Class Ruling CR 2006/11
Date of effect: 1 January 2005

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant taxation provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant taxation provision(s) 2. The tax provision dealt with in this Ruling is section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Class of entities 3. The class of entities to which this Ruling applies is employees of Lutheran Schools and Kindergartens (Lutheran Schools) in Western Australia who participate in the Leave - Deferred Salary Scheme (the scheme) under the Lutheran Schools WA Enterprise Agreement 2005 (the Enterprise Agreement). In this Ruling, these employees are referred to as Participants. 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 9 to 19. 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 Lutheran Schools and Kindergartens (Lutheran Schools) in Western Australia who participate in the Leave - Deferred Salary Scheme (the scheme) under the Lutheran Schools WA Enterprise Agreement 2005 (the Enterprise Agreement). In this Ruling, these employees are referred to as Participants. | 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 9 to 19. 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 1 January 2005. However, 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 (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). Furthermore, the Ruling only applies to the extent that: 9. The scheme that is the subject of the Ruling is described below. This description is based on the following documents. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or parts of the documents incorporated into the description of the schemes are: 10. The Lutheran Schools Association of SA, NT and WA Inc. (Lutheran Schools Inc) is the governing body of various Lutheran Schools throughout Australia. The Enterprise Agreement enables employees of Lutheran Schools in Western Australia to participate in the Scheme to defer an entitlement to salary in return for the right to receive salary while taking sabbatical leave. 11. Employees of Lutheran Schools who wish to participate in the Scheme require: 12. The sabbatical leave is funded by the Participant deferring the payment of salary. The deferred salary is: Normal salary is defined as a Participant's normal fortnightly salary plus any associated teaching allowances. 13. The Participant receives a reduced salary whilst participating in the Scheme, being the normal salary less the deferred salary. 14. The Participant's deferred salary will be remitted by the Lutheran School to the Lutheran Schools Inc. for management. This amount will be recognised as a future liability to pay the Participant. No amount is held in the name of, and no interest accrues to, the Participant. 15. The deferred salary will be paid to the Participant when sabbatical leave is taken. This amount will be paid: If the Participant withdraws from the Scheme prior to the sabbatical leave, the amount of deferred salary will be paid to the Participant. 16. Once the Lutheran School has approved an employee's application to participate in the Scheme, the approval cannot be withdrawn. 17. The Participant continues to work the normal agreed hours as specified in the Enterprise Agreement. 18. The period of leave will be for twelve months, from 1 January to 31 December. 19. Scheme rules enable a Participant to: 20. The deferred salary paid to Participants while taking sabbatical leave under the Scheme is included in their assessable income in the income year that it is received under section 6-5 of the ITAA 1997. Commissioner of Taxation 8 March 2006 21. Employees of Lutheran Schools in Western Australia who participate in the Scheme have varied their employment contracts. In return for accepting a reduced salary for future employment services they will provide to the employer, they will have an entitlement to receive a deferred salary while on sabbatical leave. 22. Subsection 6-5(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts, which is called ordinary income. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of Australian residents includes ordinary income derived directly or indirectly from all sources. 23. Income from employment is generally derived only when received. 24. The reduced salary of a Participant is included in assessable income in the income year of receipt under subsection 6-5(1) of the ITAA 1997. 25. The deferred salary of a Participant is included in assessable income in the income year of receipt being: 26. The deferred salary is not considered to be an amount that has been applied or dealt with in any way on behalf of, or at the direction of the Participant. While the Lutheran School recognises that it has a future obligation to make the payment, the Participant does not have the right to draw on the amount until one of the events in paragraph 15 occurs. It is considered that subsection 6-5(4) of the ITAA 1997 does not apply. 27. If the Participant dies before receiving all or some of the deferred salary, the amount so paid thereafter is the assessable income of the legal representative of the deceased's estate and is brought to account under section 101A of the Income Tax Assessment Act 1936 . The deferred salary is not in respect of annual leave or long service leave. | Pay as you go (PAYG) withholding: 28. At the time of paying the deferred salary to the Participant during the period of sabbatical leave, the Lutheran School is required to withhold amounts from these payments under its PAYG withholding obligations under Division 12 of Schedule 1 of the Taxation Administration Act 1953 . 29. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 20. The deferred salary paid to Participants while taking sabbatical leave under the Scheme is included in their assessable income in the income year that it is received under section 6-5 of the ITAA 1997. Commissioner of Taxation 8 March 2006


Appendix: 21. Employees of Lutheran Schools in Western Australia who participate in the Scheme have varied their employment contracts. In return for accepting a reduced salary for future employment services they will provide to the employer, they will have an entitlement to receive a deferred salary while on sabbatical leave. 22. Subsection 6-5(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts, which is called ordinary income. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of Australian residents includes ordinary income derived directly or indirectly from all sources. 23. Income from employment is generally derived only when received. 24. The reduced salary of a Participant is included in assessable income in the income year of receipt under subsection 6-5(1) of the ITAA 1997. 25. The deferred salary of a Participant is included in assessable income in the income year of receipt being: 26. The deferred salary is not considered to be an amount that has been applied or dealt with in any way on behalf of, or at the direction of the Participant. While the Lutheran School recognises that it has a future obligation to make the payment, the Participant does not have the right to draw on the amount until one of the events in paragraph 15 occurs. It is considered that subsection 6-5(4) of the ITAA 1997 does not apply. 27. If the Participant dies before receiving all or some of the deferred salary, the amount so paid thereafter is the assessable income of the legal representative of the deceased's estate and is brought to account under section 101A of the Income Tax Assessment Act 1936 . The deferred salary is not in respect of annual leave or long service leave. | Pay as you go (PAYG) withholding: 28. At the time of paying the deferred salary to the Participant during the period of sabbatical leave, the Lutheran School is required to withhold amounts from these payments under its PAYG withholding obligations under Division 12 of Schedule 1 of the Taxation Administration Act 1953 .


What this Ruling is about | 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, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any under-paid 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. | What this Class Ruling is about | Appendix 2 - Detailed contents list


Related rulings: TR 92/20
Legislative references: ITAA 1936 101A ITAA 1997 6-5 ITAA 1997 6-5(1) ITAA 1997 6-5(2) ITAA 1997 6-5(4) TAA 1953 Sch 1 Div 12 TAA 1953 Copyright Act 1968
Subject references: assessable income employment contract deferred income deferred salary payment income derived