Interdependency - two recent cases on parent-child interdependency

While a child is necessarily a dependant (for the purposes of the SIS Act) of their parent, a parent is not necessarily a SIS Act dependant of their child.  A parent could be a dependant of their child if the parent is either financially dependent on the child or if they have an interdependency relationship with the child.

The issue of whether a parent and a child were in an interdependency relationship usually arises where the child dies while being a member of a superannuation fund where the fund provided automatic life cover.  In this situation, the death benefit of the child could be substantial (due to a significant amount of life cover).  Also, typically, the child dies without either a spouse or children.  Consequently, the trustee of the superannuation fund is faced with the choice of paying the benefit to the estate of the deceased child or considering whether the parent and child were in an interdependency relationship at the date of death.

The financial and tax significance of this issue is that if the parent and the child were in an interdependency relationship then the death benefit can be paid directly to the parent and paid on a tax free basis.