When they receive death superannuation benefits, adult children typically do not qualify as death benefits dependants and as a result, the taxable components of such death benefits are taxed between 15 - 32%.
However, those death benefits can be tax free if the adult child was financially dependent on the deceased, or in an interdependency relationship with them.
In relation to the latter, the ATO has recently taken a strict approach and has denied an interdependency relationship. However, a recent private ruling has “bucked” that trend and found an interdependency relationship did exist.
The private binding ruling: facts
PBR 1052499031144 concerned an adult child (the Beneficiary) who received a lump sum superannuation death benefit from her late parent (the Deceased) in the 2025 income year. The key facts are outlined below:
The Beneficiary had lived with the Deceased her entire life.
The Deceased was concerned about the Beneficiary’s limited life skills and ability to live independently, and supported her emotionally and financially.
The Beneficiary had her own income from JobSeeker Payments, employment as a youth worker, and distributions from two family trusts controlled by the Deceased.
The Deceased also paid the Beneficiary’s university fees, living expenses, food, clothing, holidays, medical and dental bills, and private health insurance.
Bank statements showed significant, consistent fortnightly deposits from the Deceased and the trusts to the Beneficiary.
The ATO’s reasoning
The Commissioner considered whether the Beneficiary was a dependant under paragraph 302-195(1)(d) of the ITAA 1997. Applying Malek v Federal Commissioner of Taxation [1999] AATA 678, the Commissioner adopted the view that:
"the relevant financial support is that required to maintain the person's normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard".
The bank statements showed substantial, regular support paid both directly and through the trusts. The Commissioner concluded that the Beneficiary relied on that support to maintain her normal standard of living, despite her own employment income and government payments.
The outcome
The Commissioner ruled that the Beneficiary was a death benefits dependant, so the superannuation death benefit was received tax free.
Why this matters
Financial dependency and interdependency is a matter of objective fact and evidence. Earning income or receiving government payments does not rule it out. The relevant question is whether the recipient relied on the deceased's regular contributions to maintain their usual standard of living.
For families, executors, and trustees, the practical lessons are:
Keep records - regular, documented transfers can be strong evidence of dependency.
Consider all sources of support, including payments through family trusts.
Plan ahead - where an adult child relies on a parent, consider the tax outcome in estate and superannuation planning, including binding death benefit nominations.
Prepared with the assistance of Law Graduate, Nina Spriggs.
