Private ruling: Assessability of remuneration received from an international organisation
Date of advice: 3 September 2019
Published: October 2019
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 7 February 20XX

Ruling: Q1: Will all the income you earned under the contract with an international organisation for consultancy services be exempt income under section 6-20 of the Income Tax Assessment Act 1997 ? | A1: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You were engaged to undertake a consulting assignment with an international organisation. You and the international organisation entered into a contract (the Contract) for the consulting assignment. You are referred to as 'the Consultant' under the terms of the Contract. You were engaged as a consultant on an intermittent basis for a specified number of days for a defined period. Your deliverables under the Contract included the preparation and collaboration in the preparation of reports and presentations. The Contract stipulated your home office in Australia and two international locations, as places from which you would provide the consultancy services. The Contract states that the International Organisation may arrange privileges, immunities or exceptions with the Government for the assignment locations to be extended to you for the services you provide. The Contract states that International Organisation intends that you receive exemption from taxes in member countries but not for taxes levied by the country in which you hold citizenship or a right of residency.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 subsection 6-15(2) | Income Tax Assessment Act 1997 section 6-20

Reasons for decision: Summary: Assessable income consists of ordinary and statutory income pursuant to subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Exempt income is not assessable income by virtue of subsection 6-1(3) of the ITAA 1997. Relevantly, section 6-5(1) of the ITAA 1997 states ordinary income is income according to ordinary concepts. Salary and wages are examples of amounts that are income according to ordinary concepts. However, subsection 6-15(2) of the ITAA 1997 provides that if an amount of income is exempt income, it is not assessable income. Section 6-20 of the ITAA 1997 deals with exempt income and broadly 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). This includes income received by persons connected with international organisations which is made exempt from income tax by virtue of the International Organisations (Privileges and Immunities) Act 1963 (IOPI Act). 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 currently connected with an international organisation. This includes 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 Part I of the Fifth Schedule to the IOPI Act. As per item 2A of Part 1 of the Fifth Schedule this includes an exemption from taxation on salaries and emoluments received from the international organisation. Paragraph 16 of Draft Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax (TR 2019/D1) outlines the three elements that need to be satisfied for income of a person connected with an international organisation to be exempt under the IOPI Act. They are: · the income is received from the international organisation to which the IOPI Act applies · the person is connected with the international organisation in one of the ways set out in paragraph 14 of TR 2019/D1 and · the conditions and other particulars provided in the regulations are satisfied for the international organisation in relation to the income of the person. | Detailed Reasoning - Income is received from an international organisation to which the IOPI Act applies: The first element is satisfied. | Detailed Reasoning - The person is connected with the international organisation: The second element is satisfied. | Detailed Reasoning - The conditions or other particulars in the regulations are satisfied for the international organisation in relation to the income of the person: Paragraph 33 of TR 2019/D1 states that the general proposition in Australia is that persons participating in the work of international organisations are exempt from tax in Australia. However, this exemption may be subject to conditions including exclusion from being exempt from tax in Australia if the person is rendering the services in Australia and is a resident of Australia for taxation purposes. If such an exemption applies, it will be specified in the regulations. The above view in TR 2019/D1 reflects the position in the IOPI Act. Relevantly, subsection 6(1) of the IOPI Act states that regulations may, without restriction or to the extent of any conditions prescribed in those regulations, confer upon a person performing work of an international organisation, the privileges and immunities specified in Part I of the Fifth Schedule. Relevantly, those privileges and immunities include exemption from taxation on salaries and emoluments received from performing the work. The relevant regulations impose a restriction on the above exemption in respect of salaries and emoluments. The exemption will not apply to the extent the salary or emolument is for services rendered in Australia. This exception is also expressly stated in the Contract. In Case T41 86 ATC 336 (Case T41) at 340 the Taxation Board of Review stated: ...common sense would indicate that an employee is exercising his employment where he is performing the work involved in such employment and I am unaware of any authorities to the contrary. Under the terms of the Contract, you were engaged as a consultant for a specified number of days in a defined period to provide specific services. The contract stipulates the number of days you were required to provide these services from specific locations, including Australia. The remuneration you derived that is attributable to the days you rendered services in Australia is not exempt from taxation under the IOPI Act and therefore is not exempt income in accordance with section 6-20 of the ITAA 1997. This amount is income according to ordinary concepts and is included in your assessable income under section 6-5(1) of the ITAA 1997. The remuneration you derived that is attributable to the days you rendered services outside of Australia is exempt from taxation under the IOPI Act as it satisfies all of the conditions for the exemption. The remuneration you derived that is attributable to this period will be exempt income under section 6-20 of the ITAA 1997.