Class Ruling

CR 2007/103

Income tax: early retirement scheme - Catholic Education, Diocese of Rockhampton

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What this Ruling is about

1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

2. This Ruling approves the particular early retirement scheme and acknowledges the availability of tax concessions for entities receiving payment under the scheme. There are many conditions attached to this Ruling and readers should be careful to ensure that these conditions are met before relying on this Ruling.

Relevant provision(s)

3. The relevant provisions dealt with in this Ruling are:

•

section 83-170 of the Income Tax Assessment Act 1997 (ITAA 1997); and

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section 83-180 of the ITAA 1997.

All subsequent legislative references are to the ITAA 1997 unless stated otherwise.

Class of entities

4. The class of entities to which this Ruling applies is those employees of Catholic Education, Diocese of Rockhampton who receive a payment under the scheme described in paragraphs 15 to 31 of this Ruling.

Qualifications

5. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

6. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 15 to 31 of this Ruling.

7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

•

this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and

•

this Ruling may be withdrawn or modified.

8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Commonwealth Copyright Administration

Attorney General's Department

Robert Garran Offices

National Circuit

Barton ACT 2600

or posted at: http://www.ag.gov.au/cca

9. A copy of this Ruling must be given to all employees eligible to participate in the early retirement scheme.

Date of effect

10. This Ruling applies from 7 November 2007 to 5 December 2008. However, the Ruling continues to apply after this date to all entities within the specified class who entered into the specified scheme during the term of the Ruling.

11. The Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling. Furthermore, the Ruling only applies to the extent that:

•

it is not later withdrawn by notice in the Gazette; or

•

the relevant provisions are not amended.

12. If this Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).

13. If this Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Ruling is made, the following two conditions are met:

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the income year or other period to which the rulings relate has not begun; and

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the scheme to which the rulings relate has not begun to be carried out.

14. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA).

Scheme

15. The following description of the scheme is based on information provided by the applicant.

16. Catholic Education, Diocese of Rockhampton is seeking approval for an early retirement scheme.

17. The early retirement scheme is to be offered to all teachers and support staff currently working in Catholic Education, Diocese of Rockhampton with a minimum of ten years continuous service in Catholic schools in Queensland in a full-time, part-time or term-time capacity.

18. During 2007 there have been a number of diocesan initiatives including the development of a Wide Area Network (WAN), an ICT infrastructure project which standardised connectivity across the diocese ensuring data outlets in every classroom, the implementation of MySuite as an education centric collaboration tool which provides a secure communication and content management system, and further complementary support that provided at least one computer for every classroom. Catholic Education, Diocese of Rockhampton is required to keep pace with the current technological developments and the benefits will depend on technologically competent teaching staff.

19. Newly appointed teachers are generally graduate teachers and their qualifications, training and internships include pre-service preparation in current curriculum design, assessment and reporting and pedagogies that include student centred and directed learning. Graduate teachers will have the benefit of working with the latest technological advances during their training. Current teachers have not received many of these preparation aspects in their training.

20. Support staff that are recently trained would be taught computer skills and be educated on the changing nature of the technical and administrative operations of the school. Support staff that Catholic Education, Diocese of Rockhampton is currently seeking to employ will be expected to have achieved the relevant certificate two, three or four qualification relevant to their classification and position description. Most current employees in the class of employees to be offered the early retirement scheme package do not hold these qualifications and are reluctant to undertake formal qualification programs.

21. Catholic Education, Diocese of Rockhampton wishes to replace teachers and support staff who are more experienced in terms of years with newly qualified teachers and recently trained support staff, thereby introducing the latest pedagogical methodologies, advanced human resource skills and the latest in technological skills to the schools.

22. All employees who retire under the scheme will terminate employment and receive the payment on a date determined by the employer based on their operational requirements but no later than 5 December 2008.

23. It is noted, however, that Catholic Education, Diocese of Rockhampton retains a limited right of veto to be applied if more employees accept the offer to retire than the number of early retirement scheme packages available. The veto will be that packages will be given to employees on a first in basis.

24. The payments to be made under the scheme are calculated at 1.5 weeks salary per year of continuous service in Catholic Education in Queensland to a maximum payment of $35,000 per employee.

Payments made under the Scheme

25. For a payment made under the above mentioned scheme to qualify as an approved early retirement scheme payment, the conditions set out in paragraphs 26 to 31 of this Ruling must be met. Please note, any payment made under the scheme that does not satisfy these requirements is not covered by this Ruling.

26. The payment must be received by an employee because of their retirement under an early retirement scheme. The early retirement scheme payment will be so much of the payment that exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the retirement.

27. The payment must not be a payment mentioned in section 82-135 of the ITAA 1997 (apart from paragraph 82-135(e)).

28. The payment must not be made in lieu of superannuation benefits.

29. Where the employee and the employer are not dealing with each other at arm's length (for example, because they are related in some way) the payment does not exceed what would have been paid to the taxpayer had they been dealing at arm's length.

30. The employee must retire before the earlier of:

•

age 65; or

•

the date on which the taxpayer's employment would have terminated under the terms of employment because of the taxpayer attaining a certain age or completing a certain period of service (as the case may be).

31. At the time of the retirement, there is no arrangement in force between the employee and the employer or the employer and another person, to employ the employee after the date of termination.

Ruling

32. The early retirement scheme to be implemented by Catholic Education, Diocese of Rockhampton is an early retirement scheme for the purposes of section 83-180.

33. Accordingly, so much of the payment received by an employee as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the retirement will be an early retirement scheme payment in relation to the taxpayer.

34. In addition, so much of the payment as falls within the threshold calculated in accordance with section 83-170 is not assessable income and is not exempt income.

