Class Ruling CR 2007/56
Date of effect: 20 June 2007

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. 2. This Ruling approves the particular early retirement scheme and acknowledges the availability of tax concessions for entities receiving payment under the scheme. There are many conditions attached to this Ruling and readers should be careful to ensure that these conditions are met before relying on this Ruling. Relevant provision(s) 3. The relevant provisions dealt with in this Ruling are: All subsequent references are to the ITAA 1936 unless stated otherwise. Class of entities 4. The class of entities to which this Ruling applies is those employees of Unilever Australia Limited (Unilever) who receive a payment under the scheme described in paragraphs 15 to 33 of this Ruling. Qualifications 5. The Commissioner makes this Ruling on the precise scheme identified in this Ruling. 6. 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 15 to 33 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. 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: 9. A copy of this Ruling must be given to all employees eligible to participate in the early retirement scheme.

Class of entities or scheme: 4. The class of entities to which this Ruling applies is those employees of Unilever Australia Limited (Unilever) who receive a payment under the scheme described in paragraphs 15 to 33 of this Ruling. | Qualifications: 5. The Commissioner makes this Ruling on the precise scheme identified in this Ruling. 6. 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 15 to 33 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. 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: 9. A copy of this Ruling must be given to all employees eligible to participate in the early retirement scheme. 10. This Ruling applies from 20 June 2007 to 20 June 2008. However, the Ruling continues to apply after this date to all entities within the specified class who entered into the specified scheme during the term of the Ruling, subject to there being no change in the scheme or in the entities involved in the scheme. 11. 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. Furthermore, the Ruling only applies to the extent that: 12. If this Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 13. If this Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Ruling is made, the following two conditions are met: 14. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). 15. The following description of the scheme is based on information provided by the applicant. 16. Unilever is seeking approval for an early retirement scheme. 17. The scheme will be open to all employees of Unilever that are employed as factory wage-paid employees who have attained the age of 55 years or over and who are covered by the Tatura Enterprise Bargaining Agreement (EBA). 18. Unilever's vision is to become the 'fastest growing fast moving consumer goods' company in Australasia'. To do this it must accelerate its growth strategy and create world-class manufacturing units where appropriate. To be world-class the company needs to introduce the latest technology, raise operational efficiency levels and improve site risk profile. 19. The early retirement scheme is being implemented with a view to rationalising or re-organising the operations of Unilever at Tatura factory by replacing older, less flexible employees with more highly skilled and motivated employees. This will enable Unilever to improve overall competitiveness, responsiveness and productivity. 20. The installation of significantly more complex plant and equipment across the site has resulted in demands for a much higher level of skills than the current employees are capable of embracing. 21. Replacing older employees with employees who are more recently qualified and are willing to undertake extensive training and to adopt new technologies will assist in maximising the capital investment which the site is seeking to make into the future. Specific job skills for maintenance roles now require: 22. It is proposed that all employees who retire under the scheme will depart within 6 months of confirmation of acceptance of the offer of early retirement. 23. Unilever will not retain any right to decline any requests for early retirement from eligible employees. 24. The payments to be made under the early retirement will be contingent on an employee remaining at or being available for work and performing their assigned duties as required by Unilever during the notice period. The early retirement scheme payment will comprise of the following: 25. The employees will also receive the following payments but these do not form part of the early retirement scheme payment: | Payments made under the scheme: 26. For a payment made under the above mentioned scheme to qualify as an approved early retirement scheme payment, the conditions set out in paragraphs 27 to 33 of this Ruling must be met. Please note, any payment made under the scheme that does not satisfy these requirements is not covered by this Ruling. 