ATO Interpretive Decision 2014/22, released earlier this month, addressed the question, “Can a taxpayer who is a child beneficiary over 18 years of age be a 'death benefits dependant' of the deceased for the purposes of section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?”
The taxpayer was, in this case, considered to be a death benefits dependant for the purposes of section 302-195 of the ITAA 1997.
“In this case the taxpayer (a child of the deceased) was paid a death benefit on the death of the parent. The taxpayer was over 18 years of age at the time of death. The taxpayer had given up work to care for the terminally ill parent and received no financial support from anyone, other than the parent, during that time,” the ATO stated.
Speaking to SMSF Adviser, DBA Lawyers director Daniel Butler drew attention to the note the ATO made.
“The taxpayer and parent also satisfied the interdependency relationship requirement under paragraph 302-195(1)(c) and as described in paragraphs 302-200(1)(a),(b),(c) and (d) of the ITAA 1997,” the ATO stated.
“That is, the taxpayer and parent had a close relationship; they lived together; the parent provided financial support for the taxpayer; and the taxpayer was providing significant care for the parent.”
Mr Butler said that while the ATO's stating an adult child can be considered a death benefit dependant may be obvious, “reading between the lines is what we take out of this decision”.
“There has been some suggestion over the years that the ATO may not have accepted interdependency for an adult child,” Mr Butler said, “but this clarifies that misunderstanding that may have previously emanated from the ATO.
“There has been at times a view emanating from the ATO that an adult child would only be covered under financial dependency,” Mr Butler added.
“[In sum,] you can still get tax-free super for an adult child. The tax-free super will be dependent on either financial dependency… or interdependency.”