Edited version of private advice

Authorisation Number: 1051789149312

Date of advice: 21 January 2021

Ruling

Subject: Foreign income

Question

Is the income earned from your contracts exempt foreign income for Australian tax purposes?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

During the 20XX income year you had some short term contracts with the UN as a Consultant.

Contract 1, the length of the engagement was from mid 20XX to late 20XX for XX working days on an intermittent basis.

Contract 2, the length of the engagement was from late 20XY to late 20XY for XX working days on an intermittent basis.

Contract 3, the engagement commenced on early 20XX and is continuing for XX working days on an intermittent basis

You were not a permanent employee of the UN.

Contract 1

You reported to an Office Holder and employee of the United Nations.

You were required to produce an evaluation report.

This contract was home based in Australia for XX days and XX days was spent overseas at a business premise of the UN.

Contract 2

The supervisor who you reported to the is an Office Holder and employee of the United Nations Development Programme

You produced evaluation reports.

This contract was home based in Australia and you went to various project areas.

Contract 3

Expected Outputs and Deliverables

The key products to be delivered are as follows:

You report to an Office Holder and employee of the United Nations.

You are required to produce training modules and a facilitator guide which are yet to be completed.

This contract is home based in Australia for XX days.

In the general conditions of contracts for individual contractors it states:

The positions you had within the UN are non-ongoing and did not exist prior or after you took up the contracts.

You were not entitled to any leave as you were a consultant.

Your hours of work were determined by the UN and could be flexible.

You were able to engage in other work and enter into other contracts while doing the work for the UN.

You were not responsible for any staff as part of your duties with the UN.

You were paid based on results and were paid when the results were achieved.

You paid for your own accommodation and other expenses and was not reimbursed for any costs.

You provided all of your own equipment such as phone, computer etc.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Section 6-20

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

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

The International Organisations (Privileges and Immunities) Act 1963 subparagraph 6(1)(d)(i)

United Nations (Privileges and Immunities) Regulations 1986 sub regulation 10(1)

United Nations (Privileges and Immunities) Regulations 1986 regulation 11

Reasons for decision

Assessable income - general

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

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 IOPIA 1963 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 IOPIA 1963 inclusive set out the taxation exemptions that can be conferred upon certain persons currently connected with an international organisation. Relevant to your case, this includes the following:

•         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 IOPIA 1963

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

Sub-regulation 10(1) of the United Nations (Privileges and Immunities) Regulations 1986 provides that as a person who held an office in the United Nations, 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 with the United Nations (UN) 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 UN at the time you were undertaking the assignments.

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. Therefore, in determining the outcome of your case it is necessary to look beyond the label of 'short term consultant' and examine the substance of the relationship.

'Office' and 'office holder' are not defined by the IOPIA 1963 and the ITAA 1997 and 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 guidance provided in the rulings on what is an office holder

The Commissioner's views on what is an office holder are set out in in draft Taxation Ruling TR 2019/D1. 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. 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.

Further guidance on who is an office holder is also provided by Taxation Ruling TR 2002/21.

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 IOPIA 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 on your assignments with the United Nations (UN) 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 provided three contracts which indicate that you were a fixed short-term contractor in the capacity of a consultant. The contracts do not indicate that you hold an office in the UN.

You are not an office holder in respect of the assignments you undertook for the UN. This is because the consulting positions that you occupied did not have duties, functions, responsibilities or powers as they were purely in an advisory, guidance, coaching, training and supporting capacity. you did not have any defined duties or authority in relation to the UN and it carrying out its functions. As such it cannot be said that your positions as a consultant is defined by the duties, functions, responsibilities or powers that you carried out while occupying them. Therefore, as per this factor you would not be regarded as an office holder.Similarly, your duties, functions and responsibilities have not been identified as belonging to your position. Rather they appear delegated to you in your present roles. In addition, you have no direct staff which you are required to supervise or are responsible for and you did not have the authority to enter contracts or commit the UN in any way.

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

•         Were short-term 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. Furthermore, the work that was undertaken did not include any work concerned with any recommendations or permit for the making of significant decisions. This is opposed to an office holder who has duties, functions and responsibilities within an organisation that go beyond that of merely being an advisor.

•         requires deep-level technical skills and knowledge of the subject matter or, for a large subject matter area such as logistics, a part of the 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.

The positions you held did not exist prior to you taking them up and did not continue to exist after the contracts ceased.

The payments that you have received are not considered to be exempt income on the basis that you are not an office holder of an international organisation under paragraph 6(1)(d) of the IOPIA 1963, taking into account the United Nations (Privileges and Immunities) Regulations 1986, and section 6-20 of the ITAA 1997.

Conclusion

As stated above, under sub regulation 10(1) of United Nations (Privileges and Immunities) Regulations 1986 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.

However, in your case Part 1 of the Fourth Schedule to the IO(P&I) A which grants the income tax exemption does not apply as you do not hold an office as specified in the Schedule.

Instead you are regarded as an expert or consultant who is performing a mission to the UN but, as per regulation 11 of the United Nations (Privileges and Immunities) Regulations 1986, no income tax exemption is available for a person working in this capacity.

Accordingly, the income derived by you for the three contracts you engaged in as a consultant for the UN are assessable under subsection 6-5(2) of the ITAA 1997.

Other relevant comments

Income tax exemption on the basis that you were an expert or consultant (performing a mission for the UN)

The section on the regulations pertaining to the UN that covers persons performing missions for the UN (sub regulations 11(1) and 11(2) of the United Nations (Privileges and Immunities) Regulations 1986) does not confer on any person connected with them in the capacity of performing a mission or working as experts or consultants, an exemption from taxation (outlined in include privilege 2A in the Fifth Schedule of the IO(P&I)A.

Further reasoning

In summary, the IO(P&I) A does provide for an exemption from income tax of salaries and emoluments received by an expert or a consultant under paragraph 6(1)(e), subject to the provisions of the relevant Regulations.

The manner by which section 6-20 of the ITAA 1997 exempts income from taxation that is exempted by the IOPIA in relation to office holders applies equally here in relation to considering exemption on the basis of whether you were an expert or a consultant.

Regulation 11 of the United Nations (Privileges and Immunities) Regulations 1986 provides when privileges and immunities are available to a person performing a mission on behalf of the UN. As per paragraph 32 of Taxation Ruling TR 2019/D1 this category includes experts and consultants.

However, Regulation 11 of the United Nations (Privileges and Immunities) Regulations 1986 limits the privileges and immunities that are provided to the persons connected with the UN. This does not include privilege 2A in the Fifth Schedule of the IO(P&I)A, which is the exemption from taxation. This means that no person who works for the UN, be it performing a mission or working as an expert or a consultant, is conferred an exemption from taxation.

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 IOPIA 1963, taking into account the United Nations (Privileges and Immunities) Regulations 1986, and section 6-20 of the ITAA 1997.