Class Ruling CR 2013/90
Date of effect: 13 November 2013

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 employees to whom this scheme applies is all ongoing staff employed by the Victorian Department of Transport, Planning and Local Infrastructure (DTPLI), shown at paragraph 16, who receive a payment under the scheme described in paragraphs 9 to 37 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 9 to 37 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of employees to whom this scheme applies is all ongoing staff employed by the Victorian Department of Transport, Planning and Local Infrastructure (DTPLI), shown at paragraph 16, who receive a payment under the scheme described in paragraphs 9 to 37 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 9 to 37 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. The Ruling applies from 13 November 2013 to 30 June 2014. The Ruling continues to apply after 30 June 2014 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, the 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 the 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 Transport, Planning and Local Infrastructure (DTPLI) 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 Transport, Planning and Local Infrastructure (Corporate, Finance and Planning Groups) Voluntary Departure Program 2013-14', referred to as the Scheme. 11. In April 2013, the Victorian Government announced a restructuring of the Victorian Public Service to strengthen the focus on jobs and investment and deliver frontline services more efficiently. 12. The DTPLI was established and included functions from the former Department of Transport, the former Department of Planning and Community Development, the former Department of Sustainability and Environment and the Department of Premier and Cabinet. 13. The Corporate and Finance Groups in DTPLI were formed by amalgamating similar functions from the former Department of Transport, the former Department of Planning and Community Development and the former Department of Sustainability and Environment. This has resulted in Corporate and Finance having duplicate resources and functions in many areas. 14. The Planning function at DTPLI is undergoing significant change including the conclusion of a number of fixed-term programs and the creation of the Metropolitan Planning Authority. These changes mean the role of the Planning function will be refocused to deliver a new work program with reformed streamlined activities. 15. The purpose in implementing the Scheme is to rationalise and re-organise the employer's operations and will assist the DTPLI in the employment reductions and allow eligible employees to voluntary leave the organisation. 16. The class of employees to whom the Scheme applies is all ongoing staff employed by DTPLI Corporate, Finance and Planning groups from Classifications VPS2 to VPS7 subject to certain exclusions. 17. The following staff within the DTPLI are excluded from participating in the Scheme. They are: 18. All eligible employees under the Scheme will be offered a lump sum payment as follows: 19. 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. 20. 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. 21. 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. 22. The maximum number of VDPs available under the Scheme program for the eligible staff within the DTPLI Corporate, Finance and Planning groups is limited within each classification. 23. Offers will be made to those on a 'first in, first served' basis. 24. Participation in the Scheme is entirely voluntary. 25. Following approval of the Scheme, eligible employees will be invited to express an interest up until 14 calendar days after the Scheme is open. 26. Expressions of interest will not be accepted after 14 calendar days from the opening of the Scheme. 27. Once an eligible employee has expressed an interest in the Scheme a formal offer will be made within 14 calendar days from the date the expressions of interest is closed. 28. Employees will be provided with a calculation of payments in lieu of accrued long service leave and annual leave entitlements. 29. Employees will be provided with 14 calendar days to accept or reject the offer of the VDP. 30. After accepting the offer employees will generally be required to cease employment within 14 calendar days of accepting the offer. However, based on operational requirements the cessation date may be extended by mutual agreement between the employer and the employee, with the employee receiving the package and terminating employment no later than 30 June 2014. 31. It is proposed the Scheme will be implemented from the date after the Commissioner's approval to 30 June 2014. 32. The payments made under the Scheme do not include any payment in lieu of superannuation benefits. 33. The payments made under the Scheme will be at arm's-length. 34. Recipients of a VDP under the Scheme will have a three-year restriction on re-employment in the Victorian public service or elsewhere in the Victorian public sector. 35. The retirement of employees who receive a payment under the Scheme will occur before they turn 65 years of age. 36. 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 receive the tax-free concessions under the Scheme. These payments will be concessionally taxed as employment termination payments (ETPs) up to the ETP cap. 37. Eligible employees of DTPLI are employed under the Victorian Public Service Workplace Determination 2012. 38. The early retirement scheme to be implemented by the Victorian Department of Transport, Planning and Local Infrastructure is an early retirement scheme for the purposes of section 83-180. 39. 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 the retirement will be an early retirement scheme payment. 40. 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 13 November 2013 41. Where a scheme satisfies the requirements of section 83-180 that scheme will be an 'early retirement scheme'. 42. Subsection 83-180(3) states that: These three conditions are now considered. | All employees within a class approved by the Commissioner may participate in the scheme: 43. 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). 44. The class of employees to whom early retirement will be offered is set out in paragraphs 16 and 17 of this Ruling. 45. The Commissioner considers that this is an appropriate class of persons to whom the scheme will 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: 46. 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). 47. Paragraphs 11 to 15 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 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: 48. The Scheme is proposed to operate for a period commencing from the date after the Commissioner's approval to 30 June 2014. The approval to be provided by the class ruling will have been granted prior to implementation therefore, for the purposes of paragraph 83-180(3)(c), this condition is satisfied. 49. The Scheme will be in operation for approximately eight months. This is considered appropriate due to the circumstances of the reorganisation and the employees that will be given the option of early retirement under the Scheme. | Other relevant information: 50. 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 the retirement is an early retirement scheme payment. 51. 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)): 52. 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'. 53. 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. 54. For the 2013-14 income year, the proposed tax-free amount is limited to $9,246 (base amount) plus $4,624 (service amount) for each whole year of completed employment service to which the early retirement scheme payment relates. It should be noted that six months, eight months or even eleven months do not count as a whole year for the purposes of this calculation. 55. The total of the amount received on termination of employment calculated in accordance with paragraphs 18 to 20 of this ruling may qualify as an early retirement scheme payment. 56. The total payment calculated in accordance with paragraph 54 of this ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 53 of this ruling to determine the 'tax-free' amount of the early retirement scheme payment. 57. The 'tax-free' amount will: 58. Any payment in excess of this limit will be an employment termination payment (ETP) where the payment is received no later than 12 months after termination of employment and will be split into tax-free and taxable components. The tax-free component of an ETP includes the pre-July 83 segment of the payment. The tax-free component is not assessable income and is not exempt income. 59. The taxable component of the ETP will be taxed at various rates depending on the person's age. It should be noted the 'whole of income' cap does not apply to any part of the early retirement scheme payment. 60. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: 38. The early retirement scheme to be implemented by the Victorian Department of Transport, Planning and Local Infrastructure is an early retirement scheme for the purposes of section 83-180. 39. 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 the retirement will be an early retirement scheme payment. 40. 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 13 November 2013


