Edited version of private advice

Authorisation Number: 1052103319571

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 6 April 2023

Ruling

Subject: Income derived from an international organisation

Question 1

Are you a person who holds an office for the purpose of the specific Regulation of the Regulations relevant to the international organisation which employed you (the Organisation)?

Answer

No.

Question 2

Does section 6-20 of the Income Tax Assessment Act 1997 ITAA 1997 apply to exempt the payments you received for services performed for the Organisation while residing in Australia on the basis that they are exempted by subsection 6(1) of the International Organisations (Privileges and Immunities) Act 1963 (IOPIA 1963)?

Answer

No.

This ruling applies for the following periods:

Multiple years ended 30 June 20xx

The scheme commenced on:

1 July 20xx

Relevant facts and circumstances

You have been employed by an international organisation (the Organisation) to which the IOPIA 1963 applies as a Senior Research Professional.

The employment contract was for an initial period of three years.

The department of the Organisation in which you were based includes a number of Research Professional and Senior Research Professional positions like the one you held, that contribute to the core work of the group. These are ongoing positions that are filled by staff members engaged as employees. The exact roles vary over time in accordance with management priorities and needs.

For the first period of your employment you remained in Australia and continued to be a tax resident of Australia.

After this period of time you departed Australia to move to a foreign country to continue to work in this role and ceased your Australian tax residency at this time.

As a Senior Research Professional, your role entails a wide range of research in your field of expertise, as well as corporate and other tasks as directed by senior management in your department. Details of work undertaken and responsibilities and further details of your position are as follows:

Work Undertaken

Following your commencement, one of the tasks you were assigned by your manager was to contribute to the preparation of research outputs in your area of expertise. These research outputs are published in the Organisation's periodically published report, which is a core output of the Organisation. The initial main public outcome of your work will be published in when the next edition of the report is published. You also contributed to finalising the previous edition of the report, which is publicly available. As a core publication there is an ongoing need to undertake this task. You took on this function from another Senior Research Professional in your group who had resigned from the Organisation. To ensure continuity with this task, this involved a "handover" from this individual prior to their departure from the Organisation.

Alongside other colleagues you have also contributed to another regular publication produced by your group. This included assisting with a publicly available edition of the report for which you provided the website URL. Your involvement in this edition is noted on the published pdf file. Responsibility for preparing each edition of this report is shared around your team, depending on work pressures and other considerations. You were also involved in the preparation of other editions of this report. A full archive of these reports is available.

Other work you are required to participate in and produce in the course of your employment includes:

• Research and analytical contributions to your department's products;
• undertaking research on topical issues that are of immediate concern to policymakers;
• the development and improvement of tools for analysis;
• contributing to the work of other units within the Organisation;
• ongoing support to senior management with various ad hoc tasks including assisting with the preparation of briefing material and speeches; and
• participating in regular staff meetings and internal professional development.
• internal briefing notes to managers, presentations and intermediate inputs into the Organisation's research processes.

Role responsibilities and position details

As per conditions for regular full-time employees at the Organisation like yourself, the position requires 40 hours of work per week.

You are a staff member of the Organisation and not a member of any boards, commissions or other bodies.

Your immediate manager who you are answerable to is the manager in the department of the Organisation in which you work.

One of your roles as a Senior Research Professional at the Organisation is to oversee junior staff. There are more junior Organisation employees who report to you and other colleagues day-to-day, and at your direction undertook administrative and research tasks.

While colleagues employed at the same level and staff category as you have been members of interview panels to hire junior employees, you have no direct ability or requirement to hire junior office staff as part of your role.

During your time working in Australia you had just joined the Organisation and details of your work program were still being established. At the time you did not have a need to engage consultants, enter into contracts or financial commitments on behalf of the Organisation. If you had needed to engage a consultant and enter into a contract or make a financial commitment you would have had the authority to do so in your position.