27. For a payment made before 1 July 2007 it must be an eligible termination payment (ETP) and for a payment made after 30 June 2007 it must not be a payment mentioned in section 82-135 of the ITAA 1997 (apart from paragraph 82-135(e) of the ITAA 1997). 28. The payment must be made in consequence of the taxpayer's employment being terminated under an approved early retirement scheme. 29. The payment must not be from an eligible superannuation fund. 30. The payment must not be made in lieu of superannuation benefits. 31. Where the taxpayer and the employer are not dealing with each other at arm's length (for example, because they are related in some way) the payment does not exceed what would have been paid to the taxpayer had they been dealing at arm's length. 32. The taxpayer must terminate his or her employment before the earlier of: 33. At the termination time, there is no agreement in force between the taxpayer and the employer or the employer and another person, to employ the taxpayer after the date of termination. 34. The early retirement scheme to be implemented by Unilever Australia Limited is an approved early retirement scheme for the purpose of section 27E. 35. Accordingly, so much of the ETP as exceeds the amount of an ETP that could reasonably be expected to have been made in relation to the taxpayer if the termination of employment had occurred at the termination time otherwise than in accordance with the approved early retirement scheme, is an approved early retirement scheme payment in relation to the taxpayer. 36. In addition, for a payment made before 1 July 2007, so much of the approved early retirement scheme payment as falls within the threshold calculated in accordance with subsection 27A(19) is non-assessable and is ignored in working out whether a capital gain has been made via the operation of section 27CB. 37. For an early retirement scheme payment that is made after 30 June 2007, so much of the payment as falls within the threshold calculated in accordance with section 83-170 of the ITAA 1997 is not assessable income and is not exempt income. Commissioner of Taxation 20 June 2007 38. Where a scheme satisfies the requirements of section 27E that scheme will be an 'approved early retirement scheme.' 39. The Commissioner has issued Taxation Ruling TR 94/12 Income tax: approved early retirement scheme and bona fide redundancy payments, which sets out guidelines on the application of section 27E. 40. Paragraph 14 of TR 94/12 states that: These three conditions are discussed below. | The scheme must be offered to all employees within a class identified by the employer: 41. In order to satisfy the first condition, the scheme must be offered to all employees within one of the categories specified in subparagraphs 27E(1)(a)(i) to (v). 42. The class of employees to whom early retirement will be offered is set out at paragraph 17 of this Ruling. 43. This class of employees does not come within any of subparagraphs 27E(1)(a)(i) to (iv), therefore it must be considered under subparagraph 27E(1)(a)(v), namely, all employees of the employer who constitute a class of employees approved by the Commissioner for the purposes of this paragraph. 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 subparagraph 27E(1)(a)(v). | The scheme must be entered into with a view to rationalising or re-organising the operations of the employer with an identified purpose in mind: 44. The proposed scheme must be implemented by the employer with a view to rationalising or re-organising the operations of the employer by means of one or more of the objectives set out in subparagraphs 27E(1)(b)(i) to (vi). 45. Paragraphs 19 to 21 of this Ruling describe the nature of the rationalisation or re-organisation of the 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 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 subparagraph 27E(1)(b)(vi). | The scheme must be approved by the Commissioner prior to its implementation: 46. The scheme is proposed to operate after 20 June 2007 to 20 June 2008. Approval was granted prior to implementation therefore the third condition is satisfied. 47. The scheme will be in operation for approximately 12 months which is within the period recommended in TR 94/12. | Other relevant information: 48. Under section 27E, so much of the payment received by a taxpayer under the approved early retirement scheme, that exceeds the amount that would ordinarily have been received on voluntary resignation or retirement is an approved early retirement scheme payment. 