Appendix: 41. Where a scheme satisfies the requirements of section 83-180 that scheme will be an 'early retirement scheme'. 42. Subsection 83-180(3) states that: These three conditions are now considered. | All employees within a class approved by the Commissioner may participate in the scheme: 43. 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). 44. The class of employees to whom early retirement will be offered is set out in paragraphs 16 and 17 of this Ruling. 45. The Commissioner considers that this is an appropriate class of persons to whom the scheme will 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: 46. 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). 47. Paragraphs 11 to 15 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 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: 48. The Scheme is proposed to operate for a period commencing from the date after the Commissioner's approval to 30 June 2014. The approval to be provided by the class ruling will have been granted prior to implementation therefore, for the purposes of paragraph 83-180(3)(c), this condition is satisfied. 49. The Scheme will be in operation for approximately eight months. This is considered appropriate due to the circumstances of the reorganisation and the employees that will be given the option of early retirement under the Scheme. | Other relevant information: 50. 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 the retirement is an early retirement scheme payment. 51. 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)): 52. 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'. 53. 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. 54. For the 2013-14 income year, the proposed tax-free amount is limited to $9,246 (base amount) plus $4,624 (service amount) for each whole year of completed employment service to which the early retirement scheme payment relates. It should be noted that six months, eight months or even eleven months do not count as a whole year for the purposes of this calculation. 55. The total of the amount received on termination of employment calculated in accordance with paragraphs 18 to 20 of this ruling may qualify as an early retirement scheme payment. 56. The total payment calculated in accordance with paragraph 54 of this ruling will be measured against the limit calculated in accordance with the formula mentioned in paragraph 53 of this ruling to determine the 'tax-free' amount of the early retirement scheme payment. 57. The 'tax-free' amount will: 58. Any payment in excess of this limit will be an employment termination payment (ETP) where the payment is received no later than 12 months after termination of employment and will be split into tax-free and taxable components. The tax-free component of an ETP includes the pre-July 83 segment of the payment. The tax-free component is not assessable income and is not exempt income. 59. The taxable component of the ETP will be taxed at various rates depending on the person's age. It should be noted the 'whole of income' cap does not apply to any part of the early retirement scheme payment.


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 995-1(1) TAA 1953 Copyright Act 1968
Subject references: early retirement employment termination redundancy or early retirement scheme payment