Commissioner of Taxation
7 November 2007

Appendix 1 - Explanation

35. Where a scheme satisfies the requirements of subsection 83-180(3) that scheme will be an 'early retirement scheme'.

36. The Commissioner has issued Taxation Ruling TR 94/12 Income tax: approved early retirement scheme and bona fide redundancy payments, which sets out guidelines on the application of the former section 27E of the Income Tax Assessment Act 1936, which section 83-180 of the ITAA 1997 replaced.

37. Subsection 83-180(3) states that:

A scheme is an early retirement scheme if:

(a)

all the employer's employees who comprise such a class of employees as the Commissioner approves may participate in the scheme;

(b)

the employer's purpose in implementing the scheme is to rationalise or re-organise the employer's operations by making any change to the employer's operations, or the nature of the work force, that the Commissioner approves; and

(c)

before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

These three conditions are discussed below.

All employees within a class approved by the Commissioner may participate in the scheme

38. In order to satisfy the first condition, the scheme must be offered to all employees in a class approved by the Commissioner under paragraph 83-180(3)(a).

39. The class of employees to whom early retirement will be offered is set out at paragraph 17 of this Ruling.

40. The Commissioner considers that this is an appropriate class of employees for the scheme to be offered to. In approving this class of employees the Commissioner has considered the nature of the rationalisation or re-organisation of the operations of the employer. These employees meet the requirements of an approved class of employees for the purpose of paragraph 83-180(3)(a).

41. It is noted, however, that Catholic Education, Diocese of Rockhampton retains a limited right of veto to be applied if more employees accept the offer to retire than the number of early retirement scheme packages available. The veto will be that packages will be given to employees on a first in basis.

The employer's purpose in implementing the scheme is to rationalise or re-organise the employer's operations in a way approved by the Commissioner

42. The proposed scheme must be implemented by the employer with a view to rationalising or re-organising the operations of the employer as described in paragraph 83-180(3)(b).

43. Paragraphs 18 to 21 of this Ruling describe the nature of the rationalisation or re-organisation of the employer's operations. In approving the scheme, the Commissioner has had regard to the changes in the operations and nature of the workforce of the employer. It is therefore considered that the scheme is to be implemented by the employer with a view to rationalising or re-organising the operations of the employer for the purpose of paragraph 83-180(3)(b).

The scheme must be approved by the Commissioner prior to its implementation

44. The scheme is proposed to operate from 7 November 2007 to 5 December 2008. Approval was granted prior to implementation therefore the third condition is satisfied.

45. The scheme will be in operation for approximately 13 months. While this is longer than the period recommended in TR 94/12 it is considered to be appropriate in this case.

Other relevant information

46. Under subsection 83-180(1), so much of the payment received by an employee because the employee retires under an early retirement scheme as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of termination is an early retirement scheme payment.

47. It should be noted that, in order for a payment to qualify as an early retirement scheme payment, it must also satisfy the following requirements (as set out in subsections 83-180(2), 83-180(5) and 83-180(6)):

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the retirement occurred before the employee turned age 65 or such earlier date on which the employee's employment would have terminated under the terms of employment because of the employee attaining a certain age or completing a particular period of service (as the case may be);

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if the employee and the employer are not dealing with each other at arm's length (for example because they are related in some way) the payment does not exceed the amount that could reasonably be expected to be made if the retirement was made at arm's length;

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at the time of retirement there was no arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the retirement;

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the payment must not be made in lieu of superannuation benefits; and

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it is not a payment mentioned in section 82-135 (apart from paragraph 82-135(e)).

48. The term 'arrangement' is defined in subsection 995-1(1) as meaning 'any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings'.

49. An early retirement scheme payment made on or after 1 July 2007 that falls within the specified limit is referred to as the 'tax-free' amount and will not be assessable income and will not be exempt income.

50. For the year ending 30 June 2008, this amount is limited to $7,020 plus $3,511 for each whole year of completed employment service to which the early retirement scheme payment relates. Please note that six months, eight months or even eleven months do not count as a whole year for the purposes of this calculation. The $7,020 and $3,511 limits will be indexed to rise in each subsequent year in line with increases in average weekly ordinary time earnings.

51. The total of the amount received on the termination of employment calculated in accordance with paragraph 24 of this Ruling may qualify as an early retirement scheme payment.

52. The total of the payments in the previous paragraph will be measured against the limit calculated in accordance with paragraph 50 of this Ruling to determine the 'tax-free' amount of the early retirement scheme payment.

53. The 'tax-free' amount will:

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not be an employment termination payment; and

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not be able to be rolled-over into a superannuation fund.

54. Any payment in excess of this limit will be an employment termination payment and split up into tax free and taxable components. The tax free component of an employment termination payment includes the pre-July 83 segment of the payment. The tax free component is not assessable income and is not exempt income.

55. Employment termination payments cannot be rolled-over into a superannuation fund.

Appendix 2 - Detailed contents list

56. The following is a detailed contents list for this Ruling:

Not previously issued as a draft

References

ATO references:
NO 2007/18767

Related Rulings/Determinations:

TR 94/12

Subject References:
early retirement scheme payment
employment termination payment

Legislative References:
ITAA 1936 27E
ITAA 1997 82-135
ITAA 1997 82-135(e)
ITAA 1997 83-170
ITAA 1997 83-180
ITAA 1997 83-180(1)
ITAA 1997 83-180(2)
ITAA 1997 83-180(3)
ITAA 1997 83-180(3)(a)
ITAA 1997 83-180(3)(b)
ITAA 1997 83-180(5)
ITAA 1997 83-180(6)
ITAA 1997 995-1(1)
TAA 1953
TAA 1953 Sch 1 357-75(1)
Copyright Act 1968