaning’ dependant), such as a person who may not be a spouse or child but who depends on the member financially.
If an individual is not a SIS dependant, the only way they can receive a member’s death benefits is via the deceased member’s estate.
Who is eligible to receive benefits in the form of a pension?
Under super law, a death benefit pension can only be paid to a beneficiary who is:
- a SIS dependant, other than a child
- a child under 18
- a child who is under 25 and financially dependent, or
- a child who has a qualifying disability1.
A death benefit paid to other beneficiaries (eg the estate, or an adult child who is not disabled or under 25 and financially dependent) must be paid as a lump sum.
Tax treatment of super death benefits – tax dependant
Benefits paid to beneficiaries who are dependants for tax purposes are generally taxed more favourably compared to benefits paid to non-dependants.
A dependant for tax purposes (tax dependant) is defined differently to SIS dependant. A tax dependant includes:
- an individual’s spouse
- an individual’s former spouse (if any)
- an individual’s child under the age of 18, and
- someone with whom the individual has an interdependency relationship.
Like a SIS dependant, a tax dependant also includes an ‘ordinary meaning’ dependant.
In addition, tax law provides that if the deceased died in the line of duty as either a member of the defence force or a police officer, beneficiaries of a super death benefit who are not tax dependants will be treated as tax dependants.
What is the difference between a SIS dependant and a tax dependant?
The key differences between the two definitions are
- a tax dependant does not specifically include an adult child (whereas a SIS dependant does)
- a tax dependant specifically includes a former spouse (whereas a SIS dependant does not).
These differences mean that an adult child, while being eligible to receive a death benefit directly from a super fund (subject to the fund’s governing rules), will not receive the more favourable tax treatment that a tax dependant would receive unless they qualify under an ‘interdependency relationship’ or ‘ordinary meaning’ dependency.
In addition, the former spouse of a member is generally not eligible to receive a death benefit directly from a super fund (unless they qualify under an ‘interdependency relationship’ or ‘ordinary meaning’ dependency). However, if they receive the benefit via the deceased's estate, the estate will be eligible for the more favourable tax treatment.
What about eligibility for anti-detriment payments upon death?
Anti-detriment payments are generally no longer able to be paid from 1 July 2017 (but transitional rules apply).
In order to be eligible for anti-detriment the beneficiary must have been a spouse, former spouse or child. Anti-detriment payments were also able to be made to the deceased’s estate to the extent that a spouse, former spouse or child could reasonably be expected to benefit.
The age of a child beneficiary had no bearing on eligibility for an anti-detriment payment.