Understanding financial advice
Financial life goals
Tools and resources
Products and services
Investing with IOOF
Your retirement goals
Find out what your peers are asking – based on real-life questions submitted to TechConnect.
By William Truong, Technical Manager
Q: My client's son, who is age 50, has been living with my elderly client in her home for many years. She is terminally ill and he provides her with much assistance. They have a close relationship where they share financial costs and look after each other's personal and domestic needs.
My client would like to know if her son can receive a tax-free super death benefit when she dies?
A: Super law allows a person to nominate their children, regardless of age, to receive their superannuation death benefit directly from their super fund as a lump sum. However, as an adult child does not qualify as a tax dependant, any super death benefit paid to him is likely to have some tax liability which will vary depending on its tax-free and taxable components.
Alternatively, an opportunity to explore would be if he has an 'interdependency relationship' with his mother at the time of her death. This is one of the categories of people that fall within the definition of a tax dependant.
Two people are considered to have an interdependency relationship for tax purposes, as per section 302-200 of ITAA 1997, if:
(a) they have a close personal relationship, and
(b) they live together, and
(c) one or each of them provides the other with financial support, and
(d) one or each of them provides the other with domestic support and personal care.
The tax regulations also prescribes various other matters to consider when determining 'interdependency'.
If her son can meet this interdependency relationship definition, then any super death benefit lump sum paid to him directly by the fund will not be taxed. Similarly, a super death benefit received indirectly via the estate will also not be subject to tax to either the estate or her son as beneficiary.
Proving an interdependency relationship is a matter of looking at all the evidence on a case-by-case basis.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.