Edited version of private advice

Authorisation Number: 1051770919522

Date of advice: 24 November 2020

Ruling

Subject: Foreign income - international organisations privileges and immunities

Question

Is the income received from an International Organisation exempt from income tax in Australia?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You have been working for an International Organisation as a consultant.

You are based in country X.

Your position is a professional role.

The position is an ongoing role. There was a specialist before you, who was working for this position for some years.

Your contract was initially for X months; however, it was extended X times with a new finish date.

The position is extended based on fund availability. You are providing training for local professionals. You anticipate that when they are qualified, the position may be taken by them.

You are reporting to a manager.

You have staffs reporting to you.

You are required, like other staffs, to work full hours for the organisation.

You are expected to be in the office at all working time, unless you go for a field trip or take annual leave.

You have a leave entitlement. You are not entitled to pension or medical benefit.

The location of your work was determined by the Organisation. No work has been undertaken in Australia.

You cannot engage any other person to perform any part of the work, you work on all assignments with other colleagues in the team.

All activities are being implemented in your team, if something goes wrong, appropriate action and measure will be taken to rectify the problem as a team.

You are not serving on a Committee.

You are paid monthly professional fees, which composed of gross salary and an allowance.

The International Organisation covers for your travel, telephone and internet expenses. You pay for your accommodation, living expenses, energy usage and health and travel insurance, which are part of your allowance.

Laptop, internet modem, mobile sim card and radio communication are provided, you are also provided with office space, office furniture and equipment such as table, chair and photocopy machine.

You have supplied your Individual Contractor Contracts, noting that each contract you have signed clearly indicates that you are being engaged as a consultant.

Specific and relevant details on the terms of reference and general conditions of contracts of each contract are listed below:

The First Individual Contractor Contract - Original Contract

You signed your original Individual Contractor Contract in 20xx.

The contract commenced in same year; duration of this contract was X months.

Activates, Tasks, Outputs and Deliverables

1.    Review and re-design of certain projects

2.    Construction Management

3.    Capacity Building of Government partners at National and District level for Operational Sustainability

The consultant will prepare and present weekly progress update and monthly progress reports against agreed targets at the end of each month and final report at the end of contract to the supervisor.

General Conditions of Contracts for the Services of Individual Contractors provides the legal status.

It also states the International Organisation accept no liability for any taxes, duty or other contribution payable by the consultant and individual contractor on payments made under this contract.

The Second Individual Contractor Contract - Your First Extension

You signed this contract in 20xx.

The terms of reference and general conditions of contracts are identical to your original contract, except for the contract duration which changed to Y months from the assignment start date.

The Third Individual Contractor Contract - Your Second Extension

You signed this contract in 20yy.

The terms of reference and general conditions of contracts are identical to your original contract and your first extension contract except for the new amendment.

The Fourth Individual Contractor Contract - Your Third Extension

You signed this contract on in 20yy.

The terms of reference and general conditions of contracts are identical to your original contract and your first and second extension contract except for the consultancy period was extended.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Section 6-20

The International Organisations (Privileges and Immunities) Act 1963

International Organisation (Privileges and Immunities) Regulations xxxx

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident for taxation purposes includes ordinary income derived from all sources, whether in or out of Australia, during the income year. 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 states 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.

The IO(P&I)A exempts from taxation certain income of a person connected with an international organisation, to the extent that it satisfies all of these elements:

•         the income is received from an international organisation to which the IO(P&I)A applies

•         the person is connected with the international organisation in one of the ways set out subsection 6(1) of the IO(P&I)A and

•         the conditions and other particulars provided in the regulations for the international organisation are satisfied in relation to the income of the person.

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.

Subsection 6(1) and Part I of the Second to the Fifth Schedules to the IO(P&I)A inclusive set out the taxation exemptions that can be conferred upon certain persons currently connected with an international organisation which 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) and Part I of the Fourth Schedule to the IO(P&I)A.

Relevantly, as per item 2 of Part 1 of the Fourth Schedule this includes an exemption from taxation on salaries and emoluments received from the international organisation.

The International Organisation (Privileges and Immunities) Regulations xxxx (Regs) were made under the IO(P&I)A.

Sub-regulation A of the Regs provides that as a person who held an office in the organisation, other than a person that is a high office holder, has the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A, which includes exemption from taxation on salaries and emoluments received from the organisation.

Therefore the payments that you received in relation to your engagements will be exempt from income tax if it can be shown that you are a holder of an office (but not a high office) of the organisation at the time you were undertaking those engagements.

Office holder

As per South Sydney District Rugby League Football Club Ltd v. News Ltd [2000] FCA 1541 (the South Sydney District Rugby League Football Club Ltd Case), in determining what the nature of a relationship was 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.

