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Self Managed Super Fund (SMSF) Article
By Tony Negline.
This article may be out of date.
22nd February 2006
When super fund trustees sit down to work how to deal with a deceased member's account balance tax concessions are nearly always a very important issue.
Death benefit tax concessions are available to spouses, siblings under 18, those financially dependent on the deceased at the time of death and those deemed to be in an interdependency relationship.
An interdependency relationship exists between two people when they have a close personal relationship, they live together, at least one provides financial and domestic support and personal care to the other person. There are some exceptions to these requirements when physical, intellectual or psychiatric disabilities exist.
In addition to these issues, the following must be considered in working out if an interdependency relationship exists:
- the duration of the relationship
- whether or not a sexual relationship exists
- the ownership, use and acquisition of property
- the degree of mutual commitment to a shared life
- the care and support of children
- the reputation and public aspects of the relationship
- the degree of emotional support
- the extent to which the relationship is one of mere convenience
- any evidence suggesting that the parties intend the relationship to be permanent
- a person has signed a statutory declaration stating that they are – or were – in an interdependency relationship with someone else.
Many of these terms are complex and it is important to look at some of them in more detail.
A close personal relationship is said to exist if it involves a demonstrated and ongoing commitment to the emotional support and well-being of the two parties. Some issues which may be important include the duration of the relationship, the degree of mutual commitment to a shared life and the reputation and public aspects of the relationship. The existence or commencement of other close relationships will not necessarily preclude a close personal relationship between two people. If a couple is temporarily separated they can still be classed as having an interdependency relationship if they have a close personal relationship but do not satisfy other interdependency relationship requirements. If a couple have a close personal relationship but one or both of them suffers from a disability then it is possible for them to have an interdependency relationship.
What about living together? This should probably be on a full-time basis (unless there is a good reason for this, such as regular travel for employment purposes). Planning to live together on a full-time basis is probably insufficient. However there may still be an interdependency relationship but for some reason the parties lived apart.
Providing financial support effectively means that one person is financial dependent on the other. Court cases over several years have found that financial dependence is present when the claimant relies on the financial support of the provider for his or her normal standard of living. The government has said that, generally speaking, it does not expect that children will be in an interdependency relationship with their parents. This does not mean that death benefits can't be paid out tax effectively because the parents might be financially dependent on the child.
The NSW Supreme Court has found that domestic support (for example providing free accommodation and meals or shopping and washing cloths) and personal care (emotional support and assistance with mobility, personal hygiene and physical comfort) must be present together at the same time. That is, one alone is not acceptable.
You cannot provide domestic support and personal care to someone else if you are employed under an employment contract (or similar instrument) or are acting on behalf of another person or organization such as a government agency, body corporate or charitable organization.
This provision is presumably there to stop situations like those discussed in an article in The Australian Magazine last November. Estella Buzolic was a home help to elderly men and in June 2004 was jailed for two years for stealing $401,000 in life savings from a dying man. She had secretly married another wealthy client who did not make a new will excluding her before he died. In jail, she continues to collect that mans' war widow's pension and waits for a share of his estate, which may include his home and as his surviving spouse is also entitled to his superannuation.
The interdependency relationship regulations say that when there is no domestic support or personal care if “one or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate”. Two examples are provided – significant care because a person is unwell or suffering emotionally.
Some groups of people who will be able to make use of these new rules to receive super fund death benefits and the associated tax concessions are:
- Adult children who had been caring for a disabled parent (in reality this will have more application for lump sum payments after the commutation of a pension or ETP annuity)
- Parents caring for an adult disabled child who was injured in an accident, such as motor vehicle or workplace
- Siblings who reside in the same house together
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