Evidence and documentation needed to prove interdependency relationship: expert

“For an adult child to receive their deceased parent’s superannuation benefit, the adult child must either be a ‘financial dependent’ of the parent or have an interdependency relationship with their parent at the time of death of the parent,” he said.

Hallinan said “interdependency relationship” is the term used in the statutory definition, but unfortunately, it suggests that each individual in the relationship is in some way dependent on the other.

“The consequence of this is that the understanding of the elements of the definition is distorted by viewing each requirement through the lens of mutual dependency which is both financial and non-financial in scope,” he said.

For an interdependency relationship to exist between two individuals, four elements must be satisfied.

“Firstly, they must have a close personal relationship, next they must live together, thirdly one or each of them provides the other with financial support, and finally one or each of them provides the other with domestic support and personal care,” Hallinan said.

Regarding a “close personal relationship”, Hallinan said this element does not require a sexual or romantic relationship to exist between the two individuals, and there is no requirement that the relationship be marriage-like, though a marriage-like relationship will qualify as a close personal relationship.

To meet the element of living together only requires that the two individuals share the same residence.

He said financial support does not require financial dependency of one on the other, and is a less onerous threshold. Additionally, there is no requirement that each individual must provide the other with financial support and it is sufficient that only one individual provides financial support to the other.

Finally, the element of domestic support and personal care does not require that each individual must provide the other with domestic support or personal care, rather it is sufficient that one individual provides the other with domestic support and personal care.

“It would also be sufficient if one individual provides the other domestic support while the other provides the first with personal care,” he said.

Hallinan said in building a case that an interdependency relationship exists between two individuals, each of the four elements must be satisfied, but the rules are subject to exceptions.

“A ‘close personal relationship’ will exist if there is a demonstrated and ongoing commitment to the emotional support and well-being between two individuals. A shared life will satisfy this requirement,” he said.

“However, the absence of a shared life does not negate the existence of a close personal relationship. If there is no shared life, which would typically be the case between a parent and an adult child, the element could be established by details of the daily or weekly interactions between the parent and the adult child like telephone calls, outings, the subject of the conversations between the two.”

He explained that in the case of a parent and adult child, interactions would need to surpass typical levels both in frequency and depth of content.

To satisfy the “living together” element individuals must share the same accommodation but the arrangement must not be short-term only or for a particular purpose such as moving in while a house is being built.

“If the living arrangement is of indefinite duration and there are elements of a shared life such as eating together, sharing cleaning and cooking and entertaining together the element will be satisfied, but the element will not be satisfied if the arrangement is one of pure economic convenience,” he said.

Regarding “financial support”, the element will be satisfied if either or both of them contribute regularly to the financial support of the other such as contributing to the running costs of the residence.

Hallinan mentioned that this criterion could still be met even if both individuals maintain financial independence, with the key factor being the acknowledgment and sharing of joint expenses over an indefinite period.

To fulfil the requirement of "domestic support and personal care," either one or both parties must offer assistance, such as handling shopping, household cleaning, laundry, and ironing, or tending to their mobility requirements, medical appointments, dressing, and emotional support.

“As with any case, specific instances and documentary evidence are vital. Under each element, details should be provided of the instances relevant to the element,” Hallinan said.

“For example, if there are medical appointments, the dates and nature of the appointment, who arranged the appointment and who provided the transport. If meals are taken together, document how often. If expenses are shared there must be evidence of payment. Mere assertions in the absence of specific details will not establish the existence of the relationship.”

Some several people and parties will determine if a relationship is interdependent, and in the first instance, it will be the trustee of the super fund paying the benefit.

“Where the super fund is an SMSF, the trustee should provide quite detailed documentary justification of the existence of the relationship,” Hallinan said.

“The trustee should take the approach as if the trustee were submitting a request for a Private Binding Ruling as to whether the adult child and the deceased member were in an interdependency relationship.”

However, Hallinan warned the decision of the trustee of an SMSF does not bind the Commissioner of Taxation who can form their own view as to whether there was an interdependency relationship.

“For this reason, the trustee (and/or the beneficiary) may first seek a Private Binding Ruling from the Commissioner,” he said.

“Alternatively, the trustee could pay the death benefit to the beneficiary on the basis that there was no interdependency relationship and allow the beneficiary to lodge their personal tax return on that basis with the beneficiary then lodging an objection to the return on the basis that the death benefit is in fact not taxable on the basis that there was an interdependency relationship.”