'Office' and 'office holder' are not defined by the IO(P&I)A and the ITAA 1997 therefore they should take their ordinary meaning. Care must be taken to ensure that it is read with regard to the context of the statutory provision (as per Certain Lloyd's [2009] HCA 56 (Lloyds Case) at [23-26]).

The Commissioner's views on what is an office holder are set out in in Draft Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax.

As per paragraph 27 of TR 2019/D1 a holder of an office can 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. 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.

Further guidance on who is an office holder is also provided by Taxation Ruling TR 2002/21 Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to office holders.

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.

Case law on the meaning of office holder

As discussed in paragraphs 31 and 34 of FCT v. Jayasinghe [2017] HCA 256 (the 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 IO(P&I)A 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.

Your circumstances

As noted in the paragraphs above, the word 'office' connotes a position of defined authority in an organisation, such as a director of a company or the president of a club. The holder of a professional employment is not an office holder merely because the position has a name. An office holder's position is more than something which is important or substantial within a company.

Following the listed reasons below, your roles are best described as that of an expert or consultant, and not an office holder. As such the substance of your relationship is consistent with that of a contractor and what one would commonly understand a 'contractual employee' to be.

You have also provided several Individual Contractor Contracts which all indicate that you are a fixed short-term contractor in the capacity of a consultant. The letters of offer do not indicate that you hold an office in the organisation.

You are not an office holder for the International Organisation. This is because (as per paragraph 25 of the TR 2019/D1):

•         independent existence or permanence - You have stated that extension of your position depends on fund availability. This demonstrates that your position does not necessarily continue to exist should you depart. Furthermore your contract extensions are based on project needs, this is opposed to an 'office' where the position itself is an ongoing or continuing one, either continuously or for a substantial term even if the person that occupies it at a particular point changes (an example would be the position of Governor General or the position of a Royal Commissioner).

•         duties, functions, responsibilities or powers are defined by the office - the consulting position that you occupy does not have duties, functions, responsibilities or powers for the organisation as it is purely in an advisory, guidance, coaching, training and supporting capacity for projects. In reference to the supplied documents you do not have any defined duties or authority in relation to the organisation and it is carrying out its functions. As such it cannot be said that your position as a consultant is defined by the duties, functions, responsibilities or powers that you carry out while occupying it. Therefore, as per this factor you would not be regarded as an office holder.

•         duties, functions, responsibilities or powers belong to the office - the consulting position that you occupy does not have duties, functions, responsibilities or powers as it is purely an advisory, guidance, coaching, training and supporting capacity. There is also nothing to suggest that there is a requirement to have any knowledge or take anything from prior engagements to future engagements of this type. Therefore, there is no transfer of duties, functions, responsibilities or powers from one occupant of the position to the next one. As none of these things transition from occupant to occupant with the position you would not be regarded as an office holder as per this factor.

Instead, you would be better regarded as an expert or a consultant. This is on the basis that:

•         are short-term - all your contracts are short-term contracts, which is consistent with an expert or consultant role. This is opposed to an officer holder who would be expected to hold their position for a longer period of time to give stability to the office and allow its duties, functions and responsibilities to be performed in an effective manner.

•         is performed in an advisory capacity -the undertaking of work in an advisory, guidance, coaching, support and training capacity which is consistent with an expert or consultant role.

•         requires deep-level technical skills and knowledge of the subject matter -this is consistent with the person being an expert or consultant. This is opposed to an office holder who would be expected to have a more general understanding and broader expanse of knowledge. An office holder would not necessarily be expected to have detailed knowledge as they would have advisers and staff to provide this. In addition, an office holder would be expected to have sufficient administrative and contextual knowledge to be able to run their office effectively - which is something that is not required of an expert or consultant.

As stated above, Part 1 of the Fourth Schedule to the IO(P&I)A does not apply in your case as you do not hold an office as specified in the Schedule.

Accordingly, the income derived by you as a consultant 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.

On A Mission

The IO(P&I)A provides an exemption from income tax of salaries and emoluments received by a person a mission for some International Organisations.

However, the Regs limits the privileges and immunities that are provided to the persons connected with the organisation. This does not include privilege in the Fifth Schedule of the IO(P&I)A, which is the exemption from taxation.

This means that no person who is on Mission, who is not an officer of the organisation or works as an expert or a consultant, is conferred an exemption from taxation.

Conclusion

As such the payments that you have received would not be exempt income on the basis that you are performing a mission or working as an expert or consultant under paragraph 6(1)(e) of the IO(P&I)A, taking into account the Regs, and section 6-20 of the ITAA 1997.