Edited version of private advice

Authorisation Number: 1051898005894

Date of advice: 14 September 2021

Ruling

Subject: Assessability of income

Question 1

Are the payments you received as a consultant with an International Organisation (the Organisation) assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Does section 6-20 of the ITAA 1997 apply to exempt the payments you received as a consultant with the Organisation on the basis that they are exempted by subsection 6(1) of the International Organisations (Privileges and Immunities) Act 1963 (IOPIA 1963)?

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 tax purposes.

You entered into a contract (the Contract) as a consultant with the Organisation.

The Contract specifies that you are required to perform the services as described in the terms of reference which are attached to the Contract.

The Contract is subject to the Organisation's general terms and conditions of consultant contracts (the Terms and Conditions) which are incorporated as part of the Contract.

The Contract, Terms of Reference and Terms and Conditions have been supplied as part of the private ruling application and form part of the facts of this private ruling.

You provide the services under the Contract from your home due to COVID-19 related travel restrictions.

Under the Contract:

•         You are to provide your services for a certain number of days during a period of no more than 12 months

•         You are to be paid a total amount of $X calculated as $Y per day and the number of days worked

•         Daily payments are to be made upon successful completion of the specified deliverables and upon acceptance by your supervisor.

The Terms and Conditions of your engagement include the following conditions:

The consultant shall have the legal status of an independent contractor of the Organisation and shall not be regarded as being either an employee, a staff member or an official of the Organisation.

The consultant shall be solely liable for claims by third parties arising from their own negligent acts or omissions in the course of their service under the Contract.

The consultant shall be solely responsible for taking out and for maintaining adequate insurance required to meet any of their obligations under the Contract.

The Organisation shall have no liability for taxes payable by the consultant in respect of any amounts paid to the consultant under the Contract.

Amounts payable under the Contract shall be payable only upon certification by the Organisation that the services were satisfactorily performed.

You have provided the following information about your role with the Organisation:

You work in an administrative role with the Organisation assisting to carry out a program run by the Organisation in a particular region of the world.

You are treated as a member of staff and nobody would know your contract status. It is quite different from consultancies that you have done in the past, where you are clearly an 'outsider' and treated as such. You are involved in all internal communications and attend web meetings with other colleagues.

The purpose of your engagement in the position is to improve systems in your area of expertise, developing guidelines and developing training etc.

In your role, you are answerable to a supervisor.

You currently have two of your colleagues in the Organisation reporting to you.

You have not engaged any other person(s) to perform any part of the work of the position and have no authority to do so.

Your role was previously carried out by another person remotely from another country.

You have agreed to accept an extension to your role for some months. If you had not accepted, someone else would have been sought for the role.

You are not entitled to leave under the Contract; however, you are free to choose the days and hours you work.

Under the Contract, you are free to undertake other contract work, subject to your workload, ethical guidelines and consideration by your supervisor.

You are not able to engage and enter contracts on behalf of the organisation and make financial commitments, as the Organisation has clear guidelines on legal and financial responsibilities, which are delegated to higher level people in the the Organisation.

You use your own computer, internet and phone to carry out your work duties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

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 6(1)

International Organisations (Privileges and Immunities) Act 1963 Paragraph 6-1(d)(i)

International Organisations (Privileges and Immunities) Act 1963 Paragraph 6-1(e)(i)

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

International Organisations (Privileges and Immunities) Act 1963 Item 2 of Part 1 of the Fourth Schedule

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

International Organisations (Privileges and Immunities) Act 1963 Item 2A of Part 1 of the Fifth Schedule

Reasons for decision

Question 1 - Assessable income

The assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year (section 6-5 of the ITAA 1997).

Income derived from rendering personal services is ordinary income for the purposes of section 6-5 of the ITAA 1997.

Therefore, the income you derived as a consultant with the Organisation is assessable income and forms part of your taxable income, unless it is made non-assessable or exempt by another provision of the tax law.

Question 2 - Exemption under the IOPIA 1963

Subsection 6-15(2) of the ITAA 1997 states that if an amount is exempt income then it is not assessable income.

An amount is exempt income under section 6-20 of the ITAA 1997 if it is made exempt from income tax by a provision of either the ITAA 1997 or another Commonwealth law. This includes income received by a person who is connected with an international organisation that is exempted by the IOPIA 1963.

