Taxation & Estate Planning

Adult children as tax free dependants

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With an increasing number of elderly parents living with their adult children, is it possible that an adult child of a deceased parent could, on the death of the parent, receive their parent's superannuation tax free?

For an adult child to receive their deceased parent's superannuation benefit, the adult child must either be a 'financial dependent' of the parent or have an interdependency relationship with their parent at the time of death of the parent.

This paper considers whether an adult child can have an interdependency relationship with their parent. It is presumed that the adult child is legally and financially independent of the parent.

Interdependency relationship - a poor choice of a name

The name 'interdependency relationship' is simply the term used in the statutory definition.

Unfortunately, the term suggests that each individual in the relationship is in some way dependent on the other with the consequence that the understanding of the elements of the definition are distorted by viewing each requirement through the lens of mutual dependency which is both financial and non-financial in scope.

Elements of the relationship

For the relationship to exist between two individuals, four elements must be satisfied:

• They must have a close personal relationship.

• They must live together.

• One or each of them provides the other with financial support.

• One or each of them provides the other with domestic support and personal care.

Close personal relationship

This element does not require a sexual or romantic relationship to exist between the two individuals. A relationship can be close and personal without being sexual or romantic. There is no requirement that the relationship be marriage-like although a marriage-like relationship will qualify as a close personal relationship.

Living together

This element only requires that the two individuals share the same residence. This element imports no romantic or sexual requirement.

Financial support

This element does not require financial dependency of one on the other.

Financial support is less onerous threshold than financial dependency. Further there is no requirement that each individual must provide the other with financial support. It is sufficient that only one individual provides financial support to the other.