Edited version of private advice

Authorisation Number: 1051887695715

Date of advice: 20 August 2021

Ruling

Subject: Assessable - exempt income

Question

Is the income earned from the international organisation, exempt income for Australian tax purposes?

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 were employed under a Consultancy Contract by an international organisation to which the International Organisations (Privileges and Immunities) Act 1963 (IOPIA 1963) applies.

Your contract did not carry any expectation of or imply any right to an extension, renewal or conversion to any other type of appointment and would expire according to its terms, without notice or indemnity. The appointment could be renewed by mutual agreement and could be terminated by you or by the programme upon written notice of two weeks.

Your Terms of Employment and Terms of Reference documents indicate you were engaged as a consultant.

A letter from the organisation's HR Division also confirms that you held a consultancy contract.

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

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 subparagraph 6(1)(d)(i)

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

Reasons for decision

Income from employment and 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 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 IOPIA 1963 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 IOPIA 1963 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 in subsection 6(1) of the IOPIA 1963, 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 IOPIA 1963 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 IOPIA 1963 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.

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

Office holder

'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 at [23-26]).

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 or organisation.

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.

Your circumstances

In your case, your Terms of Employment and Terms of Reference documents both state that you were being engaged as a consultant. The letter from the HR Division also states that you held a consultancy contract. TR 2019/D1 excludes consultants from being an office holder.

Consequently, Part 1 of the Fourth Schedule to the IOPIA 1963 which grants the income tax exemption does not apply as you did not hold an office as specified in the Schedule.

Instead you are regarded as an expert or consultant who was engaged by the international organisation and no income tax exemption is available for a person working in this capacity.

Accordingly, the income derived by you as a consultant for the international organisation is assessable under subsection 6-5(2) of the ITAA 1997.