Colleagues, including in your immediate work unit, engaged by the Organisation on similar terms as you (including being employed at the same level and in the same staff category, and holding the same title of Senior Research Professional) routinely engage and enter into contracts and financial commitments on behalf of the Organisation.

As you are a staff member of the Organisation, it is not permissible for you to subcontract any part of this position to someone else to perform.

There are limited circumstances in which staff of the Organisation are able to engage in outside employment. In addition, the visa that you hold to legally reside and work in the foreign country in which you now live prohibits you from working other than at the Organisation in your regular staff position.

You have not engaged in any other employment or undertaken contract work while employed by Organisation.

During your employment with the Organisation, as with other regular employees, you can be directed by your managers to do a variety of work.

If you were to resign from your position at the Organisation, you would not have any obligation to return to do additional work after your employment contract ends.

If you were to resign from the Organisation your functions would be allocated to another Research Professional at the Organisation who was a regular employee and you would be expected to help ensure a smooth transition including involvement in a "handover" process.

You have not incurred any expenses associated with your work at the Organisation. If you had incurred expenses (e.g. incidental costs associated with work-related travel) you would have been reimbursed as per staff rules.

You were provided with a computer and mobile phone by the Organisation, which were delivered to your home in Australia before you commenced in the position. You did not use your own computer or phone for the purposes of your employment at the Organisation.

While working in Australia, you were entitled to the public holidays of the country in which the Organisation's headquarters are located. To take annual or personal leave, or to work outside your agreed hours during a standard working week, you needed to get the approval of your manager. 

Your employment contract with the Organisation entitles you to relocation benefits, healthcare, and leave entitlements.

Your appointment to the position of Senior Research Professional will terminate at the end of the 3-year contracted term unless the appointment is renewed or a new appointment is made at the discretion of the Organisation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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

Income Tax Assessment Act 1997 section 6-15

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

Income Tax Assessment Act 1997 section 6-20

International Organisations (Privileges and Immunities) Act 1963 Subsection 6(1)

International Organisations (Privileges and Immunities) Act 1963 Paragraph 6(1)(d)

International Organisations (Privileges and Immunities) Act 1963 Paragraph 6(1)(e)

International Organisations (Privileges and Immunities) Act 1963 Part 1 of the Fourth Schedule

International Organisations (Privileges and Immunities) Act 1963 Item 2 of Part 1 of the Fourth Schedule

International Organisations (Privileges and Immunities) Act 1963 Part 1 of the Fifth Schedule

International Organisations (Privileges and Immunities) Act 1963 Item 2A of Part 1 of the Fifth Schedule

Reasons for decision

Question1

Exemption under the IOPIA 1963

Regulations relevant to the Organisationconfirm that the Organisation is an organisation to which the IOPIA 1963 applies.

Subsection 6(1) and Part I of the Second to the Fifth Schedules to the IOPIA 1963 inclusive set out the taxation exemptions that can be conferred upon certain persons connected with an international organisation. Relevant to your case, this includes a person who holds an office in an international organisation (but who is not a holder of a high office), as per paragraph 6(1)(d) of the IOPIA 1963. As per Item 2 of Part 1 of the Fourth Schedule to the IOPIA 1963, this includes an exemption from taxation on salaries and emoluments received from the international organisation.

A specific Regulation of the relevant Regulations states that officers (other than high officers) of the Organisation are entitled to the privileges and immunities specified in Part I of the Fourth Schedule to the IOPIA 1963, which includes the exemption from taxation on salaries and emoluments mentioned above.

Therefore, the payments that you received in relation to your engagement with the Organisation will be exempt from income tax if it can be shown that you were a holder of an office (but not a high office) of the Organisation when you were undertaking your role.

