Bryce Figot, special counsel with DBA Lawyers, said in a recent webinar for the Institute of Financial Professionals that it may not be necessary to establish financial interdependency in a case where a grandparent finds themselves as the sole carer of a grandchild or grandchildren due to unforeseen circumstances.
“[In a situation where] the grandchild lives with the grandparent, and the grandparent is not necessarily spending money, but maintaining a house and caring for the grandchild as if the grandchild was their own, you’ve probably got an interdependency relationship, so you wouldn’t have to establish financial dependency,” he said.
He said interdependency relationships and SIS dependants are different classifications and receive different tax benefits.
“A dependant is defined as a child of any age, so no matter how old a child is, no matter how much of an adult child someone is, and no matter how much wealth they independently generate and accumulate does not matter. For superannuation law purposes, you will always be a dependant if you’re an adult child and can receive super death benefits directly from a super fund,” he said.
“But of course, in addition to adult kids or spouses who are always considered to be dependants, there’s a whole bunch of other people who your clients might wish to receive their super death benefits, who are not necessarily in a fixed class of dependants.”
Figot said this can often include grandchildren and although it is not common, it is becoming more frequent for grandparents to want to nominate their grandchildren in this category.
“I’m sure everyone has clients in their client base that say when they die, they want their grandchildren or siblings to receive their superannuation death benefits,” he said.
“However, a dependant can also be someone who is classified as being in an interdependency relationship with the client and for a lot of people this could be quite important from a point of view of who can receive their super.”
He said in addition to interdependency relationships, there is also the concept of financial dependency.
Figot warned that in a situation where grandparents are providing financial support only for things such as private schooling, the ATO may not view them as being financially dependant.
“It is best to make sure the private school is invoicing the grandparent directly and that the cash to pay for it is coming from the grandparents’ bank account, because where people fall down is if the money is given from the grandparent to the parent the cash is not flowing directly, and you need to retain the evidence,” he said.
“And if you want to establish financial dependency, ask for a private ruling. There’s every chance the ATO will say no, but it may also say yes.”
It is also possible, Figot said, regarding grandparents nominating their grandchildren as an interdependency relationship, that the parents may not want their child to inherit the payment.
“But I think that private school fees could well cut the mustard, but we don’t have case law saying that, so try to set up the best facts, and then if needed be prepared to make a private ruling, and if that fails potentially then even an AAT application,” he said.
