The term “dependant” can mean two different things in relation to superannuation and is defined differently under the SIS Act and under tax law. The SIS Act determines who can receive super directly from a fund without going through an estate (SIS dependants). Tax law determines who pays tax on the taxable part of such payment (tax dependants).
What is a tax dependant?
A person can be considered your tax dependant if they meet the criteria for one of the categories below:
- your spouse (in a relationship including de-facto, can be same gender)
- former spouse
- your child (under 18 only)
- any other person you are in an interdependent relationship with (not a spouse, but you live together and one or both provide financial and domestic support for the other)
- a person who is substantially financially dependent on you.
What is a SIS dependant?
A person can be considered your SIS dependant if they meet the criteria for one of the categories below:
- currently your spouse (in a relationship including de-facto, can be same gender)
- your child (any age)
- any other person you are in an interdependent relationship with (not a spouse, but you live together and one or both provide financial and domestic support for the other)
- ordinary meaning dependant
So what’s the difference?
- Your financially independent adult children are your SIS dependants, but not your tax dependants.
- A former spouse is not your SIS dependant – assuming they are not financially dependant on you and don’t live with you. But the tax law specifically lists a former spouse as a tax dependant. As a result, your former spouse can only receive your super through your estate, not directly from your fund.
If an individual is not a SIS dependant, the only way they can receive a member’s death benefits is via the deceased member’s estate (as directed by a valid Will).
Tax paid on benefits is different with reference to tax dependants that are not SIS dependants, therefore the impact of tax can be significant even though the dependant can receive the benefit from your super fund directly.
The table below summarises how the taxable component of a super death benefit is taxed in most common situations:
| Type of death benefit | Age of Beneficiary | Age of Deceased | Tax on taxable component – taxed element | Tax on taxable component – untaxed element |
| Lump Sum | ||||
| Paid to tax dependant | Any age | Any age | Tax free | Tax free |
| Paid to non-tax dependant | Any age | Any age | Taxed at a maximum of 15% plus medicare levy | Taxed at a maximum of 30% plus medicare levy |
| Account based income stream | ||||
| Paid to tax dependant | 60 years or older | 60 years or older | Tax free | Taxed at marginal rates with a tax offset of 10% |
| Paid to non-tax dependant | Under 60 years | Under 60 years | Taxed at marginal rates with a tax offset of 15% | Taxed at marginal rates |
As tax has already been paid on this money when it was contributed into your super account, the tax-free component of your super death benefit can generally paid to your beneficiaries without the need to pay further tax.
Under tax law, non-dependants are required to pay tax on some elements of the lump sum death benefit they receive. The tax-free component of a lump sum super death benefit paid to a non-dependant is tax free, but tax is payable on the taxable component.
Other related blogs:
Do I need a binding death benefit nomination?
What is a withdrawal and re-contribution strategy?
Author: Stacey Walker
Email: stacey@faj.com.au
