Class Ruling CR 2012/72
Date of effect: 5 September 2012

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 the Victorian Department of Human Services, shown at paragraph 17, who receive a payment under the scheme described in paragraphs 9 to 39 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 9 to 39 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 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 those employees of the Victorian Department of Human Services, shown at paragraph 17, who receive a payment under the scheme described in paragraphs 9 to 39 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 9 to 39 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 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: 7. This Ruling applies from 5 September 2012 to 31 December 2013. The Ruling continues to apply after 31 December 2013 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). 8. The following description of the scheme is based on information provided by the applicant. 9. The Victorian Department of Human Services (DHS) is seeking the Commissioner's approval to implement an early retirement scheme in accordance with section 83-180. 10. The scheme will be titled the 'Department of Human Services Voluntary Departure Program 2012-13', referred to as the Scheme. 11. As part of the 2011-12 Victorian Budget Update, the Victorian Government introduced efficiency and revenue measures to begin addressing the high growth in expenses and improve the operating result to restore a fiscal buffer against future economic downturns. The efficiency measures are referred to as the Sustainable Government Initiative. 12. These measures target the systemic problems of high growth in expenses and a more moderate revenue outlook. The aim of the measure is to moderate growth in the size of the government and reduce it as a share of the economy, more consistent with its long-term average. 13. The DHS is required to reduce its employee numbers as part of its contribution to the 2011-12 Victorian Budget Update efficiency measures. The DHS will reduce the number of public servants in non-service delivery and back-office roles to a level that is more in line with historical levels. 14. The employee reductions must be completed by 31 December 2013. However, reductions will not be sought in key frontline service delivery areas for example, there will be no impact on teachers, police, nurses and child protection workers. 15. The DHS presently consists of eight operational regions, six central divisions and five additional centrally managed business units. 16. The purpose in implementing the Scheme is to rationalise and re-organise the structure of the organisation from eight regions to four operational divisions and a complete central restructure resulting in the following functional groups: Policy and Strategy, Service Design and Implementation and Corporate Services. 17. The class of employees to whom the Scheme applies is all eligible employees in the following divisions and regions: 18. Participation in the Scheme is entirely voluntary. 19. All eligible employees under the Scheme will be offered a lump sum payment as follows: 20. For part-time employees, payments (a) and (b) will be calculated at the part-time rate. For employees who have a period of part-time employment in the most recent years of continuous service, payment (c) will be a pro-rata payment. 21. Where an employee who is offered a voluntary departure package (VDP) has less than one year's service, they will receive a corresponding fraction of the VDP they would have been paid at one year. 22. All employees terminated under the Scheme will receive their accrued annual leave and unused long service leave entitlements in accordance with the relevant enterprise agreement. However, they do not form part of the payment made under the Scheme. 23. The maximum number of packages available under the Scheme program for DHS employees is limited. 24. Where the number of employees seeking access to the Scheme exceeds the number of packages available, the offer will be made to those eligible employees who have the longest recognised continuous service in the Victorian Public Sector. 25. Employees who hold a substantive position in the VPS Agreement classifications will be eligible to lodge an expression of interest for a VDP. 26. Employees in the following exempted categories are ineligible to apply for a VDP under the Scheme. The exempted categories are: 27. In addition, the following categories of employees are excluded from accessing the VDP. They are: 28. Following approval of the Scheme, all eligible employees will have 14 calendar days to express an interest in applying for a VDP. 29. Offers will be made to eligible employees within 21 calendar days following the 14 day period expression of interest process. 30. From the date the offer was made, employees will be given a further 14 calendar days to make a decision to accept or decline the offer. 31. All employees who accept the offer to retire under the Scheme will be required to terminate employment and receive the payment within one calendar month from the date of acceptance. 32. It is proposed the Scheme will be implemented from the date after the Commissioner's approval to 31 December 2013. 33. The payments made under the Scheme do not include any payment in lieu of superannuation benefits. 34. The payments made under the Scheme will be at arm's-length. 35. Recipients of the Scheme are required to agree not to seek or accept re-employment or any other fee for service: 36. However, recipients of the Scheme can seek re-employment at any time in the following roles which are outside of the restrictions: 37. The retirement of employees who receive a payment under the Scheme will occur before they turn 65 years of age. 38. Staff aged 65 and older will be eligible to participate in the Scheme, however for payments made to eligible employees who have reached age 65 and older the payments 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. 39. All eligible employees are employed under the Victorian Public Service Workplace Determination 2012. 40. The early retirement scheme to be implemented by the Department of Human Service is an early retirement scheme for the purposes of section 83-180. 41. Accordingly, so much of the payment received by an employee that exceeds the amount that could be 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. 42. 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 5 September 2012 43. Where a scheme satisfies the requirements of subsection 83-180(3), that scheme will be an early retirement scheme. 44. 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: 45. 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). 46. The class of employees to whom early retirement will be offered is set out in paragraph 17 of this Ruling subject to the exclusions set out in paragraphs 26 and 27. 47. 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: 48. 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). 49. The facts at paragraphs 11 to 16 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: 50. The Scheme is proposed to operate for a period from 5 September 2012 to 31 December 2013. 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. 51. The Scheme will be in operation for approximately 16 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: 52. 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. 53. 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 83-130(6)): 54. 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'. 55. 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. 56. For the 2012-13 income year, the tax free amount is limited to $8,806 (base amount) plus $4,404 (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. 57. The total of the amount received on the termination of employment calculated in accordance with paragraphs 19 to 21 of this ruling may qualify as an early retirement scheme payment. 58. The total payment calculated in accordance with paragraph 57 of this ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 56 of this ruling to determine the 'tax free' amount of the early retirement scheme payment. 59. The 'tax free' amount will: 60. 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. 61. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 40. The early retirement scheme to be implemented by the Department of Human Service is an early retirement scheme for the purposes of section 83-180. 41. Accordingly, so much of the payment received by an employee that exceeds the amount that could be 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. 42. 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 5 September 2012


Appendix: 43. Where a scheme satisfies the requirements of subsection 83-180(3), that scheme will be an early retirement scheme. 44. 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: 45. 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). 46. The class of employees to whom early retirement will be offered is set out in paragraph 17 of this Ruling subject to the exclusions set out in paragraphs 26 and 27. 47. 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: 48. 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). 49. The facts at paragraphs 11 to 16 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: 50. The Scheme is proposed to operate for a period from 5 September 2012 to 31 December 2013. 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. 51. The Scheme will be in operation for approximately 16 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: 52. 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. 53. 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 83-130(6)): 54. 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'. 55. 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. 56. For the 2012-13 income year, the tax free amount is limited to $8,806 (base amount) plus $4,404 (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. 57. The total of the amount received on the termination of employment calculated in accordance with paragraphs 19 to 21 of this ruling may qualify as an early retirement scheme payment. 58. The total payment calculated in accordance with paragraph 57 of this ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 56 of this ruling to determine the 'tax free' amount of the early retirement scheme payment. 59. The 'tax free' amount will: 60. 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: early retirement employment termination redundancy or early retirement scheme payments