Tim Miller, head of education for Smarter SMSF, said in the most recent Changing Face of SMSF webinar, that the definition and criteria of interdependency have been receiving heightened focus from the ATO and people need to be mindful that there is more to qualifying as being seen in interdependency relationship than just “ticking the boxes”.
“The introduction of interdependency relationship was largely done to cover same-sex relationships around 20 years ago, but in the subsequent time frame it’s provided people with this angle that subject to us having a close personal relationship and living together, if we all do the housework and we look after each other, we can effectively say that we are a superannuation dependent and therefore tax dependent in this instance and get superannuation benefits tax free,” he said.
“However, as evidenced by Private Binding Rulings, the ATO is looking for the concept of a devoted life together. The expectation and the desired position of an interdependency relationship is that you will always live together and look after each other, whether you’re friends in a more intimate relationship or family members.”
Miller said the ATO takes a strict approach to interdependent relationships and will disqualify cases between parents and children because although they have a close personal relationship due to being family, there is no commitment to a shared life.
“Even where some people come back into a family member’s life, such as was the case of one PBR published last week regarding a terminally ill divorced man returning to live with his mother who was his carer until his passing, the ATO basically said there was no shared commitment,” he said.
“In this case, the ATO ruled that the son and his mother had come into a shared life after the son had already made the decision to previously move out and get married, and the fact that the marriage didn’t work was irrelevant.”
Miller said when advising clients about interdependency and the nature of death benefits, it’s important to understand the nuances of the ATO’s definition and the criteria needed to meet it.
“The super benefit can be paid out to the estate and particularly to adult children but it will be a non-dependent beneficiary or non-tax dependent beneficiary,” he said.
“It’s about that tax dependency, and it becomes quite an issue [if not done correctly]. It’s also very important to be clear about relationships and supporting documentation you may provide [if claiming an interdependency relationship] because even that is not always going to be good enough
