Edited version of your written advice

Authorisation Number: 1012669552632

Ruling

Subject: Assessability of income from employment with an international organisation

Questions and answers:

• Is the income from your contract employment with an international organisation included in your assessable income in Australia?

Yes.

• Does section 23AG of the Income Tax Assessment Act 1936 apply to exclude the income from your contract employment with an international organisation from your assessable income in Australia?

No.

This ruling applies for the following period:

1 July 2010 to 30 June 2015.

The scheme commenced on:

1 July 2010.

Relevant facts and circumstances:

You have been living overseas.

You are an Australian resident for taxation purposes.

Since moving overseas you have been engaged on several occasions to work on a contract basis as a consultant for an international organisation.

Each of the contracts you entered into clearly specifies that:

• you were engaged by the international organisation as an independent contractor,

• there was no employee/employer relationship between yourself and the international organisation, and

• you were not a staff member of the international organisation.

You intend to return to Australia and continue working on a contract basis for the international organisation.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 6-20

Income Tax Assessment Act 1997 Section 11-5

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

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

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

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

Specialised Agencies (Privileges and Immunities) Regulations 1986 Regulation 3

Specialised Agencies (Privileges and Immunities) Regulations 1986 Subregulation 8(1)

Specialised Agencies (Privileges and Immunities) Regulations 1986 Subregulation 9

Income Tax Assessment Act 1936 Section 23AG

Reasons for decision

Assessable and exempt income - general

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an individual who is a resident of Australia for taxation purposes includes the ordinary income they derive from all sources, in or out of Australia, during an income year.

However, an amount that would otherwise be assessable as ordinary income may also be classed as exempt income and be excluded from an individual's assessable income under the provisions of subsection 6-15(2) of the ITAA 1997.

Section 6-20 of the ITAA 1997 specifies 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.

In cases where an individual who is a resident of Australia for taxation purposes is in receipt of foreign source income that would generally be assessable in Australia as ordinary income, the provisions of any applicable double tax agreement (DTA) must also be considered when determining liability to Australian tax on that foreign source income.

Since you have been residing overseas you have remained an Australian resident for taxation purposes and you have been engaged on several occasions under separate contracts to work as an independent contractor for an international organisation.

The income from your employment as an independent contractor with the international organisation is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. As such, that income will be assessable in Australia, unless it can be shown it is exempt income or (in respect of the income earned during the period you reside overseas) is otherwise excluded from assessability in Australia by the provisions of the DTA between Australia and the country you live in.

Exemption from taxation under the provisions of the International Organisations (Privileges and Immunities) Act 1963

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.

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. The international organisation is listed as a Specialized Agency in Column 2 of the Schedule to the SA(P&I) Regs and is therefore a Specialized Agency for the purpose of the SA(P&I) Regs.

Regulation 3 of the SA(P&I) Regs says that each Specialized Agency is an international organisation to which the IO(P&I)A applies. Therefore the provisions of the IO(P&I)A apply to the international organisation and persons engaged by it.

Privileges and immunities provided by the IO(P&I)A generally do not arise unless they are specially provided for by enabling regulations. Where there is an enabling regulation, persons engaged by the international organisation may be accorded an exemption from taxation under the provisions of the Fourth or Fifth Schedules to the IO(P+I)A.

The SA(P&I) Regs are enabling regulations for the purpose of the IO(P+I)A.

Subregulation 8(1) of the SA(P&I) Regs provides that a person who holds an office (other than a high office), in a Specialised Agency has the privileges and immunities specified in Part I of the Fourth Schedule to the IO(P&I)A. These privileges and immunities include exemption from tax on salaries and emoluments received from the organisation.

Taxation Determination TD 92/153 Income tax: who is a 'person who holds an office' as specified in various regulations made under the International Organisations (Privileges and Immunities) Act 1963? specifies the phrase 'person who holds an office' covers employees of relevant international organisations, but does not cover persons engaged by such organisations as experts or consultants.

You are not entitled to the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A because you are not an employee of the international organisation and therefore you do not hold an office with the international organisation. Rather, you are engaged as an independent contractor to provide consultancy services to the international organisation under contracts that specify there is no employee/employer relationship between yourself and the international organisation.

Paragraph 2A of the Fifth Schedule to the IO(P+I)A provides an exemption from taxation to an individual who is serving on a committee, or participating in the work of, or performing a mission on behalf of an international organisation. However, as stated previously, an enabling regulation must generally exist for the privileges and immunities under the IO(P+I)A to apply.

The enabling regulations in relation to the application of the Fifth Schedule to the IO(P+I)A insofar as the international organisation is concerned are Subregulations 9(1) and 9(2) of the SA(P&I) Regs which essentially provide that a person serving on a committee of the WHO or performing a mission for the international organisation has the privileges and immunities specified in paragraphs 1, 2, 3, 4, 5 and 6 of Part I of the Fifth Schedule to the Act. The exemption from taxation provided for by paragraph 2A of the Fifth Schedule to the IO(P+I)A is specifically excluded by the provisions of subregulation 9(1) of the SA(P&I) Regs.

The provisions of Subregulation 9(1) of the SA(P&I) Regs apply to individual's who are engaged as independent consultants/contractors by the international organisation. Therefore, as you are engaged by the international organisation on the basis that you are an independent contractor, you are not entitled to the exemption from taxation provided for by the Fifth Schedule to the IO(P+I)A.

Considering the above, the income you derive as an independent contractor to the international organisation is not exempt from taxation under the provisions of the IO(P&I)A and associated regulations.

Exempt income under section 23AG of the Income Tax Assessment Act 1936

Section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) provides an exemption from Australian income tax for certain foreign earnings derived by an individual who is a resident of Australia for taxation purposes.

For the exemption to apply the conditions specified in section 23AG of the ITAA 1936 must be met. One of those conditions is that the foreign earnings must be derived from a period of foreign service of at least 91 continuous days.

Foreign service is defined in subsection 23AG(7) of the ITAA 1936 as service in a foreign country as the holder of an office or in the capacity of an employee.

You are not an employee of the international organisation. Rather and as previously noted, you are employed as an independent contractor to provide consultancy services to the international organisation under contracts that clearly specify there is no employee/employer relationship between yourself and the international organisation.

Also as previously noted, the phrase 'person who holds an office' insofar as organisations such as the international organisation is concerned covers employees but does not cover persons such as yourself who are engaged as independent experts or consultants.

Accordingly, section 23AG of the ITAA 1936 has no application to your circumstances and you are not entitled to an exemption from taxation under the 23AG provisions.

The DTA between Australia and the country you live in

Australia has a DTA with the country you live in.

Article 14(1) of the DTA provides that income derived by an individual who is a resident of Australia for taxation purposes in respect of 'professional services or other independent activities of a similar character' shall be taxable only in Australia, unless any of the circumstances described in Article 14(1)(a) or (b) apply, in which case the income may also be taxed in the country you live in.

You are an Australian resident for taxation purposes. Therefore you are considered for the purposes of Article 14(1) of the DTA with the country you live in to be a resident of Australia in respect of the 'professional services or other independent activities of a similar character' that you can be said to be supplying to the international organisation through your engagement as an independent contractor with that organisation. As such, the income you earn from your engagement with the international organisation as an independent contractor is assessable in Australia.

Conclusion

The income you earn from your contract employment with the international organisation is assessable in Australia as ordinary income under the provisions of section 6-5 of the ITAA 1997, regardless of whether the income is earned from activities you carry out overseas or within Australia.