Edited version of private advice

Authorisation Number: 1051575527499

Date of advice: 2 September 2019

Ruling

Subject: International Income

Question 1

Does the International Organisations (Privileges and Immunities) Act 1963 (Cth) apply to exempt from income tax the remuneration you derive from Organisation A on the basis that you are an office holder?

Answer

No

Question 2

Does the International Organisations (Privileges and Immunities) Act 1963 (Cth) apply to exempt from income tax the non-salary benefit allowances you derive from Organisation A on the basis that you are an office holder?

Answer

No

Question 3

Are the insurances and pension costs deductible in Australia when paid as part of employment with the Organisation A?

Answer

No

Question 4

Are the staff association costs deductible in Australia when paid as part of employment with Organisation A?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes who has accepted an employment contract to work as an Officer with Organisation A stationed outside Australia.

You have been posted to Country A under a contract as international professional staff. In this role you will be assisting the local government in their political and social development.

Your salary is paid from headquarters of the organisation into your Australian bank account. Your employment contract is issued by the office in City A.

You receive a salary, allowances for travel expenses and relocation, hardship allowance and other allowances. From your salary you pay for health insurance, life insurance, a staff pension and staff association fees.

You have leased a private apartment in Country A.

Your duties include preparation of reports, briefings, guidance notes and similar communications. You also prepare reporting products for internal and external use regarding the situation in Country A. The purpose of these is to ensure that information is efficiently distributed to organisation leadership as well as development partners, the Government of Country A and the broader public so these parties are well-informed about the local situation.

You are not tasked with preparation of a specific report or work product and have no direct staff which you are required to supervise. However when you are Acting Head of Unit (when your Line Manager is away) you provide task related guidance to two locally engaged staff. In these situations you do not provide performance management of these staff. You do not exercise authority on behalf of the organisation by, for example, signing contracts or authorising expenditure of budget funds.

You anticipate that your role would continue should you resign or depart from this position. However this depends on cost allocations and the budget for each programmatic year. Hence it is not certain that your role would necessarily continue in future should you leave, as this depends on budget allocations.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-15(2)

Income Tax Assessment Act 1997 Subsection 6-5(2)

The International Organisations (Privileges and Immunities) Act 1963 Subsection 3(1)

The International Organisations (Privileges and Immunities) Act 1963 Subsection 5(1)

Reasons for decision

Income from professional services is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

However, subsection 6-15(2) of the ITAA 1997 says that if an amount is exempt income then it is not assessable income.

Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

The International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)A) is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax.

There are two sets of regulations that apply to the organisation, those for specialised agencies and those for the organisation itself. In this case the specialised agency regulations do not apply as the organisation is not a separate body and, in any case, it is not listed in the regulations.

Subsection 5(1) of the IO(P&I)A provides that the Specialised Agencies (Privileges & Immunities) Regulations 1986 (SA(P&I) Regs) may declare an organisation to be an organisation to which the IO(P&I)A applies.

Subsection 3(1) of the IO(P&I)A defines the term 'international organisation to which this Act applies' to mean an organisation that is declared by the regulations to be an international organisation to which the IO(P&I)A applies, and includes a body established by such an organisation.

Your organisation is an Agency to which the IO(P&I)A applies as specified in the (Privileges and Immunities) Regulations 1986.

Entitlement to exemption under the IO(P&I)A depends on whether you were engaged as a person who held an office specified in Column 3 of the Schedule to the Specialised Agencies (Privileges & Immunities) Regulations 1986 (SA(P&I) Regs). As your position is not listed in the Schedule you are not entitled to an exemption.

Further, you have provided your letter of offer which specifies that you are a fixed term employee. This letter of offer does not specify that you hold an office.

In paragraph 24 of Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax it states that an office typically has the following characteristics -

·         independent existence - the office must exist regardless of the individual who occupies the office from time to time. If the individual that currently occupies the office vacates that office, the office must continue to exist to be filled by another individual

·         duties, functions and responsibilities - the office must have identifiable duties, functions and responsibilities or powers other than merely an advisory function, and

·         the relevant duties, functions and responsibilities, or powers must attach to the office itself, rather than the individual who occupies that office.

The Commissioner's views on what is an office holder are set out in in draft Taxation Ruling TR 2019/D1. As is apparent from the Commissioner's views and the relevant case law in determining who is an office holder it is not sufficient to simply be an employee and thereby be regarded as an office holder. An office holder is someone who has identifiable duties, functions, responsibilities or powers to carry out. It does not include an employee who is merely following the command of a higher ranking person. This does not take away from the fact that an office holder may be an employee - it illustrates however that a person who is an employee is not necessarily or automatically to be taken to be an office holder.

Your role on assignment is best described as that of an expert or consultant, and not an office holder. As such the substance of your relationship is consistent with what one would commonly understand a 'contractual employee' to be.

You have stated that the continuing existence of your position is not guaranteed, as it depends on budget considerations. This demonstrates that your position does not necessarily continue to exist should you depart.

Similarly, your duties, functions and responsibilities have not been identified as belonging to your position. Rather they appear delegated to you in your present role.

Accordingly, you do not hold an office in the organisation.

Under sub regulation 8(1) of the SA(P&I) Regs a person who holds an office, other than a high office, in a Specialized Agency, has the privileges and immunities specified in Part I of the Fourth Schedule to the IO(P&I)A, including income tax exemption on salaries and emoluments received from the organisation.

You are not entitled to the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A as you do not hold an office as specified in the Schedule. You are regarded as an expert or consultant but no income tax exemption is available for these roles.

Accordingly, the income derived by you as a fixed term employee to the organisation in Country A is assessable under subsection 6-5(2) of the ITAA 1997.

Similarly, the non-salary benefit allowances you derive as part of your employment are also not exempt and are hence assessable.

Pension contributions are not deductible by individuals in Australia. Similarly, life insurance and medical insurance are also non-deductible. Australian medical insurance policies allow a reduction in premium through a rebate. However this does not apply to an overseas policy such as your medical insurance policy.

Staff Association costs would be treated as union dues and would be deductible.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).