Class Ruling CR 2017/69
Date of effect: 27 September 2017

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions 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 whom this scheme applies is those employees of Canon Information Systems Research Australia Pty. Ltd. (CiSRA) shown at paragraph 11 of this Ruling who receive a payment under the scheme described under the heading Scheme. 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 under the heading Scheme. 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 whom this scheme applies is those employees of Canon Information Systems Research Australia Pty. Ltd. (CiSRA) shown at paragraph 11 of this Ruling who receive a payment under the scheme described under the heading Scheme. | 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 under the heading Scheme. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 6. The Ruling applies from 27 September 2017 to 31 December 2017. The Ruling continues to apply after 31 December 2017 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, the 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 the Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 7. The scheme will be titled the ' Canon Information Systems Research Australia Pty. Ltd.' , hereafter referred to as 'the Scheme'. 8. CiSRA is an Australian subsidiary of Canon Inc. It is one of seven Research and Development Centres globally which primarily services Canon Inc. CiSRA has one office in Sydney and focuses on developing advanced technology solutions. 9. Over the past five to six years, the demand for software product development has substantially reduced. In response to the changing market conditions, CiSRA are now focussed on applied research and no are longer undertaking software product development. This has resulted in an oversupply of software engineering talent. 10. Implementation of the Scheme will enable CiSRA to maintain and extend the company's core competencies in applied research. The Scheme provides an avenue for the refreshment of a portion of the CiSRA workforce by opening employment opportunities for individuals with the technical skills who will enable CiSRA to meet its new business objectives. 11. The class of employees to whom the Scheme applies is: 12. The following staff are considered key employees and are critical to CiSRA providing high level research and business outcomes for clients. These employees are excluded from participating in the Scheme based on data as at the 'date of announcement' of the Scheme: 13. In addition, the following staff will not be eligible to participate in the Scheme: 14. The Scheme will be open to eligible employees from 27 September 2017, and will be implemented as follows: 15. There is no minimum number of employees required for the Scheme to be implemented. 16. All eligible employees under the Scheme will receive a payment at their ordinary rate of pay comprising of: Any part time employees who retire under the Scheme will receive these payments on a pro rata basis. 17. The payment made under the Scheme is in excess of any superannuation and any other benefits to which eligible employees would otherwise be entitled. 18. Payments made under the Scheme will be at arm's length. 19. The retirement of employees who receive a payment under the Scheme will occur before they turn 65 years of age. 20. There is no agreement in place between any eligible employee and CiSRA, or between CiSRA and another person to employ the eligible employee after retirement under the Scheme. 21. Participation in the Scheme will be entirely voluntary. 22. The early retirement scheme to be implemented by CiSRA is an early retirement scheme for the purposes of section 83-180. 23. Accordingly, so much of the payment received by an eligible employee that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination of their employment at the time of the retirement will be an early retirement scheme payment. 24. 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 27 September 2017 25. In accordance with subsection 83-180(3), a scheme will be an early retirement scheme if: 26. Accordingly, a scheme will be an early retirement scheme if the following three conditions are met. | All employees within a class approved by the Commissioner may participate in the scheme: 27. 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). 28. The class of employees to whom early retirement will be offered under the Scheme is set out in paragraph 11 (subject to paragraphs 12 and 13) of this Ruling. 29. The Commissioner considers that this is an appropriate class of persons for the Scheme to be offered to. In approving this class of employees the Commissioner has considered the nature of the rationalisation or reorganisation 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 reorganise the employer's operations in a way approved by the Commissioner: 30. The proposed scheme must be implemented by the employer with a view to rationalising or reorganising the operations of the employer as described in paragraph 83-180(3)(b). 31. Paragraphs 9 and 10 of this Ruling describe the nature of the rationalisation or reorganisation of the employer's operations. In approving the Scheme, the Commissioner has had regard to the changes in the operations and nature of the work force of the employer. It is considered that the Scheme is to be implemented by the employer with a view to rationalising or reorganising 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: 32. The Scheme is proposed to operate for a period from 27 September 2017 to 31 December 2017. The approval to be provided by the class ruling will have been granted prior to implementation therefore, for the purposes of paragraph 83-180(3)(c), this condition is satisfied. 33. The Scheme will be in operation for approximately two months. This is considered appropriate due to the circumstances of the reorganisation. | Other relevant information: 34. 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 their employment at the time of termination is an early retirement scheme payment. 35. 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)): 36. 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 '. 37. In accordance with section 83-170, 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. 38. For the 2017-18 income year, the tax free amount is limited to $10,155 (base amount) plus $5,078 (service amount) for each whole year of completed employment. 39. The total of the amount received on the termination of employment calculated in accordance with paragraph 16 of this Ruling may qualify as an early retirement scheme payment. 40. The total payment calculated in accordance with paragraph 16 of this Ruling will be measured against the limit in accordance with the formula mentioned in paragraph 38 of this Ruling to determine the tax free amount of the early retirement scheme payment. 41. The tax free amount will: 42. Any payment in excess of this limit will be an ETP and will be split into tax free and taxable components. The tax free component of an ETP includes the pre July 83 segment of the payment. The tax free component is not assessable income and is not exempt income. 43. The taxable component of the ETP will be taxed at various rates depending on the person's age. It should be noted that the 'whole of income cap' does not apply to any part of the early retirement scheme payment. 44. 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: 22. The early retirement scheme to be implemented by CiSRA is an early retirement scheme for the purposes of section 83-180. 23. Accordingly, so much of the payment received by an eligible employee that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination of their employment at the time of the retirement will be an early retirement scheme payment. 24. 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 27 September 2017


