Edited version of private advice

Authorisation Number: 1051794181455

Date of advice: 11 January 2021

Ruling

Subject: International organisation income tax exemption

Question

Is the employment income from your overseas posting exempt from taxation in Australia?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are employed by the Australian employer.

You were seconded to an international organisation for more than XX days.

You were based in country A.

You have provided us with a copy of contract which sets out the terms and conditions of your posting.

Your contract states that your salary is subject to withholding of tax as required by law.

Your contract states that superannuation contribution your employer is required to make under the superannuation guarantee legislation will be made to your nominated fund.

You received your salary from the Australian employer; however, funding was obtained by the international organisation.

Your payment summary is showing that tax was withheld from your salary.

General duties of your role are set out in the job description.

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 Subsection 6-20(1)

Income Tax Assessment Act 1936 Section 23AG

Income Tax Assessment Act 1936 Section 23AF

International Organisations (Privileges and Immunities) Act 1963

International Organisations (Privileges and Immunities) specific Regulation

Reasons for decision

Assessable income - general

The assessable income of an individual who is a resident of Australia for taxation purposes will generally include all the income they earn from all sources, in or out of Australia. However, as per section 6-20 of the Income Tax Assessment Act 1997 (ITAA 1997) a provision of Australia's tax law or of another Commonwealth law might apply to provide an exemption from taxation on income such as salary and wages earned from certain types of employment.

In cases where an individual is employed overseas on foreign service, the provisions of either section 23AG or 23AF of the Income Tax Assessment Act 1936 (ITAA 1936) may provide an exemption from taxation in Australia on the salary and wages earned from that foreign service.

In cases where an individual's foreign service relates to employment with or contracted work for an international organisation, an exemption from taxation may also be provided by the provisions of the International Organisations (Privileges and Immunities) Act 1963 (IOPI Act).

Exempt income under section 23AG of the ITAA 1936

Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings of an Australian resident derived during a continuous period of foreign service of not less than 91 days employment in a foreign country are exempt from income tax in Australia.

Foreign earnings includes income consisting of salary, wages, bonuses or allowances (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(1AA) of the ITAA 1936 provides that foreign earnings are not exempt from tax unless the continuous period of foreign service is directly attributable to any of the following:

(a)  the delivery of Australia's overseas aid program by the individual's employer (except if that employer is an Australian Government Agency);

(b)  the activities of the individual's employer in operating a public fund that:

                      i.        is covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the ITAA 1997 (international affairs deductible gift recipients): and

                     ii.        meets the special conditions mentioned in that item.

(c)   the activities of the individual's employer being a prescribed institution that is exempt from Australian tax (because of paragraphs 50-50 (c) or (d) of the ITAA 1997); or

(d)  the individual's deployment outside Australia as a member of a disciplined force.

(e)  an activity of a kind specified in the regulations.

In your case you do not meet any of the conditions of subsection 23AG(1AA) of the ITAA 1936, for the reasons explained below.

Delivery of Australian official development assistance by an employer

Taxation Ruling TR 2013/7 Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 provides guidance on what constitutes delivery of Australian official development assistance (ODA) by an employer.

Paragraph 5 of TR 2013/7 provides that 'Australian official development assistance' refers to activities or programs in respect of which the funding has been (or would properly be) classified, in whole or in part, by the Australian government as official development assistance (ODA) for the purposes of reporting to the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC). The Australian government bases its classification of funding as Australian ODA solely on the directives of the OECD DAC.

Paragraph 6 of TR 2013/7 also provides that in the context of paragraph 23AG(1AA)(a) 'delivery of Australian ODA' means the act of providing, giving or sending forth the relevant Australian ODA by the employer. The 'delivery of Australian ODA by the person's employer' is the doing of the activities which are carrying out or sending forth the Australian ODA. The term 'delivery' includes activities which are necessary for or facilitate carrying out the Australian ODA.

Therefore, an employer is delivering Australian ODA for the purposes of section 23AG where they are undertaking activities necessary for or which facilitate the carrying out of Australian ODA even though the expenditure on those particular activities may not be classified as Australian ODA by the Australian government.

Delivery of Australian ODA does not necessarily require an employer to undertake all activities associated with the Australian ODA.

In your case, you are employed by your employer and you were seconded to the international organisation in country A. As such, your overseas posting was not directly attributable to the delivery of Australian ODA.

Activities of the individual's employer in operating a public fund

You have not provided any information which would demonstrate that your employer is operating a public fund.

As such, your overseas posting was not directly attributable to activities of your employer in operating a public fund.

Activities of the individual's employer being a prescribed institution that is exempt from Australian tax

This applies to a prescribed charitable or religious institution that is exempt from Australian income tax pursuant to item 1.1 or 1.2 (Repealed by No 169 of 2012) of section 50-5 of the ITAA 1997.

A list of prescribed institutions for the purposes of paragraph 50-50(c) of the ITAA 1997 is contained in regulation 50-50.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997).

A list of prescribed institutions for the purposes of paragraph 50-50(d) of the ITAA 1997 is contained in regulation 50-50.02 of ITAR 1997.

Your Australian employer and the international organisation are not on the list of charitable and religious institutions contained in regulations 50-50.01 or 50-50.02 of the ITAR 1997.

As such, your employer is not a prescribed institution exempt from income tax by virtue of paragraphs 50-50(c) or (d) of the ITAA 1997.

Individual's deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force

Paragraph 9 of the TR 2013/7 provides that the phrase 'disciplined force' refers to the Australian Defence Force (ADF), Australian Federal Police (AFP) and the State and Territory police forces.

Paragraph 10 of the TR 2013/7 provides that a person is 'deployed' if, and only if, they have been directed to perform duties overseas by the Commonwealth, a State or a Territory or an authority thereof in their capacity as a member of a disciplined force.

You were not deployed by an Australian government (or an authority thereof) as a member of a disciplined force.

Therefore, you are not eligible for the exemption under Section 23AG of the ITAA 1936.

Exempt income under section 23AF of the ITAA 1936

An approved project must be a project that, the Trade Minister is satisfied is an eligible project and will be, in the national interest and the Minister, has signed approval for the project.

The granting of approved project status is currently administered by Austrade, as delegated by the Trade Minister.

In your case, you have not provided any information to confirm that your secondment was part of an approved project for the purpose of Section 23AF of the ITAA 1936.

Therefore, you are not eligible for the exemption under Section 23AF of the ITAA 1936.

Exemption from taxation under the provisions of the IOPI Act

The International Organisations (Privileges and Immunities) Act 1963 (IOPI Act) 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.

Section X of the IOPI Act provides privileges and immunities in respect of the international organisation.

The Regulation was made under the IOPI Act. It provides that the has immunity from taxation on the salaries and emoluments received from the international organisation.

In Macoun v Commissioner of Taxation [2015] HCA 44 (Macoun), the High Court held unanimously that the taxpayer's monthly pension payments were not exempt from tax because the payments were not received from the International Bank for Reconstruction and Development (IBRD) but from the retirement fund established under the Staff Retirement Plan.

The principle is also explained in Draft Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax. Paragraph 39 of the TR 2019/D1provides that for income of an office holder to be exempted by the IOPI Act, the income must be received as a salary or emolument and while the person is an officer of an international organisation, and from the relevant international organisation itself (rather than from a retirement or superannuation fund).

To apply the principle in your case, you were seconded to the international organisation in country A. However, you received your salary from the Australian employer not the directly from the international organisation. Therefore, you are not eligible for the exemption under the provisions of the IOPI Act.