The concept of interdependency was introduced into the Superannuation Industry (Supervision) Act 1993 in 2005 as a way to recognise relationships that were outside of the traditional definition of marriage but nevertheless significant in terms of a person’s superannuation benefit.
A person who can show they were in a relationship of interdependency with a deceased person with a super benefit can be paid those benefits, tax-free.
Set out in both national super regulations and the Income Tax Assessment Act 1997, an interdependency relationship will be found to exist between two individuals if:
- They have a close personal relationship;
- they live together;
- one or each of them provides the other with financial support; and
- one or each of them provides the other with domestic support and personal care.
Importantly, an interdependency relationship must exist at the date of death of the person with the superannuation benefit, and all of the four elements listed above must be satisfied.
Further explanation of the elements of an interdependency relationship
Typically, superannuation death benefits may only be paid to a fund holder’s dependants or the deceased member’s legal personal representative (often being the executor of the person’s estate).
If those beneficiaries cannot be identified, the superannuation trustee may nominate any person as a recipient of a superannuation death benefit payment. A dependant may be a person who had an interdependency relationship with the deceased, depending on the definition of dependant in the trust deed.
To determine whether an interdependency relationship exists, Regulation 1.04AAAA of the Superannuation Industry (Supervision) Regulations 1994 (Cth) lists a number of specific matters to be taken into account.
These matters include:
- the duration of the relationship;
- whether or not a sexual relationship exists;
- ownership, use and acquisition of property;
- care and support of children;
- reputation and public aspects of the relationship;
- any evidence suggesting that the parties intend the relationship to be permanent; and
- the degree of emotional support;
- whether there is any evidence that suggests that the relationship is one of mere convenience;
- the existence of a statutory declaration signed by one of the persons that they are, or were, in an interdependency relationship with the other person.
Not every factor needs to be present for an interdependency relationship to exist but the greater the number of factors satisfied, the more likely the relationship will meet the definition.
Examples of interdependency relationships may include those between siblings or between an adult child who lives with and cares for an ageing parent on a long-term basis. The last example demonstrates that the financial support or domestic support and personal care can be one way – from parent to child, for example, or from child to parent.
In some situations, the parent may have provided financial support but the child provided domestic support or personal care, satisfying the categorisation as an interdependency relationship.
The relationship, it should be noted, does not exist simply because of the parent and child relationship. Additional aspects must exist to transform the parent-child relationship into a close personal relationship where they live together (or would do so but for one or more specified reasons).
in certain cases, a disability test is also used to determine an interdependency relationship – two people may have a close personal relationship but if either or both suffer from a disability, they may not be able to meet one or more of the other requirements of the test such as cohabitation, financial support or domestic support and personal care.
An interdependency relationship can still be found to exist if a personal relationship exists but the two people were temporarily living apart at the date of death, such as where one person was overseas or away on holiday.
The reason for the separation, its duration and whether or not there was an intention (at the time of death) to resume living together will be considered to work out whether the separation was temporary.
A key change introduced by the inclusion of the interdependency concept was the fact the deceased could be the recipient of financial support from the surviving party. This was significant for those who had to cease work due to illness or disease and became financially reliant on the survivor before they passed.
The requirement of domestic and personal care is that it be of a ‘frequent and ongoing nature’. Domestic support is generally considered to include household functions such as shopping, cleaning and laundry, while personal care is personal in nature but otherwise vague in definition.
What is the significance of an interdependency relationship?
Introduction of the interdependency concept broadened the class of people who could claim a superannuation death benefit but dependency is also key to the taxation treatment of the superannuation death benefits.
Whereas death benefits paid to adult children up to the member’s reasonable benefit limit is taxed as ordinary eligible termination payments, a payment made to a person in an interdependency relationship is tax‑free.
It’s important to seek expert legal advice on establishing an interdependency relationship in relation to a deceased person’s superannuation benefit. Contact us today. We operate in most major cities in Australia including, Sydney, Melbourne, Brisbane, Adelaide, and Perth.