Class Ruling CR 2010/61
Date of effect: 3 November 2010

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 subsequent legislative references are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is employees of Forestry Plantations Queensland Pty Ltd (FPQ), who receive a payment under the scheme described in paragraphs 10 to 32 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 10 to 32 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. 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:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is employees of Forestry Plantations Queensland Pty Ltd (FPQ), who receive a payment under the scheme described in paragraphs 10 to 32 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 10 to 32 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. 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: 8. This Ruling applies from 3 November 2010 to 31 December 2011. The Ruling continues to apply after 31 December 2011 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). 9. FPQ has lodged an application seeking approval for an early retirement scheme. 10. The early retirement scheme is known as a Voluntary Early Retirement Scheme (VERS). 11. FPQ wishes to implement an early retirement scheme to better organise its business especially in isolated work centres in regional Queensland. 12. The main business of FPQ is the management, harvesting and replanting of plantation timber, mainly for the domestic market. The two largest threats to the business are that of devastation by either cyclone or bushfire. The bushfire threat is such that the employer has traditionally maintained a larger permanent workforce (to fight potential bushfires), than it would otherwise require. 13. FPQ intends to adopt a more commercial focus in relation to employment in isolated regional locations. Currently a number of FPQ's regional locations have retained permanent employees. However, due to the seasonal nature of FPQ's business, temporary or casual type employment would better suit the organisation's ongoing needs. 14. FPQ is also concerned at the overall age of the FPQ workforce, especially in regional areas. The intent is to provide many of the older, worn out workers the opportunity to leave the organisation with a sense of dignity (by way of VER) and then to rejuvenate the workforce with appropriately skilled and qualified employees of younger age. 15. FPQ proposes to rationalise the workforce and fundamentally change the way that FPQ undertakes its business. The current workforce is predominantly made up of field based labourers. FPQ wishes to change to a new model of business where the organisation will move from an older permanent workforce and to a predominantly younger, labour hire or contractor workforce. The new model will move away from a reliance on a less skilled labouring workforce towards a more specialised sales and marketing, customer relationship managing team of professionals. 16. Other changes include a reduction of the overall size of the plant and machinery fleet (with a consequent closure of current machinery workshops), a rationalisation of the plant nursery activities and a new focus on 'harvest and haul' contractual basis where the emphasis will shift from 'stump' sale to 'mill door' sale of the timber product. 17. FPQ will convene a Workforce Rejuvenation Committee consisting of senior management. The Committee will review the organisation's work practices and current and future employment requirements. It is expected that this will involve workforce rationalisation on a regional basis. 18. The class of employees who are to be offered VERs will be all FPQ employees who are either tenured (permanent) employees covered by the Forestry Plantations Queensland Pty Ltd Enterprise Agreement 2010 (Enterprise Agreement) or non-tenured (temporary) employees covered by the Enterprise Agreement, except Senior Executives and those employees currently employed on a fixed-term contract. 19. Applications to participate must be made in writing to the Workforce Rejuvenation Committee before the closing date which will be three months after the commencement of the scheme. 20. Employees will receive the following payments on the termination of employment: 21. The following payments will also be paid to an employee on the termination of employment but these payments will not form part of the early retirement scheme payment: 22. The payment under the VERS does not include any payment in lieu of superannuation benefits. 23. The scheme will operate on an arm's length basis. 24. There is no agreement by FPQ or FPQ together with any other person to employ any employee after the date of termination. 25. The date of each employee's termination of employment will depend on the number of employees in each team who are accepted, and the availability of replacements or relocated continuing employees. However, all employees whose applications are accepted will retire by 31 December 2011. 26. If more employees apply for the VER than are available, FPQ will retain a limited veto on three grounds including maximum overall numbers, maximum numbers per team and employees already subject to termination. The three grounds are discussed in paragraphs 27-29 of this Ruling. 27. It is expected that a maximum number of 45 employees will be offered a VER. If more employees apply than the maximum number of VERs available, priority will be given: 28. There is a limit of participants per team which will be determined objectively for that team, taking into account the number of applications received by the closing date, using the following principles: If more employees apply than the maximum number of VERs available in a team, priority will be given to the oldest employees. 29. FPQ may reject employees who are, at or before the commencement of the scheme, subject to termination on the grounds of misconduct or unsatisfactory service. 30. There is no minimum number of staff FPQ requires to retire under the scheme in order to fully implement the rationalisation and re-organisation of the scheme. 