Edited version of private advice

Authorisation Number: 1052251605679

Date of advice: 8 August 2024

Ruling

Subject: International organisation - exempt income

Question

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 ('IOPI Act')?

Answer

No.

This private ruling applies for the following period:

Year ending X June 20XX.

The scheme commences on:

July 20XX.

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

Since 20XX, you have been performing services for the organisation under various titles.

You were contracted as a consultant for the organisation on various contracts.

When you commenced engagement with the organisation in 20XX, you did so to replace another colleague.

Work undertaken

You have been a member of a task force. At one point during your engagement, you were the co-chair, which you have since resumed responsibility of.

You have been requested by the organisation to represent it at an international level.

General responsibilities and duties

•         You have been requested to represent the organisation office at local level meetings, inter-agency meetings, and regional level meetings.

•         Regularly engage with colleagues from other missions, regional offices, embassies, consulates, other international organisations, government bodies and non-governmental organisations.

•         Coordinate the protection portfolio, mainstreaming of protection and protection-related activities for the organisation.

•         Represented the organisation to work alongside donors and the Government to develop projections.

•         Review different internal documents such as strategies, project proposals, concept notes, and provide input across a wide range of areas.

Specific responsibilities and duties

You entered into a contract to commence on X December 20XX and end on X November 20XX.

You entered into an additional contract to commence on X September 20XX and end on XX December 20XX.

You entered into an additional contract to commence on X March 20XX and end on XX May 20XX.

During your time with the organisation, you reported to the Head of Mission and National Projects Officer of the organisation.

You have been requested at times to guide and manage colleagues, such as protection project assistance.

You have held capacity to delegate tasks to colleagues that are staff members of the organisation, and that are paid by the organisation.

If there was a task that you were unable to do, the organisation would request that another staff member complete the task.

The position

You were expected to have continued providing services to the organisation, even in months where you were not subject to a contract.

You have not had leave entitlements or similar benefits since 20XX.

During your engagement, you have not had any indemnity insurance.

If you were to not continue in the role at the organisation, they would seek a replacement.

It was accepted by the organisation that you were able to work for other organisations if you chose to.

The organisation dictated how you were remunerated, which was further determined by project funding.

The organisation drafts the contracts you are subject to.

Some contracts specified that you were to work a particular amount of hours per day or per month however some contracts did not specify hours but specified 'deliverables' that were to be met to a satisfactory standard.

Hours of work

While you were working remotely in Australia you would conduct work on Country C time zones.

Whilst engaged with the organisation, you were employed at another organisation.

At various times during your engagement with the organisation, you have been supplied with a laptop and organisation email address.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-20

Regulations of the Organisation Regulation 6

International Organisations (Privileges and Immunities) Act 1963

Reasons for decision

Question 1

Summary

It has been determined that you are not a holder of office and would be better regarded as participating in the work of the organisation in a consultancy capacity.

Detailed reasoning

Assessable income

An Australian resident's assessable income includes all ordinary and statutory income from all sources, whether in or outside of Australia under sections 6-5 and 6-10 of theITAA 1997.

Exempt income

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 the Organisation is provided in the relevant Regulations.

The IOPI Act 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 IOPI Act 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.

Regulation 3 of the International Organization For Migration (Privileges And Immunities) Regulations 1991 ('IOM Regulations') confirm that the Romanian International Organisation for Migration ('the organisation) is an organisation to which the IOPI Actapplies.

Subsection 6(1) and Part I of the Second to the Fifth Schedules to the IOPI Act 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 IOPI Act. As per Item 2 of Part 1 of the Fourth Schedule to the IOPI Act, this includes an exemption from taxation on salaries and emoluments received from the organisation.

Subsection 6(1) of the IOM regulations states that officers (other than high officers) of the organisation are entitled to the privileges and immunities specified in items 1 to 6 of Part I of the Fourth Schedule to the IOPI Act.

