| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1013054323251
Date of advice: 20 July 2016
Ruling
Subject: Early retirement scheme
Question 1
Do the provisions of s83-180 of the ITAA 1997 prohibit an eligible employee who accepted an early retirement package from the approved employer institution from being re-employed by the institution in the future on either a full-time or casual basis?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You were employed by the Employer.
On a date in the relevant income year, having satisfied the requirements for participation in an ATO Approved Voluntary Retirement Scheme to receive an early retirement scheme payment, you accepted a termination payment.
At the time of your termination, there was no arrangement or agreement between the Employer and yourself, or the Employer and any other entity, for you to be re-employed by the Employer after the retirement date.
You are considering taking up employment with the Employer at a future date on either a full-time or casual basis. However, no such agreement has been entered into at this time.
Relevant legislative provisions
ITAA 1997 83-180(1)
ITAA 1997 83-180(2)
ITAA 1997 83-180(3).
Reasons for decision
Summary
Provided that there was no arrangement between yourself and the Employer, or between the Employer and another person, to employ you after the dismissal, you would not be precluded from taking up such employment in the future.
Detailed reasoning
Early retirement scheme
A scheme is an early retirement scheme if it satisfies the requirements of subsection 83-180(3) or (4) which states:.
A scheme is an early retirement scheme if:
(a) all the employer's employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and
(b) 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
(c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.
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 83-180(2), 83-180(5) and 83-180(6):
• the retirement occurred before the employee turned age 65 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 made 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; (emphasis added)
• 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)).
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'.
Termination
In 20XX, you applied for an early retirement scheme payment under an ATO Approved Voluntary Retirement Scheme. Having satisfied the requirements for participation, your employment was terminated on a date in the relevant income year, and you received an early retirement payment.
You note that you are contemplating providing your services as an employee to your former employer at a future date. However, no such arrangement had been made at the time of your termination.
Under paragraph 83-180(2)(c), an arrangement to employ an employee after his or her termination prevents a dismissal giving rise to an early retirement payment if that arrangement is entered into between either:
• the employer and the dismissed employee; or
• the employer and another entity.
The Commissioner considers that the phrase 'arrangement... to employ' in paragraph 83-180(2)(c) refers to common law employment only. The apparent purpose of paragraph 83-180(2)(c) is to limit access to concessional tax treatment where an employee is terminated but is certain of continuing remuneration in the future under a common law employment contract because of an arrangement to which the employer is a party.
It is considered that the mere possibility you may be employed by the Employer in the future does not, in the absence of any formal arrangement, disqualify you from meeting the third condition in subsection 83-180(2)(c).