Class Ruling CR 2013/53
Date of effect: 10 July 2013

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. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: All legislative references are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is those employees of Essential Energy shown at paragraph 16, who receive a payment under the scheme described in paragraphs 8 to 37 of this Ruling. Qualifications 4. 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 8 to 37 of this Ruling. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is those employees of Essential Energy shown at paragraph 16, who receive a payment under the scheme described in paragraphs 8 to 37 of this Ruling. | Qualifications: 4. 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 8 to 37 of this Ruling. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 6. This Ruling applies from 10 July 2013 to 31 December 2014. The Ruling continues to apply after 31 December 2014 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 7. The following description of the scheme is based on information provided by the applicant. 8. Essential Energy is seeking the Commissioner's approval to implement an early retirement scheme in accordance with section 83-180. 9. The scheme will be titled 'Essential Early Retirement Scheme' referred to as the Scheme. 10. Essential Energy is a New South Wales (NSW) Government corporation, responsible for building, operating and maintaining Australia's largest electricity network delivering essential services to homes and businesses across NSW and parts of southern Queensland and northern Victoria. 11. The sale of Essential Energy's retail business assets and brand to Origin Energy was completed as part of the NSW Government's energy reform process. The sale of the retail business assets did not involve the transfer of Essential Energy's employees. 12. The NSW Government established, in advance of the sale, a range of entitlements in order to support the future employment of the affected employees. Part of the entitlements for employees covered by their enterprise agreement includes guaranteed employment for five years from the date of the sale. 13. Essential Energy is currently supplying Origin Energy with services whilst it sets up its systems to cater for the acquired Essential Energy business. This arrangement is known as a Transitional Services Arrangement (TSA) and this arrangement is expected to end in the fourth quarter of the 2013 calendar year. At this time the employees working on the TSA will become surplus to Essential Energy's needs, as their roles will be redundant. 14. Employees affected by the sale of the retail business have the option of requesting voluntary redundancy when their roles are no longer required, or remaining employed with Essential Energy as per their entitlements. 15. The purpose of implementing the Scheme is to rationalise and re-organise the employer's operations and reduce, by voluntary means, the size of the company's workforce. Essential Energy intends to offer a scheme to allow some non-retail administrative staff to voluntarily leave the organisation so as to create vacant positions for retail employees to fill when they become surplus at the end of the TSA. 16. The class of employees to whom the Scheme applies is all permanent network line of business employees who are covered by the Essential Energy Enterprise Agreement 2011 or the Essential Energy Far West Electricity Enterprise Agreement 2011 (the Agreements), performing administrative-based roles, that are in the Admin/Clerical Pay Grade. These employees must also be in positions that can be backfilled by employees of the retail business whose roles are no longer required. This class can further be broken down into two sub-classes: 17. Essential Energy will be seeking expressions of interest from employees who wish to voluntarily leave the organisation under the Scheme. Employees will be asked to nominate their expression by 3 October 2013. 18. Those employees whose roles can be successfully backfilled by retail employees will be eligible to express an interest. 19. The number of packages available for retiring employees under the Scheme will be limited. 20. All eligible employees covered by the Essential Energy Enterprise Agreement 2011 will receive a *voluntary separation payment (VSP) under the Scheme as follows: 21. All eligible employees covered by the Essential Energy Far West Electricity Enterprise Agreement 2011 will receive a voluntary separation payment (VSP) under the Scheme as follows: 22. Part-time employees will receive a pro-rated VSP based on the above formula. 23. In addition, all employees terminated under the Scheme will receive their statutory entitlements however they do not form part of the VSP made under the Scheme. 24. In the case where two or more non-retail employees with identical roles who have expressed an interest in leaving but there are not as many matching retail employees available to backfill the roles, then the employee who first submitted their expression of interest will be made the offer to receive the VSP. 25. Offers will be made to eligible employees subject to when their role can be backfilled which is also dependent on when the retail employees' responsibilities end and they are available to commence in their new role. 26. All employees who accept the offer to retire under the Scheme will terminate employment and receive the VSP by 31 December 2014. The actual date of termination will be negotiated with each individual employee based on their operational requirements but no later than 31 December 2014. 27. It is proposed the scheme will be implemented from the date after the Commissioner's approval to 31 December 2014. 28. The VSP made under the Scheme is in excess of any superannuation and any other benefits to which eligible employees would otherwise be entitled. 29. The retirement of employees who receive a payment under the Scheme will occur before they turn 65 years of age. 30. For payments made to eligible employees who have reached age 65 or over the VSPs will not be an early retirement scheme payment and will not be eligible for the tax free base limits under the Scheme. These payments will be concessionally taxed as employment termination payments. 31. Employment termination payments cannot be rolled over into a superannuation fund. 32. Payments made under the Scheme will be at arm's length. 33. There is no agreement in place between the employee and Essential Energy, or between Essential Energy and another person to employ an employee after retirement under the Scheme. 34. The Scheme payments will not be made in lieu of superannuation benefits. 35. Participation in the Scheme is entirely voluntary. 36. If an employee chooses not to participate, his or her employment shall continue with no change. 37. All eligible employees are employed under the Essential Energy Enterprise Agreement 2011, or the Essential Energy Far West Electricity Enterprise Agreement 2011. 38. The scheme to be implemented by Essential Energy is an early retirement scheme for the purposes of section 83-180. 39. Accordingly, so much of the payment received by an employee that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination of his or her employment at the time of the retirement will be an early retirement scheme payment. 