Children who are financially dependent on a deceased parent will pay no tax on receipt of the taxable component of the parent’s superannuation benefit. The meaning of dependant is particularly important in relation to the payment and tax treatment of superannuation death benefits.
SMSF Alliance principal David Busoli said there is a view that independent children can qualify as financial dependents simply by being in receipt of regular payments from their parents and arranging suitably worded declarations.
“This is simply not true. Financial dependence occurs where a person is wholly or substantially maintained financially by another person,” he said.
“The ATO’s test is simple. If the financial support received by a person were withdrawn would the person be able to survive on a day-to-day basis.”
Mr Busoli noted that if the financial support merely supplements the person’s income and represents “quality of life” payments, then it would not be considered substantial support.
“What needs to be determined is whether or not the person would be able to meet the person’s daily needs and basic necessities without the additional financial support,” he explained.
“Simply providing a financially independent child with a regular payment, however well documented, does not make them a financial dependent.”
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.