Private ruling: Assessability of foreign income
Published: March 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the consulting income you receive from the International Organisation exempt from income tax under section 6-20 of the Income Tax Assessment Act 1997 for the portion of the contracted work performed in Australia? | A1: No. | Q2: Is the consulting income you receive from the International Organisation exempt from income tax under section 6-20 of the Income Tax Assessment Act 1997 for the portion of the contracted work performed overseas? | A2: Yes.

Relevant facts and circumstances: You are an Australian resident for taxation purposes and a consultant. You have signed a contract with the International Organisation to provide consulting services for approximately one year in an overseas location. The contract provides for a specified number of working days, of which approximately half are to be performed in your home office (at your residence) in Australia and the remaining half are to be performed overseas. A Clause of your contract states: "Exemptions and Immunities - XXX may arrange privileges, exemptions, or immunities with the Government for the Assignment Location to be extended to the Consultant for the Services. XXX intends that the Consultant receive in XXX's member countries the privileges, immunities, and exemptions accorded to Consultants performing a Mission for XXX under a Chapter of XXX's Articles of Agreement. These include exemptions from taxes on all XXX's payments to the Consultant or the Firm for the Services, except taxes levied by the Country in which the Consultant holds a citizenship or right of residency." An Appendix to your contract specifies how many days you will be working in Australia and how many you will be working overseas.

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 | Acts Interpretation Act 1901 paragraph 22(1)(a) | International Organisations (Privileges and Immunities Act) 1963 section 3 subparagraph 6(1)(e), Part I Fifth Schedule | Asian Development Bank (Privileges and Immunities) Regulations 1967 Regulation 2, Regulation 3, subregulation 7(1), subregulation 7(2)

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer 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 (IO(P&I)A) 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 International Organisation for which you are working is an organisation prescribed under the IO(P&I)A. The Commissioner's guidelines as to the assessability of remuneration derived from International Organisations are dealt with in a specific Taxation Ruling which states clearly that an exemption from taxation is not extended to Australian citizens who are engaged by the International Organisation and are carrying out their work while in Australia. Your contract with the International Organisation specifies in the terms of reference attached as an Appendix that you are to carry out part of your duties in Australia and then you are to travel overseas to complete the remainder of your contractual obligations. The exact amount of days to be spent in each country is quantified as part of the one contract for which you are receiving payment. The payment you receive for work performed for the International Organisation in Australia is not exempt from tax under sub-regulation 7(2) of the ADB Regulations as you are a resident of Australia and receive payment for work rendered in Australia. Accordingly the payment is assessable under subsection 6-5(2) of the ITAA 1997. The payment you receive for work performed for the International Organisation in overseas countries is exempt from tax under sub-regulation 7(1) of the International Organisation's Regulations as the payment is an emolument received while performing services for the International Organisation overseas. Accordingly the payment is not assessable under subsection 6-5(2) of the ITAA 1997 as the payment is exempt under section 6-20 of the ITAA 1997. | Detailed Reasoning - Note:: You will need to apportion your payment according to the actual time you spend in Australia and the actual time you spend overseas.