Edited version of private advice

Authorisation Number: 1052149415578

Date of advice: 21 September 2023

Ruling

Subject: Income derived from an international organisation

Question 1

Is income earned as a consultant to International Organisation X for services rendered in Australia, while residing in Australia, exempt from taxation in Australia and therefore not assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Is income earned as a consultant to International Organisation X services rendered outside of Australia, while residing in Australia, exempt from taxation in Australia and therefore not assessable under section 6-5 of the ITAA 1997?

Answer

Yes.

Question 3

Are travel allowances paid for services rendered outside of Australia, while residing in Australia, exempt from taxation in Australia and therefore not assessable under section 6-5 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

Year ending 1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a dual citizen of the Country A and Country B.

In MM 20XX, you relocated to Australia for the purpose of an employment opportunity with non-international Organisation A. You commenced employment with non-international Organisation A in MM 20XX. This was initially a X year contract. You were granted extensions to your contract with non-international Organisation A. You ceased employment with non-international Organisation A in early 20XX.

You are a tax resident of Australia. You have been a tax resident of Australia since you arrived in MM 20XX (tax year ended 30 June 20XX). You intend to remain residing in Australia for the ruling period.

On or around DD MM 20XX, more than X years after relocating to Australia, you signed your Contract with International Organisation X.

Your Contract includes the following:

•         You have been engaged by International Organisation X as a specialist between DD MM 20XX and DD MM 20XX for a total of X working days.

•         Assignment locations are: Home office other; Overseas location 1, Overseas location 2; Overseas location 2, Overseas location 3; Overseas location 4, Overseas location 5.

•         You will receive remuneration of AUD X per working day for X days totalling AUD X.

•         You will receive travel allowances totalling USD X. Travel allowances include per diem, air, land / sea travel and miscellaneous travel expenses. No per diem is paid on return to usual place of residence.

•         Insurance X and contingency USD X.

Your schedule and places of assignment as detailed below in the table:

•         X days from your home office in Australia (services rendered in Australia).

•         X days from outside of Australia (services rendered outside Australia).

You will receive payments into your X bank account held in Australia.

Your home office is located in State X, Australia which is your residential address.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5S

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)(e)

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

International Organisation X (Privileges and Immunities) Regulations 19XX Regulation X

International Organisation X (Privileges and Immunities) Regulations 19XX Subregulation X(x)

International Organisation X (Privileges and Immunities) Regulations 19XX Subregulation X(x)

Reasons for decision

Reasons for decision

Summary

Income earned as a consultant to International Organisation X for services rendered in Australia, while residing in Australia, is not exempted from taxation and therefore will be assessable under section 6-5 of the ITAA 1997.

Income earned as a consultant to International Organisation X for services rendered outside of Australia, while residing in Australia, is exempted from taxation and is therefore not assessable under section 6-5 of the ITAA 1997.

Travel allowances paid to you for services rendered outside of Australia, while residing in Australia, are exempt from taxation and are therefore not assessable under section 6-5 of the ITAA 1997.

Detailed reasoning

Taxation of income from consultancy services

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 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.

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

Exemption of income under the International Organisations (Privileges and Immunities) Act 1963

Income of tax residents of Australia working for designated international organisations may be exempted from taxation in accordance with the IOPI Act. The application of these benefits to persons performing the work of International Organisation X is specified in International Organisation X Regulations (Regulations).

The IOPI Act confers different strata of benefits to individuals engaged to perform work for designated international organisations, differentiated in Regulations by the character of their position and the manner in which they are engaged by the organisation.

Category of persons

Draft Taxation Ruling TR 2019/D1Income tax: income of international organisations and persons connected with them that is exempt from income tax considers the classifications used in the IOPI Act and provides the following definitions:

Person who is a holder of a high office

A person who holds a high office is usually a senior officer of the international organisation or their deputy, for example, the Secretary General, President or Director of the international organisation. An office of an international organisation is only a high office if it has been prescribed by the Regulation or Regulations for that international organisation to be one.

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

A person who is accredited to or is in attendance at an international conference convened by an international organisation may be provided with similar privileges and immunities as those given to a diplomatic agent.

Person who holds an office in an international organisation

A person who 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. The duties and authority associated with the person's position within the international organisation are relevant to whether the tax exemption applies.