31. If an employee is in the class of employees but does not accept an offer of a VER, their employment will continue. 32. All non-contract employees are covered by the terms of the Enterprise Agreement. 33. The early retirement scheme to be implemented by Forestry Plantations Queensland Pty Ltd is an early retirement scheme for the purposes of section 83-180. 34. 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 the voluntary termination of his or her employment at the time of retirement will be an early retirement scheme payment. 35. In addition, so much of the early retirement scheme payment that falls within the threshold calculated in accordance with section 83-170 is not assessable income and is not exempt income. Commissioner of Taxation 3 November 2010 36. Where a scheme satisfies the requirements of section 83-180 that scheme will be an 'early retirement scheme'. 37. Subsection 83-180(3) states that: These three conditions will now be considered. | 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 in paragraph 18 of this Ruling. 40. 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 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: 41. 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). 42. Paragraphs 11 to 17 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 fact that the re-organisation is being implemented with a view to a restructuring of the workforce or operations 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 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: 43. The scheme is proposed to operate for a period from 3 November 2010 to 31 December 2011. Approval was granted prior to implementation therefore for the purposes of paragraph 83-180(3)(c), the third condition is satisfied. 44. The scheme will be in operation for approximately 14 months. This is considered to be appropriate in this case due to the circumstances of the restructure. | Other relevant information: 45. 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 retirement is an early retirement scheme payment. 46. 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)): 47. 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'. 48. From 1 July 2007, 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. 49. For the 2010-11 income year, the tax-free amount is limited to $8,126 (base amount) plus $4,064 (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 each income year. 50. The total of the amount received on the termination of employment calculated in accordance with paragraph 49 of this Ruling may qualify as an early retirement scheme payment. 51. The total of the payments made, as outlined in paragraph 20 of this Ruling will be measured against the limit calculated in accordance with formula mentioned in paragraph 49 of this Ruling to determine the 'tax-free' amount of the early retirement scheme payment. 52. The 'tax-free' amount will: 53. 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. 54. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 33. The early retirement scheme to be implemented by Forestry Plantations Queensland Pty Ltd is an early retirement scheme for the purposes of section 83-180. 34. 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 the voluntary termination of his or her employment at the time of retirement will be an early retirement scheme payment. 35. In addition, so much of the early retirement scheme payment that falls within the threshold calculated in accordance with section 83-170 is not assessable income and is not exempt income. Commissioner of Taxation 3 November 2010


Appendix: 36. Where a scheme satisfies the requirements of section 83-180 that scheme will be an 'early retirement scheme'. 37. Subsection 83-180(3) states that: These three conditions will now be considered. | 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 in paragraph 18 of this Ruling. 40. 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 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: 41. 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). 42. Paragraphs 11 to 17 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 fact that the re-organisation is being implemented with a view to a restructuring of the workforce or operations 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 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: 43. The scheme is proposed to operate for a period from 3 November 2010 to 31 December 2011. Approval was granted prior to implementation therefore for the purposes of paragraph 83-180(3)(c), the third condition is satisfied. 44. The scheme will be in operation for approximately 14 months. This is considered to be appropriate in this case due to the circumstances of the restructure. | Other relevant information: 45. 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 retirement is an early retirement scheme payment. 46. 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)): 47. 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'. 48. From 1 July 2007, 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. 49. For the 2010-11 income year, the tax-free amount is limited to $8,126 (base amount) plus $4,064 (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 each income year. 50. The total of the amount received on the termination of employment calculated in accordance with paragraph 49 of this Ruling may qualify as an early retirement scheme payment. 51. The total of the payments made, as outlined in paragraph 20 of this Ruling will be measured against the limit calculated in accordance with formula mentioned in paragraph 49 of this Ruling to determine the 'tax-free' amount of the early retirement scheme payment. 52. The 'tax-free' amount will: 53. 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. | 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
Subject references: approved early retirement scheme payments employment termination
Other references: Forestry Plantations Queensland Pty Ltd Enterprise Agreement 2010