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dependents

Who can be a Super Dependent?

Superannuation rules limit who can receive death benefits. Therefore it is important to understand who can be a superannuation dependent as well as a tax dependent. The rules apply to accumulate savings/account balance as well as insurance inside superannuation.

Death benefits from superannuation (including insurance payments) can only be paid to:

  1. A dependent as defined by the Superannuation Industry Supervision (SIS) Act & Regulations
  2. The deceased’s estate, or
  3. Another person only if neither of the first two exists.

This may limit the range of potential beneficiaries compared to holding insurance outside superannuation.

The SIS definition determines who can receive payment, but the tax definition determines how much tax is payable. These definitions of “dependent” are not the same. The differences are illustrated in the table below;

 

Beneficiary Status SIS Dependent TAX Dependent
Spouse Married
De-facto
Previous Spouse
Yes
Yes
No
Yes
Yes
Yes
Child Under age 18
Age 18 or older
Yes
Yes
Yes
No
Financial Dependent Must meet definition of financial dependent Yes Yes
Interdependency relationship (includes same-sex couples) Must meet the definition of interdependency relationship Yes Yes

From an insurance perspective, if a benefit is paid from superannuation to a non tax dependent, a tax rate of 31.5% is applied to the payment, therefore resulting in a big reduction of payment which may leave the intended beneficiary with a shortfall of funds to cover debts/liabilities and/or ongoing lifestyle needs.

An example of this is a child who is over the age of 18 and no longer meets the definition of a financial dependent. The intention may be that insurance is to be directed to them for estate planning purposes. In this case the level of cover either needs to be increased to account for the tax or the policy can be held outside of super to ensure there are no tax issues in the event of a claim.

It is important to review nominations on a regular basis and to review the intended purpose of the insurance to ensure any possible tax issues or restrictions are assessed.

Hayden White

Hayden has worked in the financial services for last 15 years and provides specific direct equity investment advice both for clients that require portfolios inside and outside superannuation.