49. It should be noted that, in order for a payment to qualify as an approved early retirement scheme payment, it must also satisfy the following requirements (as set out in subsections 27E(4) and (5)): 50. The term 'agreement' is defined in subsection 27A(1) as meaning 'any agreement, arrangement or understanding whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable by legal proceedings'. 51. An approved early retirement scheme payment made on or after 1 July 1994 that falls within the specified limit will be exempt from income tax and called the 'tax-free amount'. 52. For the year ending 30 June 2007, the tax-free amount is limited to $6,783 plus $3,392 for each whole year of completed employment service to which the approved early retirement scheme payment relates. Please note that 6 months, 8 months or even 11 months do not count as a whole year for the purposes of this calculation. The $6,783 plus $3,392 limits will be indexed to rise in each subsequent year in line with increases in average weekly ordinary time earnings. 53. The total of the amount received on the termination of employment calculated in accordance with paragraph 24 of this Ruling qualifies as an approved early retirement scheme payment. 54. The total of the payment in the previous paragraph will be measured against the limit calculated in accordance with paragraph 52 of this Ruling to determine the 'tax-free amount'. 55. The tax-free amount will: 56. Any payment in excess of this limit will be an ordinary ETP and split up into the pre-July 83 and post-June 83 (untaxed element) components. This ETP can be rolled-over. | Payments made after 30 June 2007: 57. For payments made after 30 June 2007 the requirements in section 83-180 of the ITAA 1997 for a payment to be an early retirement scheme payment remain essentially the same as set out in paragraphs 53 to 56 of this Ruling. 58. The tax free amount of the early retirement scheme payment made after 30 June 2007 determined in accordance with paragraph 53 of this Ruling that falls within the limit specified in section 83-170 of the ITAA 1997 will not be assessable income and will not be exempt income. For the year ending 30 June 2008, the tax free amount is limited to $7,020 plus $3,511 for each whole year of completed employment service. 59. Any payment in excess of this limit will be an employment termination payment as defined in section 82-130 of the ITAA 1997, and will be 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. 60. Employment termination payments cannot be rolled-over into a superannuation fund. 61. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 34. The early retirement scheme to be implemented by Unilever Australia Limited is an approved early retirement scheme for the purpose of section 27E. 35. Accordingly, so much of the ETP as exceeds the amount of an ETP that could reasonably be expected to have been made in relation to the taxpayer if the termination of employment had occurred at the termination time otherwise than in accordance with the approved early retirement scheme, is an approved early retirement scheme payment in relation to the taxpayer. 36. In addition, for a payment made before 1 July 2007, so much of the approved early retirement scheme payment as falls within the threshold calculated in accordance with subsection 27A(19) is non-assessable and is ignored in working out whether a capital gain has been made via the operation of section 27CB. 37. For an early retirement scheme payment that is made after 30 June 2007, so much of the payment as falls within the threshold calculated in accordance with section 83-170 of the ITAA 1997 is not assessable income and is not exempt income. Commissioner of Taxation 20 June 2007


Appendix: 38. Where a scheme satisfies the requirements of section 27E that scheme will be an 'approved early retirement scheme.' 39. The Commissioner has issued Taxation Ruling TR 94/12 Income tax: approved early retirement scheme and bona fide redundancy payments, which sets out guidelines on the application of section 27E. 40. Paragraph 14 of TR 94/12 states that: These three conditions are discussed below. | The scheme must be offered to all employees within a class identified by the employer: 41. In order to satisfy the first condition, the scheme must be offered to all employees within one of the categories specified in subparagraphs 27E(1)(a)(i) to (v). 42. The class of employees to whom early retirement will be offered is set out at paragraph 17 of this Ruling. 43. This class of employees does not come within any of subparagraphs 27E(1)(a)(i) to (iv), therefore it must be considered under subparagraph 27E(1)(a)(v), namely, all employees of the employer who constitute a class of employees approved by the Commissioner for the purposes of this paragraph. 