Income tax: Charles Darwin University Academic Staff Voluntary Early Retirement Scheme 2018

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.

The relevant provisions dealt with in this Ruling are: • section 83-170 of the Income Tax Assessment Act 1997 (ITAA 1997) • section 83-180 of the ITAA 1997. All subsequent legislative references are to the ITAA 1997 unless specified otherwise.

The class of entities to whom this scheme applies is those employees of Charles Darwin University shown at paragraph 12, and subject to those at paragraph 16, who receive a payment under the scheme described under the heading Scheme .

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 under the heading Scheme .

If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled, and • this Ruling may be withdrawn or modified.

The Ruling applies from 12 December 2018 to 31 December 2019. The Ruling continues to apply after 31 December 2019 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 Public Rulings ).

Charles Darwin University (the University) is seeking the Commissioner's approval to implement an early retirement scheme in accordance with section 83-180.

The scheme will be titled the ' Charles Darwin University Academic Staff Voluntary Early Retirement Scheme 2018 ', hereafter referred to as the 'Scheme'.

The University recognises that there are large scale changes occurring in higher education in Australia and globally. Significant increases in competition for students and research funding, the importance of research driven international rankings, and the impact of new technology have led the University to give consideration to the composition and nature of the staffing profile needed for the future.

The University intends to improve and re-align its academic staffing profile with its teaching and research goals in order to operate more effectively and efficiently. The University seeks to build a greater concentration of research staff and improve the quality, productivity, and profile of its researchers as well as strengthen the teaching quality and learning outcomes.

The purpose of the Scheme is to operate as a more effective and efficient organisation, as well as a refreshment of some of the workforce, by providing academic staff who may be considering retirement, or whose aspirations no longer align with those of the University, a financial incentive to retire early.

The class of employees to whom the Scheme applies is individual members of the Academic or Vocational Education and Training (VET) staff employed by the University in Australia who, as at the date that the Scheme comes into effect (the commencement date), meet the following criteria: • are permanent academic (Academic Levels A-E) or VET staff members employed in a continuing position • have not formally advised of their resignation • do not have a formal arrangement in place that will result in termination of their employment on a specified date, and • are 55 years of age or older but less than 65 years of age.

For the purposes of the Scheme, a member of the University's Academic or VET staff means a person so defined under the ' The Charles Darwin University and Union Enterprise Agreement 2013 '.

The term Academic/Higher Education for the purposes of the Enterprise Agreement, clause 3.17 defines the term as follows: 'Higher Education means teaching within a course that is self-accredited as a Higher Education course and/or the undertaking of research and research training' .

The term VET is defined in Clause 3.48 as 'Vocational education and training (VET) means teaching, training and assessment within an Australian Skills Quality Authority (ASQA) approved course' .

The following Academic or VET employees are specifically excluded from participating in the Scheme: • Academic or VET staff members of the Senior Executive Team and current Deans of College/ Heads of School • staff with an active workers' compensation claim where there is payment for loss of income • fixed-term or casual staff • Academic or VET staff who deliver teaching in professionally accredited degrees, certification or research and whose departure is likely to jeopardise the University's ability to continue to offer that degree or certification • Academic or VET staff with specialised skills and/or a specialised Academic focus that are not readily available, and • any staff member under investigation for allegations of misconduct or serious misconduct.

Eligible employees who retire under the Scheme will be paid a lump sum payment of two weeks' salary per each completed year of service (capped at 52 weeks).

A 'completed year of service' calculation will be based on continuous service in a continuing capacity only. Any unpaid time will not count as service but will not break service.

All payments will be calculated with reference to the staff member's superannuable salary and any superannuable allowances applicable to their continuing role as at the date of termination of employment.

In addition, all eligible employees terminated under the Scheme will receive their statutory entitlements such as annual leave and long service leave where applicable. However, these amounts will not form part of the payment made under the Scheme.

The number of packages is limited. The number of eligible employees approved will also not exceed 30% of the Academic or VET employees of any College or School.

Following the approval of the Scheme, all eligible employees will be formally invited to participate in the Scheme. Eligible employees will be given six weeks to submit their expression of interest in the Scheme.

Within four weeks after the conclusion of the expression of interest period, offers will be made by the University on the basis of the Scheme's criteria.

Eligible employees will have two weeks to accept the offer. Once an offer is accepted, voluntary withdrawal from the Scheme will not be permitted.

If the number of employees initially willing to participate in the Scheme is less than the number expected by the University, the University may implement a second expression of interest process during the duration of the Scheme.

Most employees who accept an offer to retire under the Scheme will terminate their employment and receive their payment within ten weeks of accepting an offer, but no later than 31 December 2019. The termination date will be subject to operational requirements but will be no later than the duration of the approved Scheme.

The payment made under the Scheme is in excess of any superannuation and any other benefits to which eligible employees would otherwise be entitled.

Employees who terminate their employment other than under the proposed Scheme, will not be entitled to receive the Scheme payment.

The retirement of employees who receive a payment under the Scheme will occur before they turn 65 years of age.

Employees who will be 65 or older at date of retirement will not be eligible for the Scheme but will have the same entitlements provided under a separate arrangement. These employees will not be eligible for any tax concessions applying to employees under the Scheme.

Payments made under the Scheme will be at arm's length.

There is no agreement in place between any eligible employee and the University, or between the University and another person to employ the eligible employee after retirement under the Scheme.

Participation in the Scheme is entirely voluntary.

The ' Charles Darwin University Academic Staff Voluntary Early Retirement Scheme 2018 ' is an early retirement scheme for the purposes of section 83-180.

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.

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.

A scheme will be an early retirement scheme if it satisfies the requirements of subsections 83-180(3).

Subsection 83-180(3) states that: 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. These three conditions are now considered.

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).

The class of employees to whom early retirement will be offered under the Scheme is set out in paragraph 12, and subject to those in paragraph 16, of this Ruling.

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 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).

Paragraphs 9 to 11 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).

The Scheme is proposed to operate for a period from 12 December 2018 to 31 December 2019. 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.

The Scheme will be in operation for approximately twelve months. This is considered appropriate due to the circumstances of the re-organisation.

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.

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)): • 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 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)).

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 '.

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.

For the 2018-19 income year, the tax-free amount is limited to $10,399 (base amount) plus $5,200 (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.

For the 2019-20 income year, the base amount and the service amount are yet to be determined at the publication of this Ruling. Therefore, employees should check the Australian Taxation Office website for these indexed amounts at the relevant time.

The total of the amount received on the termination of employment calculated in accordance with paragraph 17 of this Ruling may qualify as an early retirement scheme payment.

The total payment calculated in accordance with paragraph 17 of this Ruling will be measured against the limit in accordance with the formula mentioned in paragraphs 50 and 51 of this Ruling to determine the tax-free amount of the early retirement scheme payment.

The tax-free amount will: • not be an employment termination payment (ETP), and • not be able to be rolled-over into a superannuation fund.

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.

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.

The following is a detailed contents list for this Ruling: Paragraph Summary - what this Ruling is about 1 Relevant provisions 2 Class of entities 3 Qualifications 4 Date of effect 6 Scheme 7 Ruling 34 Appendix 1 - Explanation 37 All employees within a class approved by the Commissioner may participate in the scheme 39 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 42 The scheme must be approved by the Commissioner prior to its implementation 44 Other relevant information 46 Appendix 2 - Detailed contents list 57