Edited version of private advice

Authorisation Number: 1052306967920

Date of advice: 2 October 2024

Ruling

Subject: Income received from an international organisation

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 ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

X XX 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You have been working with the Organisation through a personal services agreement (PSA) contract in the role of specialist in Country A.

General Conditions for Personnel Services Agreement

•         This Agreement will come into effect on XX XX 20XX and will expire on XX XX 20XX. The Organisation may, depending on its needs as solely determined by the Organisation, decide to extend the term beyond the original expiration date for an additional period or periods of up to X year each. Any extension(s) to the Term shall be agreed by the parties and reflected in a written amendment hereto. Nothing in this agreement gives the PSA holder the right to an extension hereof.

Services

•         The PSA holder shall provide the services at the duty station in Country A or home-based basis for the duty station as the case may be, the services set forth in the terms of refence to this agreement. The PSA holder shall deliver all the services personally without use of any subcontractors.

Status, Rights and Obligations of the PSA Holder

•         The PSA holder is an independent contractor and provides the services specified herein, in his/her personal capacity only and not as the representative of a government or of any other entity or authority external to the Organisation. The PSA holder is not and may not represent themselves as being an agent of the Organisation.

•         The PSA holder is neither a "staff member" of the Organisation under the staff regulations of the Organisation nor an "official" of the Organisation. The PSA holder may however, be given the status of "expert on mission", as determined by/through the Organisation, as such term is defined in the Convention. Should the status of "expert on mission' be given to the PSA holder he/she may enjoy the privileges and immunities applicable to experts on mission under the relevant legal framework.

•         The PSA holder's rights and obligations are strictly limited to the terms and conditions of this Agreement. The PSA holder is not entitled to any right including the payment of any benefit, subsidy, compensation or pension from the Organisation, except as expressly provided in this agreement.

•         The PSA holder is a service provider, and is not considered, nor may he/she represent to third parties, that he/she is an agent or has the right to bind or otherwise obligate the organisation.

Remuneration

•         As full and only consideration for Services provided by the PSA Holder under this Agreement, the Organisation will pay the PSA Holder the Total Monthly Remuneration of $X,XXX.

Office/Unit/Project Description

The specialist will contribute substantively to the Organisation's strategic engagements with development partners, both bilateral and multilateral, boost standards Country A's resource mobilisation. You will undertake strategic donor intelligence and build and sustain strategic partnerships with development partners, private sector, civil society, and within the Organisations system. The specialist will also support the development, regular updating and implementation of the CO partnerships and resource mobilisation strategy, tools and procedures.

Your rolealsoinvolves you managing several employees who report directly to you in a subordinate role.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997section 6-20

Organisations (Privileges and Immunities) Regulations 19XX

International Organisations (Privileges and Immunities) Act 1963

Reasons for decision

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.

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 IOPI Act.

The IOPI Act 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 Organisations (Privileges and Immunities) Regulations 19XX state that the Organisation is an organisation to which the IOPI Act applies.

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 international organisation.

Subregulation 10(1) of the Organisation 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 IOPI Act, which includes the exemption from taxation on salaries and emoluments mentioned above.

For completeness, we note that the IOPI Act may also 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 IOPI Act. However, Regulation X of the Organisation Regulations concerning persons performing missions for 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.

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 were a holder of an office (but not a high office) in the Organisation when you were undertaking your role.

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.

Paragraph 27 of the ruling states that 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 -

­   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

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

­   a level of authority with respect to the organisation

­   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 -

­   the position places the person outside the organisational structure

­   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]

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.

In your case, your role with the Organisation involved such activities as:

•         support building trust and maintaining effective internal and external donor relations;

•         strategic advocacy and partnership development;

•         strategic communications and communication for development;

•         facilitating knowledge building and knowledge sharing;

•         provide technical support to programme manages for preparation of high quality and timely donor reports.

Consequently, from the information provided, it is considered that you were not an 'office holder' in respect of the role you had with the Organisation because you:

•         were not a direct employee of the Organisation but a contractor under a personal services agreement

•         were neither a staff member of Organisation under the staff regulations of the Organisation nor an official of Organisation for the purposes of the Convention on the Privileges and Immunities of the Organisation

•         were classified as a service provider and were not considered, nor could you represent to third parties, that you were an agent or had the right to bind or otherwise obligate the Organisation

•         while you had subordinates, you did not have the required level of authority in relation to decision making in the Organisation or managing the operations of the Organisation.

•         Therefore, as you were not an officer holder of an international organisation, the payments you received are not exempt income under paragraph 6(1)(d) of the IOPI Act.