Tax Talks

124 | SIS v Tax Dependants

SIS v tax dependants is a confusing topic because the definitions overlap with a few gaps around the edges.

SIS v Tax Dependants

The SIS Act determines who can get your super directly from your super fund without having to go through your estate. These are your SIS dependants.

Tax law determines who pays tax on the taxable component of any such payment. Tax dependants receive your super tax-free.

But who are your SIS and tax dependants? Here is what we learned from talking to Gordon Mackenzie of UNSW. But please listen to this episode since Gordon explains all this much better than we ever could.

To listen while you drive, walk or work, just access the episode through a podcast app on your mobile phone.

SIS Dependancy

The SIS Act defines a dependant in s10. And there is says:

dependant, in relation to a person, includes the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship.

So a SIS dependant is a spouse, child and interdepency relationship.

Financially dependant is not mentioned in s10. So you might think that a person financially dependant on you but not living with you in an interdepency relationship could not be your SIS dependant, but they can.

Because s10 of the SIS Act just says ‘includes’ a spouse, child etc, it doesn’t say nobody else can be a dependant. And so somebody financially dependant on you is also a SIS dependant.

A SIS dependant can only be a person. It can’t be an animal, object or legal entity like a company or trust.

Tax Dependancy

The official term for a tax dependant is death benefit dependant. That is the term used in the Income Tax Assessment Act 1997. But tax dependant is shorter and easier to remember, so tax dependant is a common term used to describe a death benefit dependant.

A death benefit dependant is defined in s302-195 ITAA97. 

s302-195 (1):  A death benefits dependant, of a person who has died, is (a)  the deceased person’s  spouse or former spouse; or (b)  the deceased person’s  child, aged less than 18, or (c)  any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died, or (d)  any other person who was a dependant of the deceased person just before he or she died.

So your spouse is a tax dependant. Including any former spouse. All your children under 18 are. And anybody financially dependent or in an interdependency relationship with you is as well. But your financially independent adult children are not. 

Overlap With Gaps

So SIS and tax law overlap to some extent but with gaps. The two significant differences relate to adult children and former spouses.

Under tax law only children under 18 are your tax dependants. Children at 18 or older are not, unless …they are financially dependent on you or had an interdependency relationship with you.

Under SIS law on the other hand all your children are your SIS dependants. No matter what age or financial situation.

Under tax law former spouses are included. Under SIS law they are excluded.

SIS But Not Tax Dependant

Your financially independent adult children are your SIS dependants, but not your tax dependants. 

Tax But Not SIS Dependant

A former spouse is not your SIS dependant – assuming they are not financially dependant on you and don’t live with you. But the tax law specifically lists a former spouse as a tax dependant.  

As a result, your former spouse can only receive your super through your estate, not directly from your fund. But when they do receive your super through you restate, then it is tax-free.

All this is just our brief take on the issue, but please listen to the episode above. Gordon Mackenzie explains all this much better than we ever could.

 

MORE

Death Benefit

Age Pension

Binding Death Benefit Nomination

 

Disclaimer: Tax Talks does not provide financial or tax advice. This applies to these show notes as well as the actual podcast interview. All information on Tax Talks is provided for entertainment purposes only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.