Class Ruling CR 2016/82
Date of effect: 26 October 2016

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions 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 whom this scheme applies is those employees of Ward McKenzie Pty Ltd (Ward McKenzie) shown at paragraph 13 who receive a payment under the scheme described in paragraphs 8 to 25 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 8 to 25 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 entities to whom this scheme applies is those employees of Ward McKenzie Pty Ltd (Ward McKenzie) shown at paragraph 13 who receive a payment under the scheme described in paragraphs 8 to 25 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 8 to 25 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This Ruling applies from 26 October 2016 to 31 December 2016. The Ruling continues to apply after 31 December 2016 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. Ward McKenzie is seeking the Commissioner's approval to implement an early retirement scheme in accordance with section 83-180. 9. The scheme will be titled the 'Ward McKenzie Early Retirement Scheme ', hereafter referred to as the Scheme. 10. The Scheme will be made available to certain eligible employees, namely production, maintenance, quality assurance, stores and milling staff employed by Ward McKenzie. 11. Ward McKenzie is undertaking a management plan that allows the reorganisation of the business with the aim of increasing efficiency and outcomes by the use of complex automated technology and associated IT systems. These changes will not impact the number of roles required, but will have some effect on the duties to be performed by employees. 12. Therefore, the purpose of the Scheme is to allow employees who may be struggling with the changes to exit the company by providing an incentive to employees who meet the eligibility criteria. 13. The class of employees to whom the Scheme applies: 14. All eligible employees who retire under the Scheme will receive a voluntary departure package (VDP) as follows: 15. In addition, all eligible employees terminated under the Scheme will receive their statutory entitlements. However, these payments will not form part of the payment made under the Scheme. 16. Employees will receive contractual notice, and will be expected to work their notice period. 17. Participation in the Scheme is entirely voluntary. 18. The Scheme will be open to employees from 26 October 2016 and will be implemented as follows: 19. There is a cap of ten (10) on the number of places available. Should more than ten applications be received, the employees to be accepted into the Scheme will be determined on the basis of age, with priority given to employees closest in age to retirement. 20. The payment made under the Scheme is in excess of any superannuation and any other benefits to which eligible employees would otherwise be entitled. 21. Any employee who terminates their employment other than under the proposed Scheme will not be entitled to receive the Scheme payment. 22. All eligible employees are employed under the Ward McKenzie Group of Companies Partnership Agreement 2014-17. There is no specified retirement age provided for in the agreement. 23. Payments made under the Scheme will be at arm's length. 24. The retirement of employees who receive a payment under the scheme will occur before they turn 65 years of age. 25. There is no agreement in place between any eligible employee and Ward McKenzie, or between Ward McKenzie and another person to employ the eligible employee after retirement under the Scheme. 26. The early retirement scheme to be implemented by Ward McKenzie is an early retirement scheme for the purposes of section 83-180. 27. Accordingly, so much of the payment received by an eligible employee that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination of their employment at the time of the retirement will be an early retirement scheme payment. 28. 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 26 October 2016 29. A scheme will be an early retirement scheme if it satisfies the requirements of subsections 83-180(3) or 83-180(4). 30. 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: 31. 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). 32. The class of employees to whom early retirement will be offered under the Scheme is set out in paragraph 13 of this Ruling. 33. The Commissioner considers that this is an appropriate class of persons for the Scheme to be offered to. 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: 34. 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). 35. Paragraphs 10 to 12 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 work force 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). 36. The Scheme will be in operation for approximately three months. This is considered appropriate due to the circumstances of the re-organisation. 37. Accordingly, the second condition for approval has been met. | The scheme must be approved by the Commissioner prior to its implementation: 38. The Scheme is proposed to operate for a period from 27 October 2016 to 31 December 2016. 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. 39. As all the conditions for approval under subsection 83-180(3) have been met, consideration of subsection 83-180(4) is not required. | Other relevant information: 40. 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 their employment at the time of termination is an early retirement scheme payment. 41. 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)): 42. 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'. 43. In accordance with section 83-170, 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. 44. For the 2016-17 income year, the tax-free amount is limited to $9,936 (base amount) plus $4,969 (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. 45. The total of the amount received on the termination of employment calculated in accordance with paragraph 14 of this Ruling may qualify as an early retirement scheme payment. 46. The total payment calculated in accordance with paragraph 14 of this Ruling will be measured against the limit in accordance with the formula mentioned in paragraph 44 to determine the tax-free amount of the early retirement scheme payment. 47. The tax-free amount will: 48. Any payment in excess of this limit will be an ETP 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. 49. The taxable component of the ETP will be taxed at various rates depending on the person's age. It should be noted that the 'whole of income cap' does not apply to any part of the early retirement scheme payment. 50. 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: 26. The early retirement scheme to be implemented by Ward McKenzie is an early retirement scheme for the purposes of section 83-180. 27. Accordingly, so much of the payment received by an eligible employee that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination of their employment at the time of the retirement will be an early retirement scheme payment. 28. 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 26 October 2016


Appendix: 29. A scheme will be an early retirement scheme if it satisfies the requirements of subsections 83-180(3) or 83-180(4). 30. 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: 31. 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). 32. The class of employees to whom early retirement will be offered under the Scheme is set out in paragraph 13 of this Ruling. 33. The Commissioner considers that this is an appropriate class of persons for the Scheme to be offered to. 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: 34. 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). 35. Paragraphs 10 to 12 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 work force 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). 36. The Scheme will be in operation for approximately three months. This is considered appropriate due to the circumstances of the re-organisation. 37. Accordingly, the second condition for approval has been met. | The scheme must be approved by the Commissioner prior to its implementation: 38. The Scheme is proposed to operate for a period from 27 October 2016 to 31 December 2016. 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. 39. As all the conditions for approval under subsection 83-180(3) have been met, consideration of subsection 83-180(4) is not required. | Other relevant information: 40. 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 their employment at the time of termination is an early retirement scheme payment. 41. 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)): 42. 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'. 43. In accordance with section 83-170, 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. 44. For the 2016-17 income year, the tax-free amount is limited to $9,936 (base amount) plus $4,969 (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. 45. The total of the amount received on the termination of employment calculated in accordance with paragraph 14 of this Ruling may qualify as an early retirement scheme payment. 46. The total payment calculated in accordance with paragraph 14 of this Ruling will be measured against the limit in accordance with the formula mentioned in paragraph 44 to determine the tax-free amount of the early retirement scheme payment. 47. The tax-free amount will: 48. Any payment in excess of this limit will be an ETP 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. 49. The taxable component of the ETP will be taxed at various rates depending on the person's age. It should be noted that 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 960-285 ITAA 1997 995-1(1) TAA 1953