Class Ruling CR 2007/4
Date of effect: 17 January 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 otherwise stated. Class of entities 4. The class of entities to which this Ruling applies is those employees of John Deere Limited who receive a payment under the scheme described in paragraphs 15 to 30 of this Ruling. Qualifications 5. The Commissioner makes this Ruling based 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 30 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 approved early retirement scheme.

Class of entities or scheme: 4. The class of entities to which this Ruling applies is those employees of John Deere Limited who receive a payment under the scheme described in paragraphs 15 to 30 of this Ruling. | Qualifications: 5. The Commissioner makes this Ruling based 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 30 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 approved early retirement scheme. 10. This Ruling applies from 17 January 2007 to 30 June 2007. 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 Class 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 Class Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Class 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. John Deere Limited is seeking approval for an early retirement scheme. 17. The scheme will be open to all salaried, full time John Deere Limited employees who meet the following criteria during the program offering: 18. John Deere Limited is offering a Voluntary Retirement Program to eligible employees as part of the Organisation Realignment initiative. The company is required to re-align and optimize its workforce because of the continuing decline in business due to prevailing drought conditions and the implementation of a new business model. 19. John Deere Limited is positioned in the marketplace as a leading supplier of agricultural products. To build a stronger and more sustainable business and to better serve its customers, the company is positioning to provide leading edge technology while at the same time evolving to be a provider of total farming solutions. In order to provide more complete farming solutions, optimizing the use of technology both in problem identification and solution determination and implementation, the company requires broader and deeper skills in technology, research, and analysis and business management. 20. The company is also looking to provide more comprehensive products and complete farming solutions to its customers and is switching from product line marketing to customer focus/segment marketing. In order to maintain a stable core workforce which can be retained even in difficult market conditions the company's management team plans to transition its workforce by offering a Retirement Program which will in turn provide capacity to attract different skills to the company. 21. The program is voluntary and the company will not veto any applications. 22. All employees who retire under the scheme must register their acceptance of the program by a date determined by the employer. Retirements must be completed on a mutually agreed date no later than 30 June 2007. 23. The payment to be made under the scheme is 2.5 weeks per year of service for each full year of continuous service up to a maximum of 52 weeks of pay. | Payments made under the Scheme: 24. For a payment made under the above mentioned scheme to qualify as an approved early retirement scheme payment, the conditions set out in paragraphs 25 to 30 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. 25. The payment must be an eligible termination payment (ETP) made in relation to the taxpayer in consequence of the taxpayer's employment being terminated under an approved early retirement scheme. 26. The payment must not be from an eligible superannuation fund. 27. The payment must not be made in lieu of superannuation benefits. 28. 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. 29. The employee must terminate his or her employment before the earlier of: 30. At the termination time, there is no agreement in force between the employee and the employer or the employer and another person, to employ the employee after the date of termination. 31. The early retirement scheme to be implemented by John Deere Limited is an approved early retirement scheme for the purposes of section 27E. 32. 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. 33. In addition, 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. Commissioner of Taxation 10 January 2007 34. Where a scheme satisfies the requirements of section 27E that scheme will be an 'approved early retirement scheme'. 35. 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. 36. 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: 37. 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). 38. The scheme will be open to all salaried, full time John Deere Limited employees who meet the following criteria during the program offering: 39. 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 purpose 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 purpose 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: 40. 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). 41. Paragraphs 18 to 20 of this Ruling describe the nature of the rationalisation or re-organisation of 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 purpose of subparagraph 27E(1)(b)(vi). | The scheme must be approved by the Commissioner prior to its implementation: 42. The scheme is proposed to operate from 17 January 2007 to 30 June 2007. Approval was granted prior to implementation therefore the third condition is satisfied. 43. The scheme will be in operation for approximately 5 months which is within the period recommended in TR 94/12. | Other relevant information: 44. 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. 45. 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)): 46. 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'. 47. 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'. 48. 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. 49. The total of the amount received on the termination of employment calculated in accordance with paragraphs 24 to 30 of this Ruling qualifies as an approved early retirement scheme payment. 50. The total of the payment in the previous paragraph will be measured against the limit calculated in accordance with paragraph 48 of this Ruling to determine the 'tax-free amount'. 51. The tax-free amount will: 52. 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. 53. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 31. The early retirement scheme to be implemented by John Deere Limited is an approved early retirement scheme for the purposes of section 27E. 32. 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. 33. In addition, 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. Commissioner of Taxation 10 January 2007


Appendix: 34. Where a scheme satisfies the requirements of section 27E that scheme will be an 'approved early retirement scheme'. 35. 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. 36. 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: 37. 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). 38. The scheme will be open to all salaried, full time John Deere Limited employees who meet the following criteria during the program offering: 39. 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 purpose 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 purpose 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: 40. 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). 41. Paragraphs 18 to 20 of this Ruling describe the nature of the rationalisation or re-organisation of 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 purpose of subparagraph 27E(1)(b)(vi). | The scheme must be approved by the Commissioner prior to its implementation: 42. The scheme is proposed to operate from 17 January 2007 to 30 June 2007. Approval was granted prior to implementation therefore the third condition is satisfied. 43. The scheme will be in operation for approximately 5 months which is within the period recommended in TR 94/12. | Other relevant information: 44. 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. 45. 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)): 46. 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'. 47. 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'. 48. 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. 49. The total of the amount received on the termination of employment calculated in accordance with paragraphs 24 to 30 of this Ruling qualifies as an approved early retirement scheme payment. 50. The total of the payment in the previous paragraph will be measured against the limit calculated in accordance with paragraph 48 of this Ruling to determine the 'tax-free amount'. 51. The tax-free amount will: 52. 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.


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
Legislative references: TAA 1953 TAA 1953 Sch 1 357-75(1) 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) Copyright Act 1968
Subject references: approved early retirement scheme payments eligible termination payments eligible termination payments components