Non-dependant (Tax)

A non-dependant for tax purposes is anyone who is not a tax dependant under section 302-195 of the Income Tax Assessment Act 1997. Most commonly, non-dependants are adult children aged 18 or over who are financially independent of the deceased.

Non-dependants pay tax on the taxable component of a super death benefit. They cannot receive the benefit as an income stream; it must be paid as a lump sum.

Tax rates for non-dependants

| Component | Source fund type | Tax rate | |---|---|---| | Tax-free component | Any | 0% | | Taxable component (taxed element) | Retail / industry funds | 17% (15% + 2% Medicare) | | Taxable component (untaxed element) | Public-sector / untaxed funds | 32% (30% + 2% Medicare) |

Most retail and industry super accounts produce only taxed elements because contributions tax was paid at 15% during accumulation. Untaxed elements are usually limited to public-sector schemes.

Worked example: $1,000,000 super to financially independent adult child

• Setup: $800,000 taxable component (taxed element), $200,000 tax-free component
• Tax on tax-free $200,000: $0
• Tax on taxable $800,000: $800,000 × 17% = $136,000
• Net to beneficiary: $864,000

The same $1,000,000 held as retail life insurance outside super would pay $1,000,000 tax-free.

Planning levers for non-dependant beneficiaries

1. Hold life cover outside super so the death benefit is tax-free
2. Withdraw super after age 60 to crystallise a tax-free outcome before death (subject to your living needs)
3. Re-contribution strategy to convert taxable component into tax-free component via withdrawals and non-concessional re-contributions, subject to caps
4. Direct binding nominations to tax dependants where one exists (spouse, financial dependant, interdependent)

This is general information about tax mechanics. Each lever has trade-offs (contribution caps, age limits, work test, member loss-of-control over funds withdrawn) and a qualified adviser should be consulted for individual circumstances.