Edited version of private advice

Authorisation Number: 1052099109069

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 24 March 2023

Ruling

Subject: Income derived from an international organisation

Question 1

Are you a person who holds an office for the purpose of the specific regulation of the Regulations relevant to the international organisation which employed you (the Organisation)?

Answer

No.

Question 2

Does section 6-20 of the Income Tax Assessment Act 1997 ITAA 1997 apply to exempt the payments you received for services performed for 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 period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

During the relevant income year you were employed by an international organisation (the Organisation) to which the IOPIA 1963 applies as a Senior Research Professional on a multi-year fixed term full time contract.

Your position was intended to be undertaken in the Organisation's head office in a foreign country: however, due to restrictions on travel as a result of the COVID-19 pandemic you remained in Australia as a tax resident for the entire duration of this employment.

The department of the Organisation in which you were based includes a number of Research Professional and Senior Research Professional positions like the one you held that contribute to the core work of the department. These are ongoing positions that are filled by staff members engaged as employees. These roles are distinct from short term consultants that are engaged by the department from time to time to assist with narrowly defined tasks, for example a specific pre-defined research output.

As a Senior Research Professional, your role principally entailed the production of research in your area of expertise for the Organisation's publications and other reporting and research tasks as directed by senior management in your department. Details of work undertaken and responsibilities, and further details of your position are as follows:

Work undertaken

One of your specific responsibilities while at the Organisation was to lead a new research project in your field of expertise which spanned around three years and was authorised by the head of the Organisation. Information on this project which confirms your role as principal team lead, and the budget and timeframe for the project is publicly available in the project document on the Organisation's website.

As part of your responsibility for leading this project, you had overall responsibility for managing day-to-day work including directing the work of employees engaged in the project (including some of those listed as team members in the above document). Among other things this involved setting timelines and tasking individuals to various project outputs. These matters were the focus of regular meetings, which you chaired.

You also had day-to-day responsibility for managing the budget for the project. This required you to enter into financial commitments with expert consultants and other individuals on behalf of the Organisation. This involved a formal contract which set out the terms of engagement, including specifying outputs and remuneration.

In this project you engaged and entered into contracts with expert consultants and other individuals on behalf of the Organisation. These consultants were engaged to prepare various research outputs including background papers and notes for a major publication of the Organisation.

The consultants were internationally renowned experts with publicly available profiles detailing their respective areas of expertise. You defined the terms of reference for engaging the expert consultants, negotiated arrangements, and had day-to-day responsibility for directing their work.

After you resigned from the Organisation, another of the Organisation's employees was assigned to replace you in this role as there was an ongoing need to lead the project. You were involved in a 'handover' process to ensure continuity with the project.

You also co-authored a chapter which was included in a major report by the Organisation, produced by the department in which you were based. This report is a core, ongoing output of the Organisation, published periodically. The chapter is available on the Organisation's website. Your role in preparing the chapter is noted on the relevant page of the report.

You also contributed to a chapter which appeared in a publication produced by a different organisation. The publication is publicly available on the organisation's website. Your contribution to preparing this report is noted on the document.

You also took part in regular staff meetings, including with senior management, to discuss a range of organizational issues. You contributed to the Organisation's strategic direction when you were asked by senior management to lead the development of an organisational initiative for your department, and to be your department's representative on a related Organisation-wide group. The development of the project involved setting out challenges and opportunities for the department to improve aspects of the way it functioned. In undertaking this task you led a group of other departmental employees and the preparation of the project output and presented it to senior management who endorsed it to guide changes in the way the department functioned. After you resigned from the Organisation, another employee of the Organisation was assigned to replace you in this role as there was an ongoing need to continue developing and implementing the project. You were involved in a 'handover' process to ensure continuity with the project.

Other outputs of your work were internal briefing notes to managers, presentations and other outputs. These are not publicly available.

You were also responsible for reviewing and providing comments on research prepared across the Organisation as required.

Role responsibilities and position details

At the Organisation, your immediate manager who you were answerable to was a senior manager within the organisation.