The IOPIA 1963 exempts from taxation certain income of a person connected with an international organisation, to the extent 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 specified ways, and
• the conditions and other particulars provided in the 'Regulations' for the international organisation are satisfied in relation to the income of the person.

The Regulationsof the Organisation state that the Organisation is one to which the IOPIA 1963 applies.

Subsection 6(1) of the IOPIA 1963 in conjunction with Part I of the Second to the Fifth Schedules to the IOPIA 1963 set out the exemptions that can be conferred upon certain persons connected with an international organisation. This includes a person who 'holds an office' in an international organisation, but who is not a holder of a 'high office' (paragraph 6(1)(d)(i) of the IOPIA 1963).

The Regulations of the Organisation state that officers (other than high officers) of the Organisation are entitled to the privileges and immunities specified in Part I of the Fourth Schedule to the IOPIA 1963.

Part 1 of the Fourth Schedule to the IOPIA 1963, states, in part:

Privileges and Immunities of Officer (other than High Officer) of International Organisation

1.    Immunity from suit and from other legal process in respect of acts and things done in his capacity as such an officer.

2.    Exemption from taxation on salaries and emoluments received from the organisation.

From the above, the payments you received in relation to your engagement with the Organisation will only be exempt from income tax if it can be shown that you hold an office (but not a high office) in the Organisation in undertaking your role.

The Commissioner's view on the meaning of office holder

The terms 'office' and 'office holder' are not defined by the IOPIA 1963 or the ITAA 1997 and therefore, they take their ordinary meaning.

The Commissioner's view on the meaning of office holder is set out in draft Taxation Ruling TR 2019/D1. Paragraph 27 of TR 2019/D1 states that a holder of an office may 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.

The above view was confirmed by the High Court in Jayasinghe [2017] HCA 256 (see further below).

An appointment, office or position must exhibit the characteristics of an office holder. As per paragraph 25 of Taxation Ruling 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.

• duties, functions, responsibilities or powers - the office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function.
• the relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

Paragraph 29 of TR 2019/D1 provides an example of a person who is an office holder:

Chris is employed by an international organisation in a role where he leads a team that provides ongoing professional advice the organisation relies on to carry out its core functions. Chris has significant organisational responsibilities and functions which include developing organisational strategy and managing employees. He is also able to engage and enter contracts on behalf of the organisation and make financial commitments. If Chris was to leave the organisation another person would be engaged as there is an ongoing need for the responsibilities and functions that he undertakes to continue to be performed. Chris is a person who is an office holder for the purposes of the IOPI Act.

The case law on the meaning of office holder

In determining what the nature of a relationship is between two parties, it is necessary to look at the form and substance of that relationship (South Sydney District Rugby League Football Club Ltd v. News Ltd [2000] FCA 1541). 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. Although, the label attached to a relationship is a relevant consideration, it is not appropriate to make decisions solely based on such a label, in particular where the underlying substance of that relationship differs from the label attached to it.

In Federal Commissioner of Taxation v. Sealy (1987) 19 ATR 582 at 286; 87 ATC 5076, which concerned a managing partner of a grazing partnership, Pincus J said:

The word office has a range of meanings. In some contexts, it refers to a position of authority in a governmental or other public organisation. It is difficult to think of any reason why the legislature should have intended to confine the concession to instances in which the terminated position is one of a public character or of any high degree of permanency. Presumably, no one would dispute that the position of managing director of a public company could be regarded as an office.

In AAT Case 8603 93 ATC 148; 25 ATR 1082, Deputy President BJ McMahon stated, at paragraphs 14 and 15:

14. The word "office" is a word that had been considered in many cases but no satisfactory definition has emerged. As was pointed out in Grealy's case [Grealy v. Commissioner of Taxation (1989) 24 FCR 405; (1989) 20 ATR 403; (1989) 89 ATC 4192] the word usually connotes a position of defined authority in an organisation, such as a director of a company, or a tertiary education body. Their Honours held (at 4197 column 2) that it was not a word normally applicable to a relatively low level employee, such as a university lecturer. As the court observed the applicant, like many holders of professional employment, is not made an office holder merely because her position has a name.

