The recent trend in the last fifteen years has been from the traditional nuclear family to extended families.

Increasingly, we have younger Australians living at home longer – into their thirties and forties. And we have adult children returning home to reside with and look after aging parents. So common in fact, that the popular Mother and Son comedy series was remade in 2023.

Given the ongoing housing crisis and the realisation this is not going to turn around any time soon, this trend is expected to continue and accelerate.  

The situation begs the question as to whether it is possible for an adult child to receive their parent’s superannuation benefit “tax free” upon the demise of the parent if they have been co-habituating with them for some time?

The short answer is “yes”, but only if a few conditions are met. I will make my comments brief, but with all these things, there is always complexity, and these situations need to be assessed on their individual merits.  

The law states that there must be an “interdependency relationship” and while a poor choice of words, let’s take the common example of the adult child returning to the family home to assist and care for an aging parent. Four elements need to be satisfied for interdependency to be determined:

1. They both need to have a close personal relationship. A close personal relationship does not have to involve intimacy. But it must involve a demonstrated and ongoing commitment to the emotional support and well being that exist between the two individuals. The absence of a shared life together; say the adult child travels to a location to work for a few days per week, does not negate the existence of a close personal relationship. Rather, it would be assessed based on their weekly interactions – telephone calls, outings, conversations between the two and the frequency and content of these interactions. 
2. Sharing the same residence for an indefinite duration – this can be full time or even part time and evidenced by eating together, sharing cleaning and cooking. It is more than economic convenience or taking in a boarder.
3. Offering financial support and this comes in different forms. Even if both the parent and the child are both financially independent, this can be satisfied if each contributes to the household on an indefinite basis. Note the term “indefinite basis” keeps appearing. There are no tenancy agreements in place here.

There needs to be an offering of domestic support and personal care, meaning if either or both of them provide mutual support such as shopping, assisting with medical appointments, cleaning, cooking or laundry assistance.

Seeking a tax free benefit determination can deny the Tax Office a potential 17% non-dependency tax on the proceeds of the deceased parents superannuation death benefit. So it is well worth considering. We are certain we will see many of these situations arising in the future.