As per South Sydney District Rugby League Football Club Ltd v. News Ltd [2000] FCA 1541, in determining what the nature of a relationship is between two parties, it is necessary to look at the form and substance of that relationship. It is not appropriate to adopt the label that one or more parties may have given to the relationship and let that determine what it is. Although, the label attached to a relationship is a relevant consideration, it is not appropriate to make decisions solely based on such a label, in particular where the underlying substance of that relationship differs from the label attached to it. Therefore, in determining the outcome of your case it is necessary to examine the substance of the relationship.

The Commissioner's view on the meaning of office holder

The terms 'office' and 'office holder' are not defined by the IOPIA 1963 or the ITAA 1997 and therefore, they take their ordinary meaning.

The Commissioner's view on the meaning of office holder is set out in draft Taxation Ruling TR 2019/D1. Paragraph 27 of TR 2019/D1 states that a holder of an office may include a person who works as an employee of an international organisation, but it does not include a person (whether an employee or not) who is:

• locally engaged and paid an hourly rate, or
• engaged as an expert or consultant.

An appointment, office or position must exhibit the characteristics of an office holder. As per paragraph 25 of TR 2019/D1, the characteristics of an office holder for an appointment, office or position are:

• independent existence - the office must exist regardless of the individual who occupies the office from time to time. This means that if the individual currently occupying the office vacates that office, the office must continue to exist to be filled by another individual;
• duties, functions, responsibilities or powers - the office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function. These features of the office (or of the panel, board, committee or tribunal to which the individual has been appointed) would usually be specified in the relevant legislation or statutory instrument (or for a common law situation, foundation document or equivalent document of that nature); and
• the relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

Paragraph 29 of TR 2019/D1 provides an example of a person who is an office holder:

Chris is employed by an international organisation in a role where he leads a team that provides ongoing professional advice the organisation relies on to carry out its core functions. Chris has significant organisational responsibilities and functions which include developing organisational strategy and managing employees. He is also able to engage and enter contracts on behalf of the organisation and make financial commitments. If Chris was to leave the organisation another person would be engaged as there is an ongoing need for the responsibilities and functions that he undertakes to continue to be performed. Chris is a person who is an office holder for the purposes of the IOPI Act.

The case law on the meaning of office holder

In determining who is an office holder, it is not enough 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.

As discussed in paragraphs [31] and [34] of Jayasinghe [2017] HCA 256 (Jayasinghe case), the term 'office' cannot be defined by reference to permanence or succession. Whether a person holds or performs the duties of an office in an international organisation concerns the relationship between the person and that organisation. As per paragraph [37] of the Jayasinghe case, the substance of the terms of the engagement of the person and the relationship between that engagement and the organisation's performing its functions must be considered. Whether someone is an office holder is a question of fact, considered on a case by case basis.

It should be clear from the duties and authority associated with the person's position within the international organisation why the privileges and immunities are conferred. As per paragraph [38] of the Jayasinghe case, a person is unlikely to be an 'office holder' if their terms of engagement place them outside the organisational structure and do not include defined duties or authority in relation to the organisation and its functions. This is consistent with the purpose of the IOPIA 1963 to confer privileges and immunities to assist organisations to perform their functions, rather than to personally benefit persons connected with the organisation (see paragraph [39] of the Jayasinghe case and paragraph [54] of Macoun v. FCT (2015) 257 CLR 519).

The High Court also affirmed the Commissioner's view outlined in paragraph 27 of TR 2019/D1 in paragraph [52] of the Jayasinghe case.

In Edwards v. Clinch [1982] AC 845 it was held that an office was a position of authority to which duties and functions are attached; an independent post, with some degree of permanence, to which successive people can be appointed.

In Federal Commissioner of Taxation v. Sealy (1987) 19 ATR 582 at 286; 87 ATC 5076, which concerned a managing partner of a grazing partnership, Pincus J said:

The word office has a range of meanings. In some contexts, it refers to a position of authority in a governmental or other public organisation. It is difficult to think of any reason why the legislature should have intended to confine the concession to instances in which the terminated position is one of a public character or of any high degree of permanency. Presumably, no one would dispute that the position of managing director of a public company could be regarded as an office.

