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Edited version of your written advice
Authorisation Number: 1051220137638
Date of advice: 3 May 2017
Ruling
Subject: Early retirement scheme payment
Question
For the purposes of section 83-180 of the Income Tax Assessment Act 1997 (ITAA 1997), will the concessional tax treatment of an early retirement scheme payment you received from your former employer under an approved early retirement scheme be affected if you are re-employed by the employer after the retirement?
Answer
No
This ruling applies for the following period:
Income year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
On a date in the 2016-17 income year, your employment was terminated under an approved early retirement scheme. As a result of the termination, you received an early retirement scheme payment from your former employer (the Employer).
On the following day, the Employer made you an offer of an honorary appointment for a specified period (the Honorary Appointment) which you accepted.
The Honorary Appointment was for unpaid work with limited opportunity for paid work.
About a month later, you were offered employment with the Employer on a casual basis, but have not yet taken up the offer.
The casual employment does not attract the normal conditions of employment such as annual leave, sick leave or long service leave.
At the time of the termination of your employment with the Employer, there was no arrangement or agreement between the Employer and yourself, or between the Employer and any other entity, to employ you after the retirement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 83-180
Income Tax Assessment Act 1997 subsection 83-180(1)
Income Tax Assessment Act 1997 subsection 83-180(2)
Reasons for decision
Summary
For the purposes of section 83-180 of the ITAA 1997, 'retirement' is not taken to mean retirement from all employment is to continue indefinitely. Therefore, the tax treatment of the early retirement scheme payment you received from the Employer will not be affected if you are re-employed by the Employer in the future.
Detailed reasoning
Early retirement scheme payments
In accordance with subsection 83-180(1) of the ITAA 1997, an early retirement scheme payment is so much of the payment received by an employee who 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 the retirement.
Subsection 83-180(2) of the ITAA 1997 sets out the conditions that must be satisfied if a payment is to be treated as an early retirement scheme payment (and taxed concessionally) and, as far as relevant, states:
(c) at the time of the 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.
*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.
The term 'arrangement' is defined in subsection 995-1(1) of the ITAA 1997 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'.
The term 'retirement' is not defined in the ITAA 1997 therefore, its meaning must be determined according to the ordinary meaning of the word, having regard to the context in which it appears.
One of the meanings attributed to 'retirement' in the Macquarie Concise Dictionary is:
3. removal or retiring from service, office, or business …
Having regard to the ordinary meaning of `retirement', it is considered that, for the purposes of section 83-180 of the ITAA 1997, a person has retired from an office or employment if:
(a) the person has in fact terminated their office or employment, and
(b) at the time they terminated it, they had no intention of ever resuming it.
In your case, you accepted an offer to retire from employment with the Employer under an approved early retirement scheme. Consequently, the Employer terminated your employment and paid you an early retirement scheme payment.
On the following day, you accepted an honorary appointment with the Employer. The honorary appointment was for a specified term, however about a month later, you were offered paid casual employment with the Employer. You have stated that there was no arrangement between you and the Employer, or between the Employer and another person, to employ you after retirement.
An employee needs to retire as part of receiving an early retirement scheme payment under section 83-180 of the ITAA 1997. Accepting an offer of paid employment with the same employer subsequent to receiving the payment brings into question whether there was a valid retirement or termination of employment in the first instance. Taxation Ruling IT 2021 Retrenchment of employees - subsequent employment on casual basis (IT 2021) provides guidance in determining whether there is an effective termination of employment in these circumstances. Whilst IT 2021 dates back to 25 February 1983, it still has effect.
IT 2021 considers whether there has been an effective termination of employment where an employee moves from full-time employment to either part-time or casual employment with the same employer. If the employee went from full-time employment to part-time employment maintaining the normal benefits of full-time employment (such as annual leave, long service leave sick leave etc.), then there would not be a valid termination of employment. Alternatively, a move to casual employment without these normal benefits of employment would represent a valid termination of employment.
In your case, the honorary position and the casual employment offered by the Employer does not attract the normal benefits of employment, therefore, it is considered that there was an effective termination from employment with the Employer.
Based on the above, and the statement that at the time of retirement there was no arrangement between you and the Employer, or between the Employer and another person, to employ you after the retirement, the concessional tax treatment of the early retirement scheme payment you received from the Employer will not be affected if you are re-employed by the Employer on a casual basis after the retirement.
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