Non-dependant (Tax)

A non-dependant for tax purposes is anyone who doesn't fit the definition of a tax dependant under section 302-195 of the Income Tax Assessment Act 1997. Most commonly, this includes adult children aged 18 and over who are financially independent, as well as siblings, parents, other relatives, and friends who aren't financial dependants or in an interdependency relationship with the deceased. When a non-dependant receives a superannuation death benefit, they must pay tax on the taxable component at 15% plus 2% Medicare Levy (17% total) if it's from a taxed fund, or 30% plus 2% Medicare Levy (32% total) if it's from an untaxed fund. The tax-free component is received tax-free. Non-dependants cannot receive death benefits as income streams; they must be paid as lump sums. This tax treatment can result in significant tax on large super balances. For a $1,000,000 death benefit with 80% taxable component, a non-dependant pays $136,000 in tax, receiving $864,000. In contrast, if the same person was a tax dependant, they'd receive the full $1,000,000 tax-free. The distinction between dependant and non-dependant creates estate planning opportunities. Strategies might include withdrawing super tax-free after age 60 and purchasing life insurance outside super (which pays tax-free to all beneficiaries), making non-concessional contributions to increase the tax-free component, or considering re-contribution strategies to crystallize a tax-free component.