The ATO have recently released an interpretative decision (ATO ID 2011/77) dealing with the issue of “former” step children, and the meaning of child and dependants for the purpose of paying out SMSF death benefits.
Consider the following example:
Jack and Jill were married. Little Bill is Jill’s son from a former marriage.
Hence Little Bill was Jack’s step son.
However, Jack and Jill’s marriage ended a few years ago in divorce.
Now, Jack has died, and did not formally adopt Little Bill under any state or territory law.
So the question is – can Little Bill be classed as a dependant of Jack’s (under the SIS Act, and hence be eligible for a death benefits payout from Jack’s super fund) because Little Bill has previously been a ‘stepchild’ of Jack’s ?
The ATO have recently released an Interpretative Decision (ATO ID 2011/83) dealing with the issue of whether or not a former spouse of a same sex couple qualifies as a superannuation death benefits dependent – even though the relationship ended prior to same sex couples being included as “spouses”.
Why is this important?
As you may be aware, if a superannuation death benefit payment is made to someone who qualifies as a ‘death benefits dependent’ of the person who has died, the payment attracts very favorable tax treatment (lump sums are tax free).
Hence, to be treated as a death benefits dependent can mean the difference of many thousands of dollars in the final payout.