Several junior employees in your department in the Organisation reported to you (and other colleagues) day-to-day, and at your direction undertook various tasks. You contributed to the development of their work programs and regular performance assessments.

Your employment contract with the Organisation entitled you to relocation benefits, healthcare, and leave entitlements.

Your employment conditions required you to obtain prior approval before engaging in any outside employment or operation of any business while employed by the Organisation.

You did not engage in any other employment or undertake contract work while employed by the Organisation.

You were provided with a computer and a mobile phone by the Organisation for the duration of your employment, after which you were required to return these items to the Organisation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

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

Income Tax Assessment Act 1997 section 6-15

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)

International Organisations (Privileges and Immunities) Act 1963 paragraph 6(1)(e)

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

Detailed reasoning

Exemption under the IOPIA 1963

Regulations relevant to the Organisationconfirm that the Organisation is an organisation to which the IOPIA 1963 applies.

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 connected with an international organisation. Relevant to your case, this 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) of the IOPIA 1963. As per item 2 of Part 1 of the Fourth Schedule to the IOPIA 1963, this includes an exemption from taxation on salaries and emoluments received from the international organisation.

A subregulation in the relevant Regulations states 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, which includes the exemption from taxation on salaries and emoluments mentioned above.

Therefore, the payments that you received in relation to your engagement with the 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 Organisation when you were undertaking your role.

As per South Sydney District Rugby League Football Club Ltd v. News Ltd [2000] FCA 1541, 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. 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. Therefore, in determining the outcome of your case it is necessary to examine the substance of the relationship.

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.

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.

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 who is an office holder, it is not enough 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.

As discussed in paragraphs [31] and [34] of Jayasinghe [2017] HCA 256 (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 1963 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.

In Edwards v. Clinch [1982] AC 845 it was held that an office was a position of authority to which duties and functions are attached; an independent post, with some degree of permanence, to which successive people can be appointed.

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 dealt with the case of a taxpayer who had been an Inspector of Schools and who became (when that position phased out) a Cluster Director. Paragraphs [14] and [15] read as follows:

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]

AAT Case 12,178 (1997) 97 ATC 407; (1997) 37 ATR 1174 concerned a taxpayer who received a payment in respect of unused sick leave when he resigned from his position as a Branch Manager after having successfully won a position of Division Director for the same employer (a local council). In determining the case, one of the issues raised was whether the taxpayer was the holder of an office and whether a retirement or termination had occurred. In that case, Senior Member J Block stated:

The test as to whether a position is an office will no doubt usually be one involving questions of fact and degree...

In his findings, Senior Member Block also referred to a few previous cases which looked at the issue of office and at (ATC) 421; (ATR) 1189, he made the following observation:

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]

Refer also to Hamilton v Commissioner of Taxation [2020] AATA 1812 where the taxpayer was found not to be an office holder of the International Monetary Fund in relation to work he undertook for that organisation. In that case the taxpayer was not engaged in the ongoing discharge of a core function of the IMF. Significantly, the appointments under which he did work did not exist in the organisational structure of the IMF and did not exist independently of his appointment to the relevant assignments.

Application to your circumstances

We concur that the following responsibilities and duties required of you as a Senior Research Professional in your employment with the Organisation align with some of the characteristics of what would be expected of an office holder:

-       Managing the budget for a project for which you were the principal team lead

-       Engaging and establishing the contract terms for consultants under your supervision

-       Managing and directing junior staff

-       Performing a role with an ongoing existence with a function central to the organisation

However, we also note that the extent of your autonomy in making financial commitments and entering into contracts on behalf of the organisation was largely restricted to the undertaking of your major work piece. They were specifically limited to the appointment of staff and incurring of staff costs. Whilst an office holder may hold these delegations, having these delegations on their own, does not necessarily mean the holder is an office holder.

The autonomy and executive responsibilities you had as principal team lead to produce this project therefore are fundamentally to assist you to perform your role as a research professional, as opposed to a position in which executive and managerial responsibilities are central functions of the role.

