Edited version of private ruling

Authorisation Number: 1011667450950

NOTICE

This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

This notice must not be taken to imply anything about:

● the binding nature of the private advice issued to the applicant

● 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.

Ruling

Subject: Assessability of foreign income

1. Is the income you earn from your employment with the United Nations exempt income for taxation purposes?

Yes.

2. Is your exempt income used to determine your liability (if any) to pay the Medicare levy surcharge?

No.

This ruling applies for the following period:

1 July 2010 to 30 June 2012.

The scheme commenced on:

1 July 2010.

Relevant facts and circumstances:

You are an Australian resident for taxation purposes.

You are working overseas as a staff member for the United Nations.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 6-10.

Income Tax Assessment Act 1997 Section 6-15.

Income Tax Assessment Act 1997 Section 6-20.

Income Tax Assessment Act 1997 Section 995-1.

Income Tax Assessment Act 1936 Section 23 AF.

Income Tax Assessment Act 1936 Section 23 AG.

International Organisations (Privileges and Immunities) Act 1963 Section 3.

International Organisations (Privileges and Immunities) Act 1963 Schedule 4, Part 1.

United Nations (Privileges and Immunities) Regulations 1986 Regulation 3.

United Nations (Privileges and Immunities) Regulations 1986 Regulation 10(1).

Medicare Levy Act 1986 Section 3.

Medicare Levy Act 1986 Section 8B.

Medicare Levy Act 1986 Section 8C.

Medicare Levy Act 1986 Section 8D.

A New tax System (Medicare levy Surcharge - Fringe Benefits) Act 1999 Section 3.

Reasons for decision

Assessable and exempt income and the International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)A 1963) - general

Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) specify that the assessable income of a person who is a resident of Australia for taxation purposes (this includes taxpayers who are residing overseas but are still considered residents for taxation purposes) includes the ordinary and statutory income they derive from all sources, whether in or out of Australia, in an income year.

Salary, wages, and interest, are all examples of ordinary income. Capital gains are an example of statutory income.

Although an amount received may fall into the category of ordinary or statutory income, it will not be included in the assessable income of a resident taxpayer if the amount is exempt income (section 6-15 of the ITAA 1997).

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

One Commonwealth law that may provide an individual with an exemption from Australian income tax is the IO(P&I)A 1963.

The IO(P&I)A 1963 (and its associated regulations) make provisions for certain international organisations, and persons connected with those organisations, to enjoy a range of privileges and immunities in Australia.

Depending on the circumstances, the privileges and immunities available to a person connected with an international organisation may include an exemption from Australian income tax.

Operation of the IO(P&I)A 1963 and its application to your circumstances

Taxation Ruling TR 92/14 contains the Australian Taxation Office (ATO) view on the application of the taxation privileges and immunities available under the IO(P&I)A 1963 to prescribed international organisations and their staff.

TR 92/14 specifies that UN organisations are international organisations and that subject to regulations made under the IO(P&I)A 1963 in relation to a particular organisation, the 'holder of an office' in an international organisation may have an exemption from tax on salaries received from the organisation.

Paragraph 6 of TR 92/14 states:

Persons engaged by an international organisation may be accorded privileges and immunities in the nature of exemption from taxation as described in the Second, Third, Fourth and Fifth Schedules to the IO(P&I)A. Tax exemption may be available to a High Officer, Representative, Officer or expert or consultant. As with the organisation itself, it is necessary to examine the regulations of the particular international organisation to ascertain to what taxation exemptions, if any, a person may be entitled.

Regulations made under the IO(P&I)A 1963 include the United Nations (Privileges and Immunities) Regulations 1986 (UN(P&I)R 1986) which specify that the IO(P&I)A 1963 applies to the UN.

Regulation 10(1) of the UN(P&I)R 1986 deals with the privileges and immunities of office holders (other than high office holders) of the UN and specifies that a person who holds an office in the UN has the privileges and immunities specified in Part 1 of Schedule 4 of the IO(P&I)A 1963.

Paragraph 2 of Part 1 of Schedule 4 of the IO(P&I)A 1963 provides that an officer (other than a high officer) of an international organisation is exempt from taxation on salaries received from the organisation.

Taxation Determination 92/153 considers the question of who is a 'person who holds an office' under the various regulations made under the IO(P&I)A 1963 and specifies that:

an employee of an international organisation constitutes a 'person who holds an office',

In your case, you are employed by the UN as a staff member. Accordingly, we consider you are a 'person who holds an office' with the UN.

As the holder of an office with the UN, the salary or wages paid to you by the UN while you are employed in your current position will be exempt from income tax in Australia under the combined provisions of section 6-20 of the ITAA 1997, regulation 10(1) of the UN(P&I)R 1986 and Paragraph 2 of Part 1 of Schedule 4 of the IO(P&I)A 1963.

Exempt income and the Medicare levy surcharge

The Medicare levy surcharge is imposed on a taxpayer by sections 8B to 8D of the Medicare Levy Act 1986 (the MLA) and on reportable fringe benefits by the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 (the MLS Fringe Benefits Act).

From 1 June 2009, the income test for determining a taxpayer's liability for the Medicare levy surcharge is the taxpayer's 'income for surcharge purposes' which is:

the sum of:

· your taxable income (including the net amount on which family trust distribution tax has been paid),

· your reportable fringe benefits,

· your reportable superannuation contributions, and

· your total net investment loss

less:

· if you are aged 55 to 59 years old, any taxed element of a superannuation lump sum, other than a death benefit, which you received that does not exceed your low rate cap on superannuation lump sum benefits.

In some cases, an individual's 'exempt foreign employment income' is included in the 'income for surcharge purposes' calculation for the purposes of determining liability to the Medicare levy surcharge.

'Exempt foreign employment income' is defined in section 995-1 of the ITAA 1997 to mean amounts that are exempt from tax under sections 23AF or 23AG of the Income Tax Assessment Act 1936 (ITAA 1936).

In your case, sections 23AF and 23AG of the ITAA 1936 do not apply to you.

As explained above, the salary and wages you earn from the UN are exempt from Australian tax under the provisions of the IO(P&I)A 1963 and associated regulations. As a result, although your income from the UN is exempt foreign income, it is not 'exempt foreign employment income' under sections 23AF or 23AG of the ITAA 1936. Accordingly, the exempt salary and wages you earn from your employment with the UN will not be included in your 'income for surcharge purposes' calculation to determine any liability you may have to pay the Medicare levy surcharge.

Conclusion

The salary or wages paid to you by the UN while you are employed in your current position will be exempt from income tax in Australia.

Your exempt UN salary and wages will not form part of your 'income for surcharge purposes' for the purpose of determining your liability to the Medicare levy surcharge.

General advice

You can rely on this advice to provide you with protection from interest and penalties in the way explained below.

If the advice turns out to be incorrect and you underpay your tax as a result, you will not have to pay a penalty. Nor will you have to pay interest on the underpayment provided you reasonably relied on the advice in good faith. However, even if you don't have to pay a penalty or interest, you will have to pay the correct amount of tax.

A taxpayer who has foreign income that is exempt from Australian tax under the provisions of a privileges and immunities agreement, or a law (such as the IO(P&I)A 1963) covering persons connected with international organisations (such as the UN), is not required to included that income anywhere in their tax return.

Disclaimer

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The Register of private binding rulings is a public record of private rulings issued by the Tax Office. The Register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.

The rulings in the Register have been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict Tax Office policy or decisions.