Dependency being tightly applied

The ATO has narrowed its focus on who can claim they are a death benefits dependant via a series of private rulings, which all emphasise claimants must meet a high standard, an SMSF specialist has pointed out.

ACIS SMSF services director Peter Johnson noted the regulator had issued eight private rulings on death benefit dependency in the past year, five relating to financial dependency and three relating to interdependency, but all show an adherence to the same criteria.

“You are a death benefit dependant where a super fund member was providing ongoing substantial financial support to you that you relied upon,” Johnson said in a recent briefing.

“The first of the three factors is the support was ongoing. If I give someone $50,000, that’s substantial and they probably relied upon it, but it’s not enough [to prove dependency], so it’s got to be ongoing.

“It has to be substantial. I think about it in terms of about $1000 a month and that is probably all it needs to be because if you’re giving someone support, that is really going to help them.

“They also have to have relied upon it. No sense giving your son $1000 a month if he’s a surgeon.”

He said many people claiming financial dependency were being caught out by these criteria and gave the example of divorced parents with an 18-year-old daughter who claimed she was a death benefits dependant on the passing of her father.

“He was paying for her school fees and also giving her spending money, but the ATO did not see that as being substantial enough or ongoing because he did it occasionally and she didn’t rely on it because the mother was the one funding her [living costs],” he added.

These criteria were also being applied to interdependency, with the regulator taking a closer look at the nature of the relationship at the centre of a benefits claim.

“Interdependency applies to couples normally, but can extend to adult children caring for their parents, and the ATO say if you are living with someone, you need to have a relationship that goes beyond merely living together,” Johnson said.

“When does it become interdependent? You need to move beyond a normal relationship. So if you are flatmates, you need to be sleeping together. If it’s a mother-child relationship, you need to be caring for your mother beyond what a child would normally do.

“The ATO are getting quite fussy on these things now. The law hasn’t changed, but they are getting fussy.”