Recent SCT Cases - Suggest wider concept of financial dependency

Two recent decisions of the Superannuation Complaints Tribunal (SCT) suggest that the concept of “financial dependency” is wider than previously thought.

Under the SIS rules which apply to both SMSFs and other super funds, death benefits can only be directly provided to “dependants” of the relevant member. 

Spouses and children of the relevant member are “dependants” merely by reason of their relationship to the relevant member.  They do not need to have any financial dependency on the relevant member.

A person (other than a spouse or child of the relevant member) will also qualify as a dependant if they were in fact financially dependent on the relevant member.

Also, a person who is in an interdependency relationship with the relevant member will also be treated as a dependant.

A parent, sibling or grandchild of the relevant member will not qualify as a dependant unless they are financially dependant or are in an interdependency relationship with the relevant member.

In the first case, the SCT held that the mother of the relevant member was a financial dependant of the member on the basis that the member provided on a regular basis services (such as odd jobs) to his mother which meant that she did not have to engage a professional handyman.

In the second case, the SCT held that the mother of the relevant member was a financial dependant of the member on the basis that the member had made for a period of three years immediately prior to his death, various payments to his mother which materially contributed to her standard of living.

These SCT cases suggest that a person other than the spouse and children of a member could qualify as a financial dependant of the member if the member provides, over a reasonable period of time before their death, financial support to the person.  Further, that person receiving the financial support need not be entirely dependant on the member but could be partially dependant on the member and still qualify as a “dependant”.

Once a person qualifies as a dependant they will generally be entitled to receive lump sum death benefits tax-free and may (subject to certain restrictions in the case of a child of the member) receive a death benefit in the form of a pension.  Generally, a death benefit pension can only be paid to a child of the member if the child is under age 18 or under age 25 and financially dependant on the member, and the pension must stop at age 25.