As Grealy's case [Grealy v. Commissioner of Taxation (1989) 24 FCR 405; (1989) 20 ATR 403; (1989) 89 ATC 4192] explains, the word "office" in this context usually connotes a position of defined authority in an organisation, such as a director of a company, or a tertiary education body. It was held that "office" is a word not normally applicable to a relatively low level employee, such as a university lecturer. We are not of the view that your role within the Organisation held the level of authority or responsibility akin to a director, therefore we do not accept that you were an office holder of the Organisation.

Question 2

Detailed reasoning

Section 6-5 of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. This includes income derived from all overseas sources.

Income from employment is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

However, subsection 6-15(2) of the ITAA 1997 provides 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 may exempt the income of a person who is 'serving on a committee, or is participating in the work or performing a mission', as per paragraph 6(1)(e) and item 2A of Part I of the Fifth Schedule to the IOPIA 1963. However, we note that a Subregulation in the Regulations relevant to the Organisation by which you were employed concerning persons participating in the work of the Organisation does not provide for the exemption from taxation on salaries and emoluments provided by item 2A of Part I of the Fifth Schedule for services rendered in Australia by Australian citizens.

Defining 'services rendered'

The term 'rendered' is not defined in the relevant Regulations and therefore takes on its ordinary meaning.

The term 'rendered' is defined in the Oxford English dictionary to mean to 'provide or give'. It is our view that this phrasing is interchangeable with the meaning of 'to exercise'.

Services are rendered or exercised where the person is physically located at the time. We do not agree with the argument that a service is rendered or exercised at the place where what the taxpayer says/advises/instructs has effect - for example if the taxpayer is physically located in Australia but the instructions or advice given only have effect in a foreign country, that this means that the service is rendered in the foreign country.

A relevant Subregulation is concerned with where the employment is exercised. This will be the place where the taxpayer is currently located when they are performing the services that make up their employment duties. This is evident when looking at the term 'rendered' in the context of the relevant Subregulation which says 'services rendered in', meaning where the work is exercised.

We take a similar view to the approach taken in relation to the exercising of employment under the Double Taxation Agreements.

In respect of this, in Case T41 86 ATC 336 at 340 the Taxation Board of Review stated:

... common sense would indicate that an employee is exercising his employment where he is performing the work involved in such employment and I am unaware of any authorities to the contrary.

Further support for the position that an employee is exercising employment where work is being performed or where they are carrying out their duties is provided by The Commentary to paragraph 1 of article 15 - Income from Employment on page 305 of OECD Model Tax Convention on Income and on Capital (condensed version as it read on 21 November 2017) that states:

Paragraph 1 establishes the general rule as to the taxation of income from employment (other than pensions), namely that such income is taxable in the State where the employment is actually exercised. The issue of whether or not services are provided in the exercise of an employment may sometimes give rise to difficulties which are discussed in paragraphs 8.1 ff. Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid. One consequence of this would be that a resident of a Contracting State who derived remuneration, in respect of an employment, from sources in the other State could not be taxed in that other State in respect of that remuneration merely because the results of this work were exploited in the other State. (emphasis added).

The commentary in Part 2 of Chapter VI The Second Rule (Art. 15(1) End of First Sentence and Second Sentence) in Income from International Private Employment by F.P.G. Pötgens (IBFD Books, 2006) provides in section 2.9, that this is the case irrespective that the services may have effect in another state.

Application to your circumstances

A specific Regulation in the relevant Regulations provides an exemption for persons participating in the work of the Organisation.

A Subregulation of the Regulations acts to deny the exemption from taxation on salaries and emoluments provided under Paragraph 2A of the Fifth Schedule of the IOPI Act for income earned by Australian citizens for services rendered in Australia.

As you rendered your services in Australia, you will be denied the exemption, if it were to apply under the relevant Regulation, by the specific Subregulation. Noting this, we have at this time not considered whether, in undertaking the work you have done, you have undertaken activities that cause you to participate in the work of the Organisation (meaning that the relevant Subregulation would apply).

Therefore, salaries and emoluments you received from the Organisation in your employment as a Senior Research Professional working remotely from Australia are not exempted from taxation under section 6-20 of the ITAA 1997, and will be assessable income under section 6-5 of the ITAA 1997.