40. In addition, so much of the early retirement scheme 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 10 July 2013 41. Where a scheme satisfies the requirements of subsection 83-180(3), that scheme will be an early retirement scheme. 42. Subsection 83-180(3) states that: These three conditions are discussed below. | All employees within a class approved by the Commissioner may participate in the scheme: 43. 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). 44. The class of employees to whom early retirement will be offered is set out in paragraph 16 of this Ruling. 45. The Commissioner considers that this is an appropriate class of persons for the Scheme to be offered. In approving this class of employees the Commissioner has considered the nature of the rationalisation or re-organisation of the operations of the employer. It is therefore considered that these employees meet the requirements of an approved class of employees for the purposes of paragraph 83-180(3)(a). | 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: 46. 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). 47. The facts at paragraphs 9 to 15 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 the Scheme is to be implemented by the employer with a view to rationalising or re-organising the operations of the employer for the purposes of paragraph 83-180(3)(b). | The scheme must be approved by the Commissioner prior to its implementation: 48. The Scheme is proposed to operate for a period from 10 July 2013 to 31 December 2014. The approval provided by this class ruling has been granted prior to implementation therefore for the purposes of paragraph 83-180(3)(c), this condition is satisfied. 49. The Scheme will be in operation for approximately 18 months. This is considered appropriate due to the circumstances of the restructure and the employees that will be given the option of early retirement under the Scheme. | Other relevant information: 50. 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. 51. 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)): 52. 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'. 53. An early retirement scheme payment 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. 54. For the 2013-14 income year, the tax free amount is limited to $9,246 (base amount) plus $4,624 (service amount) for each whole year of completed employment service to which the early retirement scheme payment relates. It should be noted that 6 months, 8 months or even 11 months do not count as a whole year for the purposes of this calculation. In accordance with section 960-285, the base limit and service amount limits will be indexed in line with average weekly ordinary time earnings for each income year. 55. The total of the amount received on the termination of employment calculated in accordance with paragraphs 20 to 22 of this ruling may qualify as an early retirement scheme payment. 56. The total payment calculated in accordance with paragraph 55 of this ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 54 of this ruling to determine the 'tax free' amount of the early retirement scheme payment. 57. The 'tax free' amount will: 58. 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. 59. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: 38. The scheme to be implemented by Essential Energy is an early retirement scheme for the purposes of section 83-180. 39. Accordingly, so much of the payment received by an employee that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination of his or her employment at the time of the retirement will be an early retirement scheme payment. 40. In addition, so much of the early retirement scheme 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 10 July 2013


Appendix: 41. Where a scheme satisfies the requirements of subsection 83-180(3), that scheme will be an early retirement scheme. 42. Subsection 83-180(3) states that: These three conditions are discussed below. | All employees within a class approved by the Commissioner may participate in the scheme: 43. 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). 44. The class of employees to whom early retirement will be offered is set out in paragraph 16 of this Ruling. 45. The Commissioner considers that this is an appropriate class of persons for the Scheme to be offered. In approving this class of employees the Commissioner has considered the nature of the rationalisation or re-organisation of the operations of the employer. It is therefore considered that these employees meet the requirements of an approved class of employees for the purposes of paragraph 83-180(3)(a). | 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: 46. 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). 47. The facts at paragraphs 9 to 15 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 the Scheme is to be implemented by the employer with a view to rationalising or re-organising the operations of the employer for the purposes of paragraph 83-180(3)(b). | The scheme must be approved by the Commissioner prior to its implementation: 48. The Scheme is proposed to operate for a period from 10 July 2013 to 31 December 2014. The approval provided by this class ruling has been granted prior to implementation therefore for the purposes of paragraph 83-180(3)(c), this condition is satisfied. 49. The Scheme will be in operation for approximately 18 months. This is considered appropriate due to the circumstances of the restructure and the employees that will be given the option of early retirement under the Scheme. | Other relevant information: 50. 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. 51. 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)): 52. 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'. 53. An early retirement scheme payment 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. 54. For the 2013-14 income year, the tax free amount is limited to $9,246 (base amount) plus $4,624 (service amount) for each whole year of completed employment service to which the early retirement scheme payment relates. It should be noted that 6 months, 8 months or even 11 months do not count as a whole year for the purposes of this calculation. In accordance with section 960-285, the base limit and service amount limits will be indexed in line with average weekly ordinary time earnings for each income year. 55. The total of the amount received on the termination of employment calculated in accordance with paragraphs 20 to 22 of this ruling may qualify as an early retirement scheme payment. 56. The total payment calculated in accordance with paragraph 55 of this ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 54 of this ruling to determine the 'tax free' amount of the early retirement scheme payment. 57. The 'tax free' amount will: 58. 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.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | [ Note: This is a consolidated version of this document. Refer to the Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10
Legislative references: ITAA 1997 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(3)(c) ITAA 1997 83-180(5) ITAA 1997 83-180(6) ITAA 1997 960-285 ITAA 1997 995-1(1) TAA 1953 Copyright Act 1968