Paragraph 25 of TR 2019/D1 outlines the characteristics of an "office holder" for the purposes of the IOPI Act, to be:

•         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 27 of TR 2019/D1 states that direct employees of designated international organisations may be office holders, however locally engaged staff and persons engaged as experts or consultants cannot be office holders. This was affirmed by the High Court in paragraph [52] of Jayasinghe [2017] HCA 256 (Jayasinghe case).

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 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 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).

Person who is serving on a committee or participating in the work of or performing a mission

Persons who serve on a committee, participate in the work of, or perform a mission on behalf of an international organisation may be exempted from taxation on salaries and emoluments received from the organisation.

Examples of persons serving on a committee or participating in the work or performing a mission include experts, consultants, or other persons engaged by the organisation to perform a specific act or thing.

International Organisation X Regulations (Regulations)

Regulation (X) of the Regulations confirms that International Organisation Xis an international organisation to which the IOPI Act applies, and provides that persons performing the work of International Organisation X shall be afforded the following privileges:

Privileges and immunities of other persons connected with International Organisation X

1)    A person who is serving on a committee, or is participating in the work, of International Organisation X or is performing, whether alone or jointly with other persons, a mission on behalf of International Organisation X has the privileges and immunities specified in paragraphs 2, 2A and 5 of Part I of the Fifth Schedule to the Act.

2)    The salary and emoluments received from International Organisation X by a person on whom privileges and immunities are conferred by subregulation (1), being a resident of Australia within the meaning of the Income Tax Assessment Act 1936, are not, to the extent to which they are for services rendered in Australia, exempt from taxation unless the person is not an Australian citizen and came to Australia solely for the purpose of serving on a committee, or participating in the work, of the International Organisation X or performing a mission on behalf of International Organisation X

3)    A person who has served on a committee, or participated in the work, of International Organisation X or performed a mission on behalf of International Organisation X has the immunities specified in Part II of the Fifth Schedule to the Act.

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

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.

Defining "services rendered"

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

Subregulation (X) of the Regulations is concerned with where the employment is exercised. This will be the place where the taxpayer is physically located when they are performing the services that make up their employment duties.

Taxation of allowances and reimbursements

Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement outlines the difference between a reimbursement and an allowance for income tax purposes, as allowances are assessable income whereas reimbursements are not.

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption.

Application to your circumstances

For the purposes of the IOPI Act and taking into account your Contract, which sets out your duties, responsibilities and output schedule:

•         You would not be considered a person who holds a high office. This is because you are neither a senior officer of the international organisation nor has your position been prescribed by the Regulation or Regulations for that international organisation to be one.

•         You would not be considered a person who is accredited to or is in attendance at an international conference convened by an international organisation. This category of persons is not relevant to your Contract with International Organisation X.

•         You would not be considered a person who holds an office for a designated international organisation (other than a high office). This is because you are engaged as a specialist for a specific period of X working days. You are referred to throughout your Contract as a consultant. As outlined in paragraph 27 of TR 2019/D1, persons engaged as experts or consultants cannot be office holders. We, therefore, consider that you are not an office holder of International Organisation X for the purposes of the IOPI Act because you do not have the authority and standing that is required to be an office holder within International Organisation X.

•         You fit into the classification of aperson who is serving on a committee or participating in the work of or performing a mission on behalf of an international organisation.

In your case, you are a tax 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 International Organisation X and you are paid salary and wages for consultant services performed for International Organisation X.

Question 1

We consider the income you receive as a consultant to International Organisation Xfor services rendered in Australia, that is, work undertaken at your home office while residing in Australia,is ordinary income under subsection 6-5(2) of the ITAA 1997. This income is not exempted from taxation and therefore will be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Question 2

We consider the income you receive as a consultant to International Organisation Xfor services rendered outside of Australia, that is work undertaken at overseas places of assignment, while residing in Australiais ordinary income under subsection 6-5(2) of the ITAA 1997. However, subregulation X(x) of the Regulations confers the exemption from taxation on salaries and emoluments provided for in Paragraph 2A of Part I of the Fifth Schedule of the IOPI Act onto persons performing the work of International Organisation X. Therefore, this income you earned as a consultant for services rendered outside of Australia is not assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Question 3

The travel allowances you receive in accordance with your Contract as a consultant to International Organisation X for services rendered outside of Australia, that is work undertaken at overseas assignment locations, while residing in Australiaare assessable income under section 6-5 of the ITAA 1997. However, these payments are exempted from taxation under Paragraph 2A of the Fifth Schedule of the IOPI Act through the application of subregulation X(x) of the Regulations and are therefore not assessable as they are in relation to the time you are rendering services outside Australia.