Arnott's Biscuits Ltd - early retirement scheme 2021
Please note that the PDF version is the authorised version of this ruling.
|Table of Contents||Paragraph|
|What this Ruling is about|
|Who this Ruling applies to|
|When this Ruling applies|
|Appendix - Explanation|
Relying on this Ruling
This publication (excluding appendix) is a public ruling for the purposes of the Taxation Administration Act 1953.
If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.
7. 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.
11. Arnott's has experienced a reduction in demand for chocolate biscuits. This was initially considered to be a temporary issue; however, as demand has not improved Arnott's is seeking a more permanent solution.
12. The reduced consumer demand for chocolate biscuits necessitated a change for the chocolate biscuit production line from a seven-day operating model to a five-day operating model, which has created idle labour risks for Arnott's.
14. The Scheme provides an opportunity to assist longer-serving employees to transition to retirement. The Scheme will provide Arnott's with an opportunity to re-organise its operations to manage the labour risks associated with an ageing workforce and to retrain and reskill employees to fill the gaps likely to arise in the near future. The Scheme will help Arnott's re-organise its operations to both adapt to the changes in demand and prepare its business for the future.
- are covered by the Arnott's Biscuits Huntingwood Enterprise Agreement 2019, and
- have 20 years or more continuous service with Arnott's or a related body corporate.
17. There is a limit on the number of employees who can retire under the Scheme based on available funding. Participation will be on a first-in basis and applications will not be accepted once the funds are exhausted.
18. If the number of applications from employees who work on a particular shift means the shift cannot be filled and the operations will be severely impacted, Arnott's will be able to refuse any further applications from employees on that shift.
19. The Scheme will allow for a staggered exit of employees to ensure there is an appropriate transfer of knowledge to, and upskilling of, continuing employees at Huntingwood. In this regard, employees may be notified of a future retirement date to ensure adequate handover can occur and that production knowledge can be retained by Arnott's, with minimal disruption to its operational capabilities.
Commissioner of Taxation
8 December 2021
|This Explanation is provided as information to help you understand how the Commissioner's view has been reached. It does not form part of the binding public ruling.|
|Table of Contents||Paragraph|
|Requirements for an early retirement scheme||26|
|All employees within a class approved by the Commissioner may participate in the scheme||28|
|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||32|
|The scheme must be approved by the Commissioner prior to its implementation||35|
|Other relevant information||38|
A scheme is an early retirement scheme if:
- all the employer's employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and
- the employer's purpose in implementing the scheme is to rationalise or re-organise the employer's operations by making any change to the employer's operations, or the nature of the work force, that the Commissioner approves; and
- before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.
30. The Commissioner considers that, for the purposes of paragraph 83-180(3)(a), 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 Arnott's.
33. Paragraphs 11 to 14 of this Ruling describe the nature of the rationalisation or re-organisation of Arnott's operations. In approving the Scheme, the Commissioner has had regard to the changes in the operations and nature of the work force of Arnott's. It is considered that the Scheme is to be implemented by Arnott's with a view to rationalising or re-organising the operations of Arnott's for the purposes of paragraph 83-180(3)(b).
38. 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.
39. 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), (5) and (6)):
- the retirement occurred before the employee reached pension age or such earlier date on which the employee's employment would have terminated under the terms of employment because of the employee attaining a certain age or completing a particular period of service (as the case may be)
- if the employee 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 the amount that could reasonably be expected to be made if the retirement was at arm's length
- at the time of retirement there was no arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the retirement
- the payment must not be made in lieu of superannuation benefits, and
- it is not a payment mentioned in section 82-135 (apart from paragraph 82-135(e)).
... any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.
42. 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.
43. For the 2021-22 income year, the tax-free amount is limited to $11,341 (base amount) plus $5,672 (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 11 months do not count as a whole year for the purposes of this calculation.
44. For the 2022-23 income year, the base amount and the service amount are yet to be determined at the date of publication of this Ruling. Therefore, employees should check the ATO website for these indexed amounts at the relevant time.
46. The payment made in accordance with paragraph 21 of this Ruling will be measured against the limit in accordance with the formula mentioned in paragraph 43 of this Ruling to determine the tax-free amount of the early retirement scheme payment.
- an employment termination payment (ETP), and
- able to be rolled-over into a super fund.
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.
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Not previously issued as a draft
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(5)
ITAA 1997 83-180(6)
ITAA 1997 995-1(1)
Social Security Act 1991 23(1)