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 subparagraph 27E(1)(a)(v). | The scheme must be entered into with a view to rationalising or re-organising the operations of the employer with an identified purpose in mind: 44. The proposed scheme must be implemented by the employer with a view to rationalising or re-organising the operations of the employer by means of one or more of the objectives set out in subparagraphs 27E(1)(b)(i) to (vi). 45. Paragraphs 19 to 21 of this Ruling describe the nature of the rationalisation or re-organisation of the 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 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 subparagraph 27E(1)(b)(vi). | The scheme must be approved by the Commissioner prior to its implementation: 46. The scheme is proposed to operate after 20 June 2007 to 20 June 2008. Approval was granted prior to implementation therefore the third condition is satisfied. 47. The scheme will be in operation for approximately 12 months which is within the period recommended in TR 94/12. | Other relevant information: 48. Under section 27E, so much of the payment received by a taxpayer under the approved early retirement scheme, that exceeds the amount that would ordinarily have been received on voluntary resignation or retirement is an approved early retirement scheme payment. 49. It should be noted that, in order for a payment to qualify as an approved early retirement scheme payment, it must also satisfy the following requirements (as set out in subsections 27E(4) and (5)): 50. The term 'agreement' is defined in subsection 27A(1) as meaning 'any agreement, arrangement or understanding whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable by legal proceedings'. 51. An approved early retirement scheme payment made on or after 1 July 1994 that falls within the specified limit will be exempt from income tax and called the 'tax-free amount'. 52. For the year ending 30 June 2007, the tax-free amount is limited to $6,783 plus $3,392 for each whole year of completed employment service to which the approved early retirement scheme payment relates. Please note that 6 months, 8 months or even 11 months do not count as a whole year for the purposes of this calculation. The $6,783 plus $3,392 limits will be indexed to rise in each subsequent year in line with increases in average weekly ordinary time earnings. 53. The total of the amount received on the termination of employment calculated in accordance with paragraph 24 of this Ruling qualifies as an approved early retirement scheme payment. 54. The total of the payment in the previous paragraph will be measured against the limit calculated in accordance with paragraph 52 of this Ruling to determine the 'tax-free amount'. 55. The tax-free amount will: 56. Any payment in excess of this limit will be an ordinary ETP and split up into the pre-July 83 and post-June 83 (untaxed element) components. This ETP can be rolled-over. | Payments made after 30 June 2007: 57. For payments made after 30 June 2007 the requirements in section 83-180 of the ITAA 1997 for a payment to be an early retirement scheme payment remain essentially the same as set out in paragraphs 53 to 56 of this Ruling. 58. The tax free amount of the early retirement scheme payment made after 30 June 2007 determined in accordance with paragraph 53 of this Ruling that falls within the limit specified in section 83-170 of the ITAA 1997 will not be assessable income and will not be exempt income. For the year ending 30 June 2008, the tax free amount is limited to $7,020 plus $3,511 for each whole year of completed employment service. 59. Any payment in excess of this limit will be an employment termination payment as defined in section 82-130 of the ITAA 1997, and will be 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. 60. Employment termination payments cannot be rolled-over into a superannuation fund.


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, 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 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 94/12 TR 2006/10 TD 2006/42
Legislative references: ITAA 1936 27A ITAA 1936 27A(1) ITAA 1936 27A(19) ITAA 1936 27CB ITAA 1936 27E ITAA 1936 27E(1)(a) ITAA 1936 27E(1)(a)(i) ITAA 1936 27E(1)(a)(ii) ITAA 1936 27E(1)(a)(iii) ITAA 1936 27E(1)(a)(iv) ITAA 1936 27E(1)(a)(v) ITAA 1936 27E(1)(b) ITAA 1936 27E(1)(b)(i) ITAA 1936 27E(1)(b)(ii) ITAA 1936 27E(1)(b)(iii) ITAA 1936 27E(1)(b)(iv) ITAA 1936 27E(1)(b)(v) ITAA 1936 27E(1)(b)(vi) ITAA 1936 27E(1)(c) ITAA 1936 27E(4) ITAA 1936 27E(5) ITAA 1997 82-130 ITAA 1997 82-135 ITAA 1997 82-135(e) ITAA 1997 83-170 ITAA 1997 83-180 TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968
Subject references: approved early retirement scheme payments early retirement scheme payment eligible termination payments eligible termination payments components employment termination payment