The ATO has tightened its view on who can receive superannuation death benefits as a tax law dependant, having made eight private rulings on the matter in the past year emphasising the need for a very high level of dependency, an SMSF legal specialist has noted.
Cooper Grace Ward partner Clinton Jackson said his firm had received increased interest in people seeking information about dependencies in estate plans to reduce taxes upon the death of a parent.
“It is something we are seeing a lot of and there are lots and lots of new [private] rulings [issued by the ATO],” Jackson stated at the recent Annual Adviser Conference hosted by the firm, where he noted five rulings have been issued about financial dependency and three about interdependency.
“Where we get to is that it’s very difficult for an adult child of anyone to be a tax law dependant.
“When you look at all those rulings, despite financial support being provided between parents and kids, it’s basically not enough for you to pay for them or buy for them.
“Where we get to with financial dependency is there needs to be an actual dependency for the necessities of life, that is, the day-to-day bills.
“Parents need to be helping the kids fund those and the kids cannot have income from other sources that would allow them to fund that.
“The ATO is really focusing in on parents basically needing to provide all the financial support necessary for those people to qualify as financial dependants.”
He noted the same rigour was being applied in regards to interdependency, with the leading issue for the regulator being whether adult children could prove they had the required ‘close personal relationship’ outlined under superannuation law.
“What the ATO is saying is obviously they are family and there is a close personal relationship, but to get within interdependency it needs to be that next level again,” he said.
“They need to have more support or more dependency on each other, that is, more than just a close personal relationship and need to have a long-standing commitment to helping each other long into the future that is more than just being parent and child.”
Cooper Grace Ward partner Scott Hay-Bartlem highlighted how the ATO was viewing these cases, pointing out that in a ruling earlier this year an aged parent who lived in a granny flat behind her adult child was ruled to not be in an interdependency relationship because she lived independently in the flat.
