A decision from the Administrative Appeals Tribunal (AAT) has elements that may "surprise" SMSF professionals and challenge their understanding of what constitutes an interdependency relationship.
'Surprising' AAT decision on SMSFs
The facts of TBCL and Commissioner of Taxation  AATA 264 include a son who was born in 1991 – the only child of two parents, who he lived with until 2007 before relocating. He returned to live with his parents in 2009, before his death in a motor vehicle accident in 2013, DBA Lawyers director Bryce Figot explained.
His parents paid $40,000 towards the total cost of the son’s pilot course, accommodation of $250 per week and living expenses of $1,000 per month while he lived in Melbourne. The parents bought the son various items and covered significant expenses, including pilot’s gear and a motor vehicle.
Further, the parents and son shared their living expenses equally, including food, council rates and water charges. The parents provided the son with domestic support in the form of preparing meals, doing laundry, cleaning, and a number of other tasks, while the son helped his parents by performing tasks around the house.
Also, at the time of the son’s death, the parents had begun converting their garage into a private living space for their son.
In May 2014, a benefit of $500,000 was paid to the son’s estate. In August 2014, the parents made an application for a private ruling that the sum was not assessable because they were each a death benefit dependant of the son. A death benefit dependant includes someone in an interdependency relationship.
In November 2014, the Commissioner issued a notice of private ruling to the parents containing a ruling that they were not death benefits dependants.
The AAT reviewed this decision, and decided there was not enough evidence to establish an interdependency relationship.
"The mere fact that adult kids live with parents may not be enough to receive a death benefit tax free," Mr Figot told AccountantsDaily's sister publication SMSF Adviser.
"But if there’s a bit more to it, such as moving in to care for someone who is sick, and it’s more than just the commercial convenience, then you’re far more likely to have an interdependency relationship. After someone dies, be it the parent or the child can receive the super tax free.
"When you read the facts, it sounds like they were a shoo-in to get it, but the mere fact that two people do live together, even if it is a parent-child relationship, that is not enough."
Mr Figot said to prove the existence of an interdependency relationship, the involved parties can sign a statutory declaration before anyone dies.
"I dare say in practice not many people would think to do that, but that something the legislation expressly says you should look at," Mr Figot said.
"Keeping records is always important. Most disputes with the Tax Office are lost not simply because of what the law says, but because people can’t prove the facts they need to."