In AAT Case 8603 93 ATC 148; 25 ATR 1082, Deputy President BJ McMahon dealt with the case of a taxpayer who had been an Inspector of Schools and who became (when that position phased out) a Cluster Director. Paragraphs [14] and [15] read as follows:

14. The word "office" is a word that had been considered in many cases but no satisfactory definition has emerged. As was pointed out in Grealy's case [Grealy v. Commissioner of Taxation (1989) 24 FCR 405; (1989) 20 ATR 403; (1989) 89 ATC 4192] the word usually connotes a position of defined authority in an organisation, such as a director of a company, or a tertiary education body. Their Honours held (at 4197 column 2) that it was not a word normally applicable to a relatively low level employee, such as a university lecturer. As the court observed the applicant, like many holders of professional employment, is not made an office holder merely because her position has a name.

15. This view was consistently taken by the Boards of Review. For example, in Case K4, 78 ATC 29 [(1978) 22 CTBR (NS) 212], Mr Dempsey suggested that an office connotes something more than substantial, something more in the nature of a continuing executive position, the holder of which has distinct responsibilities. In Grealy's case itself, their Honours noted that the word "office" usually connoted a position of defined authority. [additional case citations added]

AAT Case 12,178 (1997) 97 ATC 407; (1997) 37 ATR 1174 concerned a taxpayer who received a payment in respect of unused sick leave when he resigned from his position as a Branch Manager after having successfully won a position of Division Director for the same employer (a local council). In determining the case, one of the issues raised was whether the taxpayer was the holder of an office and whether a retirement or termination had occurred. In that case, Senior Member J Block stated:

The test as to whether a position is an office will no doubt usually be one involving questions of fact and degree...

In his findings, Senior Member Block also referred to a few previous cases which looked at the issue of office and at (ATC) 421; (ATR) 1189, he made the following observation:

In Great Western Railway Co v. Bater [1920] 3 KB 266 Rowlett J had held that an office was "a subsisting, permanent, substantive position which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders".

I consider, with respect, that the meaning attributed to the term "office" by Deputy President Thompson in W31 [Case No VT 87/3438 (1989) 20 ATR 3509; (1989) 89 ATC 307] is for Australian purposes, correct. That test would require that it is a position to which "duties are attached, especially a place of trust, authority or service under constituted authority". It is thus clear that the restricted UK view is narrow, when contrasted with the less restricted Australian approach. [additional case citations added]

Refer also to Hamilton v Commissioner of Taxation [2020] AATA 1812 where the taxpayer was found not to be an office holder of the International Monetary Fund in relation to work he undertook for that organisation. In that case the taxpayer was not engaged in the ongoing discharge of a core function of the IMF. Significantly, the appointments under which he did work did not exist in the organisational structure of the IMF and did not exist independently of his appointment to the relevant assignments.

Application to your circumstances

We concur that the following responsibilities and duties required of you as a Senior Research Professional in your employment with the Organisation align with some of the characteristics of what would be expected of an office holder:

• Managing and directing junior staff
• Performing a role with an ongoing existence with a function central to the organisation
• Authorising and having materials published in the name of the organisation.

However, the autonomy and executive responsibilities you hold in your position are fundamentally to assist you to perform your role as a research professional, as opposed to a position in which executive and managerial responsibilities are central functions of the role.

As Grealy's case [Grealy v. Commissioner of Taxation (1989) 24 FCR 405; (1989) 20 ATR 403; (1989) 89 ATC 4192] explains, the word "office" in this context usually connotes a position of defined authority in an organisation, such as a director of a company, or a tertiary education body. It was held that "office" is a word not normally applicable to a relatively low level employee, such as a university lecturer. We are not of the view that your role within the Organisation holds the level of authority or responsibility akin to a director, therefore it is our view that that you are not an office holder of the Organisation.

Question2

Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. This includes income derived from all overseas sources.