Appendix: 25. In accordance with subsection 83-180(3), a scheme will be an early retirement scheme if: 26. Accordingly, a scheme will be an early retirement scheme if the following three conditions are met. | All employees within a class approved by the Commissioner may participate in the scheme: 27. 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). 28. The class of employees to whom early retirement will be offered under the Scheme is set out in paragraph 11 (subject to paragraphs 12 and 13) of this Ruling. 29. The Commissioner considers that this is an appropriate class of persons for the Scheme to be offered to. In approving this class of employees the Commissioner has considered the nature of the rationalisation or reorganisation 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 reorganise the employer's operations in a way approved by the Commissioner: 30. The proposed scheme must be implemented by the employer with a view to rationalising or reorganising the operations of the employer as described in paragraph 83-180(3)(b). 31. Paragraphs 9 and 10 of this Ruling describe the nature of the rationalisation or reorganisation of the employer's operations. In approving the Scheme, the Commissioner has had regard to the changes in the operations and nature of the work force of the employer. It is considered that the Scheme is to be implemented by the employer with a view to rationalising or reorganising 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: 32. The Scheme is proposed to operate for a period from 27 September 2017 to 31 December 2017. The approval to be provided by the class ruling will have been granted prior to implementation therefore, for the purposes of paragraph 83-180(3)(c), this condition is satisfied. 33. The Scheme will be in operation for approximately two months. This is considered appropriate due to the circumstances of the reorganisation. | Other relevant information: 34. 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 their employment at the time of termination is an early retirement scheme payment. 35. 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)): 36. 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 '. 37. In accordance with section 83-170, 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. 38. For the 2017-18 income year, the tax free amount is limited to $10,155 (base amount) plus $5,078 (service amount) for each whole year of completed employment. 39. The total of the amount received on the termination of employment calculated in accordance with paragraph 16 of this Ruling may qualify as an early retirement scheme payment. 40. The total payment calculated in accordance with paragraph 16 of this Ruling will be measured against the limit in accordance with the formula mentioned in paragraph 38 of this Ruling to determine the tax free amount of the early retirement scheme payment. 41. The tax free amount will: 42. Any payment in excess of this limit will be an ETP and will be split into tax free and taxable components. The tax free component of an ETP includes the pre July 83 segment of the payment. The tax free component is not assessable income and is not exempt income. 43. The taxable component of the ETP will be taxed at various rates depending on the person's age. It should be noted that the 'whole of income cap' does not apply to any part of the early retirement scheme payment.


Summary - 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. | (a) all the employer's employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and | (b) the employer's purpose in implementing the scheme is to rationalise or reorganise 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. | Appendix 2 - Detailed contents list


Legislative references: 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 995-1(1) TAA 1953