15. This view was consistently taken by the Boards of Review. For example, in Case K4, 78 ATC 29 [(1978) 22 CTBR (NS) 212], Mr Dempsey suggested that an office connotes something more than substantial, something more in the nature of a continuing executive position, the holder of which has distinct responsibilities. In Grealy's case itself, their Honours noted that the word "office" usually connoted a position of defined authority. [additional case citations added]

In AAT Case 12,178 (1997) 97 ATC 407; (1997) 37 ATR 1174, Senior Member Block made the following observations, at (ATC) 421; (ATR) 1189:

In Great Western Railway Co v. Bater [1920] 3 KB 266 Rowlett J had held that an office was "a subsisting, permanent, substantive position which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders".

I consider, with respect, that the meaning attributed to the term "office" by Deputy President Thompson in W31 [Case No VT 87/3438 (1989) 20 ATR 3509; (1989) 89 ATC 307] is for Australian purposes, correct.

That test would require that it is a position to which "duties are attached, especially a place of trust, authority or service under constituted authority". It is thus clear that the restricted UK view is narrow, when contrasted with the less restricted Australian approach. [additional case citations added]

The Jayasinghe case

One of the leading cases on the meaning of 'office holder' is Jayasinghe [2017] HCA 256 (Jayasinghe). The taxpayer in Jayasinghe was engaged by the UN Office for Project Services (UNOPS) as a Project Manager

under an 'Individual Contractor Agreement' to provide services on a road building project.

In Jayasinghe, the High Court stated, at paragraphs 31 and 34, that 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, the substance of the terms of the engagement of the person and the relationship between that engagement and the organisation in performing its functions must be considered. Whether someone is an office holder is a question of fact, considered on a case by case basis.

As per paragraph 38 of Jayasinghe, the holder of an office in an organisation may be expected to have a position to which certain duties attach, those duties relating to the performance of the organisation's functions, and a level of authority with respect to the organisation. 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. 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.

The above is consistent with the purpose of the IOPIA 1963 in conferring privileges and immunities to assist an organisation in performing its functions, rather than to personally benefit persons connected with the organisation (see paragraph 39 of Jayasinghe and paragraph 54 of Macoun v. FCT (2015) 257 CLR 519).

The High Court found that the taxpayer did not 'hold an office' in the UN and stated, at paragraph 42, that the terms included in the Individual Contractor Agreement were 'determinative'. The reasons given for the decision were that the taxpayer:

• was engaged in his individual capacity to undertake a non-core function, that is, to perform a specific task or deliver a specific piece of work, namely, completion of the road on time and under budget
• was only paid the agreed monthly fee by UNOPS upon certification that the services had been satisfactorily performed in accordance with the Individual Contractor Agreement
• had the legal status of an independent contractor of UNOPS, serving in his individual capacity and with no authority or other right to enter into any legal or financial commitments or incur any obligations on behalf of UNOPS
• did not have the status of an 'official' of the UN for the purposes of the Convention on the Privileges and Immunities of the United Nations [adopted on 13 February 1946] (the UN Convention)
• was responsible for paying any tax levied by the Australian Government on his UNOPS earnings, contrary to paragraph 6(1)(d)(i) of the IOPIA 1963 and subregulation10(1) of the UN Regulations, and
• was solely liable for claims by third parties arising from his own negligent acts or omissions in the course of his service under the Individual Contractor Agreement, contrary to paragraph 6(1)(d)(i) of the IOPIA 1963 and subregulation 10(1) of the UN Regulations.

Your circumstances

As stated in Jayasinghe, whether someone is an office holder is a question of fact, considered on a case by case basis.

In your case, you entered into a contract as a consultant with the Organisation for your services and it is evident that the terms of the contract place you 'outside the organisational structure'. Although you have provided information that indicates that your role is integrated within the administration of the Organisation to a certain extent, this does not overcome the substance of the terms of the engagement and the legal relationship between you and the Organisation, as specified in the Contract.

From the information provided, you are not an 'office holder' in respect of the role you have with the Organisation because you:

•         have the legal status of an independent consultant to the Organisation with no authority or other right to enter into any legal or financial commitments or incur any obligations on behalf of the Organisation

•         are not an employee of the Organisation, are not a staff member of the Organisation and do not have the status of an official of the Organisation

•         are solely liable for claims by third parties arising from your own negligent acts or omissions in the course of your service under the Contract, contrary to paragraph 6(1)(d)(i) of the IOPIA 1963 and the Organisation's Regulations

• only receive payments under the Contract upon certification by the Organisation that the services have been satisfactorily performed.

Therefore, as you are not an officer holder of an international organisation, the payments you have received from the Organisation are not exempt income under the IOPIA 1963 and section 6-20 of the ITAA 1997.