Class Ruling CR 2017/86
Date of effect: 13 December 2017

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 employees to whom this scheme applies is staff of the Friendly Society Medical Association Limited (National Pharmacies), shown at paragraph 13 of this Ruling, who receive a payment under the scheme described in paragraphs 8 to 31 of this Ruling. Qualifications 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. 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 31 of this Ruling. 6. 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 employees to whom this scheme applies is staff of the Friendly Society Medical Association Limited (National Pharmacies), shown at paragraph 13 of this Ruling, who receive a payment under the scheme described in paragraphs 8 to 31 of this Ruling. | Qualifications: 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. 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 31 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. The Ruling applies from 13 December 2017 to 30 June 2018. The Ruling continues to apply after 30 June 2018 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). 8. The following description of the scheme is based on information provided by the applicant. 9. National Pharmacies is seeking the Commissioner's approval to implement an early retirement scheme (ERS) in accordance with section 83-180. 10. The scheme will be titled ' The National Pharmacies Early Retirement Scheme 2017 ', hereafter referred to as 'the Scheme'. 11. National Pharmacies is commencing a transformation of the organisation. To enable this, National Pharmacies has identified a need to reduce its store and distribution work force in line with its organisational and staffing restructure by providing an incentive to employees who meet the eligibility criteria to retire early. 12. The purpose in implementing the Scheme is to rationalise and re-organise National Pharmacies' operations. 13. The class of employees to whom the Scheme applies is all National Pharmacies employees who are: 14. Employees within this class may wish to express an interest in voluntarily leaving the organisation. 15. The payment to be made to eligible employees under the Scheme is as follows: | Continuous service on termination: 16. In addition, all employees terminated under the Scheme will receive their accrued annual and long service leave entitlements however they do not form part of the payment made under the Scheme. 17. The following employees are excluded from participating in the scheme. They are: 18. National Pharmacies will limit the maximum number of offers to be made to eligible employees under the Scheme. Should the number of eligible employees who express an interest to retire under the Scheme exceed the number of packages available under the Scheme, offers will be made on a first come first serve basis. 19. If the number of employees initially willing to participate in the Scheme is less than 25% of the eligible numbers for each employee group, National Pharmacies may implement a second expression of interest process during the duration of the Scheme. 20. Following approval of the Scheme, all eligible employees within the class will be invited to apply and will have four weeks to submit applications of interest in the scheme. 21. Offers will be made to eligible employees approximately four weeks after the closing date for applications. 22. All eligible employees who accept an offer to retire under the Scheme will terminate employment and receive payment no later than four weeks after acceptance of the offer, unless otherwise negotiated due to operational requirements. All employees retiring under the Scheme must, without exception, cease their employment prior to the expiration of the Scheme on 30 June 2018. 23. It is proposed the scheme will be implemented from 13 December 2017 to 30 June 2018. 24. The payment made under the Scheme is in excess of any superannuation and any other benefits to which eligible employees would otherwise be entitled. 25. Any employee, who terminates employment other than under the Scheme, will not be entitled to receive the Scheme payment. 26. The retirement of employees who receive a payment under the Scheme will occur before they turn 65 years of age. 27. Payments made to employees who are 65 years or over 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 taxed as employment termination payments. 28. Payments made under the scheme will be at arm's length. 29. There is no agreement in place between the eligible employees and National Pharmacies, or between National Pharmacies and another person to employ any employee after the retirement under the Scheme. 30. If an employee chooses not to participate in the Scheme, their employment shall continue with no change. 31. The early retirement scheme to be implemented by the National Pharmacies is an early retirement scheme for the purposes of section 83-180. 32. 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 the voluntary termination of their employment at the time of the retirement will be an early retirement scheme payment. 33. 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 13 December 2017 34. Where a scheme satisfies the requirements of section 83-180 that scheme will be an 'early retirement scheme'. 35. Subsection 83-180(3) states that: These three conditions are now considered. | All employees within a class approved by the Commissioner may participate in the scheme: 36. 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). 37. The class of employees to whom early retirement will be offered is set out in paragraph 13 of this Ruling. 38. The Commissioner considers that this is an appropriate class of persons to whom the scheme will 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: 39. 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). 40. Paragraphs 11 and 12 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 work force of the employer. It is 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 purposes of paragraph 83-180(3)(b). Accordingly, the second condition for approval has been met. | The scheme must be approved by the Commissioner prior to its implementation: 41. The Scheme is proposed to operate for a period commencing from 13 December 2017 to 30 June 2018. 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. 42. The Scheme will be in operation for approximately six months. This is considered appropriate due to the circumstances of the re-organisation and the employees that will be given the option of early retirement under the Scheme. | Other relevant information: 43. Under subsection 83-180(1), so much of the payment received by an employee because the employee retires under an approved 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 the retirement is an early retirement scheme payment. 44. 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), (5) and (6)): 45. 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'. 46. 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. 47. 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 service to which the early retirement scheme payment relates. It should be noted that six months, eight months or even eleven months do not count as a whole year for the purposes of this calculation. 48. The total of the amount received on termination of employment calculated in accordance with paragraph 15 of this Ruling may qualify as an early retirement scheme payment. 49. The total payment calculated in accordance with paragraph 15 of this Ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 47 of this Ruling to determine the 'tax-free' amount of the early retirement scheme payment. 50. The 'tax-free' amount will: 51. Any payment in excess of this limit will be an employment termination payment and will be split 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. 52. 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: 31. The early retirement scheme to be implemented by the National Pharmacies is an early retirement scheme for the purposes of section 83-180. 32. 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 the voluntary termination of their employment at the time of the retirement will be an early retirement scheme payment. 33. 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 13 December 2017