However, subsection 6(3) states that a person who is a resident of Australia for tax purposes is exempt from taxation on salary and emoluments received from the organisation for services performed in Australia only if they are not an Australian citizen and at the time of performing the services was in Australia solely for the purpose of performing services for the organisation.

The Commissioner's view on the meaning of office holder

The terms 'office' and 'office holder' are not defined by the IOPI Act 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 2024/D2 ('the ruling'). As specified in paragraph 26 of the ruling, the term 'office' cannot be defined by reference to permeance or succession. Whether a person holds or performs the duties of an office in an international organisation concerns the relationship between that person and that organisation. Paragraph 29 of the ruling 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.

Under paragraph 27 of the ruling, whether someone is an office holder is a question of fact, considered on a case-by-case basis. There are six criteria for determining whether a person can be said to hold an office in an international organisation:

•         Four positive criteria

o   a position to which certain duties attach - the office must exist within the international organisation regardless of the individual who occupies the office from time to time, that is if an individual vacates that office, the office continues to exist to be filled by another individual

o   duties relating to the performance of the organisation's functions - the office must have identifiable duties, functions and responsibilities or powers

o   a level of authority with respect to the organisation

o   the position of the person within the international organisation, and the duties and authority associated with it, should make it apparent why the privileges and immunities are conferred.

•         Two negative criteria, the presence of which would indicate the person is not an office holder

o   the position places the person outside the organisational structure

o   the position does not provide the person with any defined duties or authority with respect to the organisation and its functions - for example, the role is merely an advisory function.

The following example of an office holder is included at paragraph 32 of the ruling:

Chris is employed by an organisation that is an international organisation covered by the IOPI Act (as per the Regulations for that organisation). The Regulations provide that income received from the organisation by an office holder of the organisation is income tax exempt and that there are no further conditions or particulars that apply to that exemption. Chris 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, including developing organisational strategy and managing employees. He is also able to engage and enter contracts and make financial commitments on behalf of the organisation. If Chris was to leave the organisation, the vacancy would be filled 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 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).

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 ('IMF') 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

As noted in the paragraphs above, 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 an organisation.

To be considered a holder of office the relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office. You have advised that if you were to relinquish your engagement with the organisation, the role would be passed to someone else. This aspect is considered a positive under paragraph 27 of the ruling, however this is negated by the fact that your roles and responsibilities are considered to be more in the nature of an advisory capacity and do not relate to the 'core functions' of the organisation. Your roles and responsibilities involved the provision of expertise to colleagues and stakeholders and contributing to the training and development of the organisation and its functions.

At various times you were tasked with delegating responsibilities to colleagues. Whilst an office holder may hold these responsibilities, it is considered that these responsibilities are better described as assisting you to perform your role as a consultant, as opposed to being engaged in a role in which managerial and executive responsibilities are central functions.

You were also engaged by the organisation for short periods of time over various contracts as a consultant and did not have the status of being an employee. Nor were you entitled to leave or superannuation entitlements. Although these contracts were often extended for an additional period of time, the duration of the contacts is regarded as being more akin to temporary engagements that may be expected to apply to an expert or consultant. The nature of these contracts and lack of benefits is not indicative of you being an office holder.

Consequently, it has been determined that you are not the holder of office and would be better regarded as participating in the work of the organisation in a consultancy capacity.

For completeness, and in relation to question 2 of this ruling, even if you were considered to be an office holder, the income you derived while working in Australia would not be exempt under regulation 6(3) of the Regulations of the Organisation. A person who is a tax resident of Australia is exempt from taxation on salary and emoluments received from the Organisation for services performed in Australia only if he or she:

a) is not an Australian citizen; and

b) at the time of performing the services was in Australia solely for the purpose of performing services for the Organisation.

You are an Australian citizen and an Australian resident; therefore, you would not be entitled to the exemption for the periods you performed work duties in Australia.