A recent ATO private binding ruling (PBR) has confirmed the mere payment of money to an adult child will not automatically mean that individual is a tax dependant of a deceased superannuation member.
Adviser Digest director and founder Peter Johnson noted the ruling in question showed all circumstances will need to be taken into account before a determination can be made on whether an adult child is a tax dependant when they receive a superannuation death benefit in the form of a lump sum payment.
PBR 105218756 involved a situation where the deceased member’s adult daughter received a lump sum death benefit on the premise she was a tax dependant, allowing the payment to be tax-free.
The evidence put forward to proving tax dependant status hinged on the fact the girl’s father, the super fund member who had passed away, paid her a monthly allowance, had committed to paying her university fees when applicable, included her in his private health insurance cover and paid for all of her extracurricular activities.
However, it was determined the beneficiary was not a tax dependant because she lived with her mother, who had sufficient taxable income to provide proper financial support.
“So the kid didn’t need dad’s money. Mum had enough [to support her and] dad was just trying to be nice,” Johnson said.
Further, it was found the daughter had no expenses to pay with regard to school fees or any associated extracurricular activities and was employed part-time.
“The important [conclusion to draw from this PBR is that] the mere giving of money does not establish financial dependency. It’s in the ruling,” Johnson noted.
“[Even if the SMSF trust deed states] ‘I’m going to give [my daughter] $1000 a month for ever’, that [does not] make her a dependant [for tax purposes].
“There may be a legal obligation to do it, but it doesn’t make [the recipient a tax] dependant.”
