Who counts as a dependant for super purposes?
When it comes to your super, your spouse (including a de facto or same sex partner) is always classified as a dependant.
Your children and your spouse’s children are also dependants no matter how old they are.
Two other groups of people who might be your dependants are:
- anyone who is dependent on you in the ordinary sense (eg someone who relies on you financially to meet their usual costs of living), or
- someone with whom you have an “interdependency relationship”. This is another term with a specific meaning. It generally includes anyone other than a spouse or child with whom you have a close personal relationship and where one or both of you provide financial support, domestic support and personal care to the other. If you think this might be relevant in your case, it’s worth checking the actual wording in the legislation.
Any of these people can receive your super when you die. It can be paid to them directly from your fund. If you want anyone else to receive it (eg a brother, sister, niece, nephew, parent, friend, charity), you should make sure your super will be paid to your estate and then distribute it under your Will.
It’s also worth noting that not everyone can have their super paid to them as a pension. For most people, only their spouse can inherit their super this way. While minor children, or children who are under 25 and still dependent, can receive a pension from their super, they have to cash out whatever is left once they get to 25. Older children generally can’t have a pension from their super at all.
Different beneficiaries means different tax
When a spouse or minor child receives your super as a lump sum, they don’t pay any tax.
But the same amount paid to an adult, financially child is taxed differently. They must pay tax at between 15% – 30% on the “taxable component” of your super. In fact, if they receive your super directly from your fund, they will also pay the Medicare Levy on the taxable component of your super.
Medicare doesn’t apply if they inherit your super via your estate – which is why many people structure their affairs to have their super paid to their estate if it’s going to be paid to adult children.
The taxable component of your super will usually be shown on your member statement each year.
Superannuation beneficiary rules: Getting your super to the right people
Super doesn't automatically follow your Will, which catches many people off guard. Knowing who can legally receive your super – and how – is the first step, but the next step is making sure your wishes are actually documented and up to date.
If you want your super paid to someone who isn't a dependant, like a sibling, parent or friend, you'll need to direct it through your estate and make sure your Will reflects that. And if adult children are likely to inherit your super, it's worth considering whether paying it via your estate could reduce their tax bill.
If you want to be absolutely sure a particular beneficiary (or your estate) will receive your super, a Binding Death Benefit Nomination (BDBN) is the most reliable way to do this. Without one, your fund's trustee has discretion over who receives it and that decision might not line up with your wishes. Most people in public super funds have a BDBN for exactly that reason.
The situation is different in an SMSF. Often, the SMSF members are a couple who intend to leave their super to each other. They might choose not to have a BDBN because their spouse will control the SMSF after the member dies. They're happy for their spouse to have discretion over how the benefit is paid. That way, he or she can make sure it’s paid in whatever way is best for them at the time.
Other SMSF members will choose to have a BDBN because they want certainty for them and their beneficiaries. This is particularly common for people with (say) no spouse or in a second marriage.
Given the tax and legal complexity involved, it's worth speaking with a financial adviser or estate planning lawyer to make sure your super is structured the right way for your situation.
