Edited version of private advice

Authorisation Number: 1052128117108

Date of advice: 10 August 2023

Ruling

Subject: International organisations - privileges and immunities

Question

Is the income you earned from work as a consultant with international organisation Z that had been scheduled by Z to be undertaken overseas but which was carried out in Australia due to the impact of COVID-19 lockdowns and travel restrictions, exempt from income tax in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2021

Year ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are not a citizen of Australia.

You are a citizen of Country B.

You have been residing in Australia for several years.

You did not come to Australia for the purpose of working for Z. You moved here for personal reasons.

You are a permanent resident of Australia.

After moving to Australia, you have been contracted as an expert consultant for mission related work with Z for a number of years under various contracts.

These contracts require you to undertake mission related work in:

•                     Your home office, that is, in Australia; and

•                     various assignment locations outside of Australia.

Mission work consists of specific assignments requested and approved by Z under the contracts.

Z pays you remuneration based on contracted daily rates and reimburses you for travel expenses for assignments outside of Australia.

Z specifies the foreign assignments, which are to be performed at assignment locations other than Australia. The amount of foreign work is estimated and provided at the time of contract execution and may be adjusted by Z through contract variations in the course of the contract validity, as and when Z sees necessary.

Under the Z contracts, Z provides the remuneration and travel expenses components as well as the schedules of locations of assignments.

Your contract xxxxxx-xxxxxx with Z specified your foreign assignment schedule for the 2020-21 and 2021-22 income years.

Due to Covid-19, you were unable to perform any of these services at the foreign locations and had to carry out all of this work from Australia. The nature of your work, as defined in the Z contract and pursuant to your specialist skill set, did not change because you were carrying out the work in Australia.

Under this contract:

•                     You were contracted directly with Z

•                     You were required to submit a monthly time sheet and invoice with payments made to you accordingly but the total payable under the contracts was capped at a specified maximum amount.

•                     It was specifically stipulated that you were a consultant and your relationship with Z was only as an independent contractor.

•                     You were required to deliver certain outputs.

•                     You were to use your own computer equipment to provide the contracted services.

•                     You could subcontract certain support services, such as administrative assistants, research assistants, surveyors or services of a similar nature but you had to first obtain written approval from Z. Z took no responsibility or obligation in respect of any such subcontractor(s) and you were required to indemnify Z from any and all claims, costs, charges, and damages incurred or sustained by Z arising if you engaged subcontractors.

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 paragraph 2 of Part 1 of the Fifth Schedule

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

International Organisations (Privileges and Immunities) Act 1963 paragraph 5 of Part 1 of the Fifth Schedule

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident will include ordinary income derived from all sources, whether in or out of Australia, during the income year.

Income from consultancy 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 provides 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 (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.

The application of these benefits to persons performing the work of Z is specified in the Z(Privileges and Immunities) Regulations 19XX (Z Regulations).

The IOPI Act confers different strata of benefits to individuals engaged to perform work for designated international organisations, differentiated in the Z Regulations by the character of their position and the manner in which they are engaged by the organisation. Draft Taxation Ruling TR 2019/D1 expounds the classifications used in the IOPI Act and provides the following definitions:

•                     Person who holds a high office - these are senior officers such as presidents or managing directors of international organisations. Organisations must have positions of high office prescribed by the regulations pertinent to that organisation for the position to be recognised as such under the IOPI Act.

•                     Person who holds an office - whether a person holds an office for a designated international organisation (other than a high office) must be ascertained by evaluating the nature of the individual's professional relationship with the organisation and the duties and authority associated with the office held by that individual.

•                     Person who is accredited to, or is in attendance at an international conference convened by an international organisation.

•                     Person who is serving on a committee/performing the work/performing a mission - this classification includes experts, consultants, and other persons whose engagement with the organisation is related to undertaking a specific task or producing a particular piece of work.

To determine the appropriate classification, the substance of the terms of the engagement of the person, and the relationship between their engagement and the organisation performing its function must be considered.

It should be clear from the duties and authority associated with a person's position within the international organisation why the privileges and immunities are conferred. As per paragraph [38] of FCT v Jayasinghe [2017] HCA 256, 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 IOPI Act 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).

Based on the information you have provided, you fit into the classification of a person who is serving on a committee/performing the work/performing a mission. You are not an office holder of Z because you do not have the authority and standing that is required in Z.

Sub-regulation 7(1) of the Z Regulations provides that a person who is performing, whether alone or jointly with other persons, a mission on behalf of Z has the privileges and immunities specified in paragraphs 2, 2A and 5 of Part I of the Fifth Schedule to the IOPI Act.

Paragraphs 2, 2A and 5 of part I of the Fifth Schedule of the IOPI Act 1963 provides:

2. Immunity from suit and from other legal process in respect of acts and things done in serving on the committee, participating in the work or performing the mission.

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

5. Exemption from currency or exchange restrictions to such extent as is accorded to a representative of a foreign government on a temporary mission on behalf of that government.

However, sub-regulation 7(2) of the Z Regulations provides that salary and emoluments received from Z by a person on whom privileges and immunities are conferred by sub-regulation 7(1), being a resident of Australia within the meaning of the ITAA 1936, are not exempt from taxation, to the extent to which they are for services rendered in Australia unless the person is not a citizen of Australia and came to Australia solely for the purpose of serving on a committee, or participating in the work, of Z or performing a mission on behalf of Z.

The term 'emoluments' include payments made to an expert in respect of their services which are remunerations, or at least an 'advantage' obtained as a result of giving those services.

'Services rendered' is not defined in the Regulations and therefore takes 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'.

Sub-regulation 7(2) is concerned with where the employment is physically exercised. This is the place where the taxpayer is currently located when they are performing the work and duties required by their contract. This is evident when looking at the term 'rendered' in the context of sub-regulation 7(2) which says 'services rendered in', meaning where the work is exercised.

Application to your circumstances

You are an expert consultant serving on a committee/performing the work/performing a mission of Z.

The income you receive as an expert consultant for mission related work for Z is ordinary income under subsection 6-5(2) of the ITAA 1997 and is therefore assessable unless exempted by provisions in Commonwealth law.

Z is an international organisation to which immunities and privileges are granted under the IOPI Act. The privileges and immunities conferred to you under the IOPI Act are applied in accordance with regulation 7 of the Z Regulations.

In your case, you are a resident of Australia, you are not a citizen of Australia, but you are living in Australia and did not come to Australia for the sole purpose of carrying out the work for Z and you are paid salary and wages for consultant services performed for Z for work carried out in and out of Australia.

The payment you receive for work performed for Z in Australia is not exempt from tax under regulation 7 of the Z Regulations as the payment is an emolument received while performing services for Z in Australia.

In relation to the days specified in your foreign assignment schedule in contract xxxxxx-xxxxxx, while your intention was to perform the duties overseas and the only reason you did not was because of the COVID-19 travel restrictions, this does not change the fact that the work was performed in Australia. Work performed in Australia is regarded as 'services rendered' in Australia for the purpose of sub-regulation 7(2) of the Z Regulations so the immunities and privileges granted under the IOPI Act do not apply. This income is assessable under section 6-5 of the ITAA 1997.

The Commissioner does not have a discretion to treat the payment as if the work was carried out overseas.