Appendix: 34. Where a scheme satisfies the requirements of section 83-180 that scheme will be an 'early retirement scheme'. 35. Subsection 83-180(3) states that: These three conditions are now considered. | All employees within a class approved by the Commissioner may participate in the scheme: 36. 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). 37. The class of employees to whom early retirement will be offered is set out in paragraph 13 of this Ruling. 38. The Commissioner considers that this is an appropriate class of persons to whom the scheme will 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: 39. 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). 40. Paragraphs 11 and 12 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 work force of the employer. It is 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 purposes of paragraph 83-180(3)(b). Accordingly, the second condition for approval has been met. | The scheme must be approved by the Commissioner prior to its implementation: 41. The Scheme is proposed to operate for a period commencing from 13 December 2017 to 30 June 2018. 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. 42. The Scheme will be in operation for approximately six months. This is considered appropriate due to the circumstances of the re-organisation and the employees that will be given the option of early retirement under the Scheme. | Other relevant information: 43. Under subsection 83-180(1), so much of the payment received by an employee because the employee retires under an approved 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 the retirement is an early retirement scheme payment. 44. 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), (5) and (6)): 45. 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'. 46. 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. 47. 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 service to which the early retirement scheme payment relates. It should be noted that six months, eight months or even eleven months do not count as a whole year for the purposes of this calculation. 48. The total of the amount received on termination of employment calculated in accordance with paragraph 15 of this Ruling may qualify as an early retirement scheme payment. 49. The total payment calculated in accordance with paragraph 15 of this Ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 47 of this Ruling to determine the 'tax-free' amount of the early retirement scheme payment. 50. The 'tax-free' amount will: 51. Any payment in excess of this limit will be an employment termination payment and will be split 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.


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. | At least 1 year but less than 2 years | At least 2 years but less than 3 years | At least 3 years but less than 4 years | At least 4 years but less than 5 years | At least 5 years but less than 6 years | At least 6 years but less than 7 years | At least 7 years but less than 8 years | At least 8 years but less than 9 years | At least 9 years but less than 10 years | 2 weeks' pay for every completed year of service to a maximum of 26 weeks' pay | 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 995-1(1) TAA 1953