Who is a Dependant for Superannuation Purposes in Estate Planning?

Under the Superannuation Industry Supervision Act 1994 (Cth) (SIS) and SIS Regulations, three differing definitions for “dependants” are given. This is further complicated by the Income Tax Assessment Act’s additional definition of a dependant

Whether or not a beneficiary of superannuation is a dependant has a major impact on their estate planning, because persons who satisfy the definition of a ‘dependant’ are entitled to receipt of superannuation proceeds tax free. Persons who are not dependant on the superannuation policy holder most often receive superannuation at their marginal tax rate, or where the death benefit payment includes life insurance policy proceeds, the rate of death benefits tax increases to 30% plus any applicable levies. This makes it important for clients to provide complete instructions to their lawyers to ascertain who the most tax-effective beneficiary is to leave their superannuation to.

In most circumstances, the death benefit is paid to a spouse, child under 18, or a dependant/person in an interdependent relationship with the deceased,  it will be tax-free income because the spouse satisfies the definition of a “death benefit dependant” under subsection 302.195(1) of the Income Tax Assessment Act 1997 (Cth) (“ITAA”). Appointed your legal personal representative as beneficiary of your superannuation does not override the tax implications of superannuation, even though your superannuation is going ‘via’ your Will.

In limited circumstances, where clients have children under 25 years of age but over 18, they are also able to give their children superannuation proceeds tax-free provided that child remains a financial dependant, pursuant to regulation 6.21(2A) of the SIS Regulations which includes a more expansive definition of a ‘dependant’ for the purposes of income streams.

Our experienced team can assist you in reviewing your superannuation policy documents and ensuring that your hard earned superannuation proceeds are dealt with tax effectively, in conjunction with your accountant/financial planner. To assist in providing this advice, you should bring your self managed superfund trust deed, or your industry/retail fund trust deed, to your appointment, along with your statements showing the balance and proportion of concessional and non-concessional contributions.