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

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

An amount is exempt income under section 6- 20 of the ITAA 1997 if it is made exempt from income tax by a provision of either the ITAA 1997 or another Commonwealth law. This includes income received by a person who is connected with an international organisation that is exempted by the IOPIA 1963.

The IOPIA 1963 may exempt the income of a person who is 'serving on a committee, or is participating in the work or performing a mission', as per paragraph 6(1)(e) and item 2A of Part I of the Fifth Schedule to the IOPIA 1963. However, we note that a specific Subregulation of the relevant Regulations restricts the exemption from taxation on salaries and emoluments provided by item 2A of Part I of the Fifth Schedule to those performing a 'temporary mission' on behalf of any one of several designated international organisations, including the Organisation, as a specific Subregulation of the relevant Regulations confirms.

TheExplanatory Statement to the relevant Regulations provides a definition of a "temporary mission" for the purposes of the regulations:

A mission is considered 'temporary' if it exists only for a limited duration and is not permanent. Temporary missions could range from a small number of days up to longer periods. For example, a two-year mission with a nominated end date would be considered a 'temporary mission'. Where an individual undertakes more than one mission or assignment, each mission or assignment would be considered as a separate temporary mission.

A temporary mission can be undertaken by anyone engaged on a contractual basis by the relevant agencies, including experts, consultants, and other individuals.

We note that the explanatory statement regards a 'temporary mission' to be equivalent to an individual work assignment, with such defining characteristics as a limited duration and a nominated end date. The Hamilton case [Hamilton and the Commissioner of Taxation (2020) AATA 1812] provides the defining example of a 'temporary mission' for the purposes of the regulations, the character of those engagements being the completion of a single specific task or assignment.

As expounded in paragraph [37] of Hamilton, the predefined work output and completion date which defines a 'temporary mission' is in contrast to an ongoing employment position engaged in the ongoing discharge of a core function of an organisation. Our view is that this distinction remains valid whether or not that position has a contractual termination date.

The interpretation placed on what is 'temporary' is also consistent with how it applies more generally for income tax purposes, including residency. Therefore, cases relating to defining what is temporary there would apply equally here. This is explained in paragraphs 61 to 75 of Taxation Ruling TR 2022/D2 in explaining the meaning of permanent in the context of permanent place of abode. In particular, paragraph 74 of TR 2022/D2 refers to a time period of 2 years, consistent with the case of The Commissioner of Taxation of the Commonwealth of Australia v Applegate, Geoffrey David [1979] FCA 66 as sufficient, taking into account the context of the situation.

Application to your circumstances

We are not of the view that you were an office holder of the Organisation, therefore the exemption from taxation conferred under Item 2 of Part 1 of the Fourth Schedule of the IOPIA 1963 through a Subregulation of the relevant Regulations is not available to you.

Furthermore, you have illustrated that in your employment as a Senior Research Professional in the department of the Organisation in which you work you are engaged in discharge of an ongoing function.

You have been employed by the Organisation for an initial term of employment of three years with the possibility of extension. An arrangement of this duration is one that, as per the general understanding of that term, would be regarded as not being temporary. It is more akin to being permanent, in line with Applegate, especially when taking the ability for extension into account.

Given that your assignment is not temporary we have not fully considered whether your work would constitute a mission as intended by that term. There is doubt that it does so, on the basis that you were performing separate tasks on an as needs basis, rather than a specific, results-based orientated task. This would also need to be resolved, prior to the salary or wages you received being eligible for the exemption.

On this basis the exemption from taxation conferred under paragraph 2A of Part I of the Fifth Schedule of the IOPIA 1963 through a Subregulation of the relevant Regulations is not available to you.

Therefore, salaries and emoluments you received from the Organisation in your employment as a Senior Research Professional working remotely from Australia are not exempted from taxation under section 6-20 of the ITAA 1997, and will be assessable income under section 6-5 of the ITAA 1997.

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