Private ruling: Foreign income
Date of advice: 16 April 2020
Published: June 2020
Ruling period: 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the income earned from the international organisation exempt foreign income for Australian tax purposes? | A1: No

Relevant facts and circumstances: You are a citizen and resident of Australia. You were hired by the international organisation under a consultant contract. The contract was for a period of months starting late 20XZ in Country Z. The contract was renewed for a further X months. The role you filled was a temporary short term consultant position which ended upon the completion of your contract. The position you held required specific qualifications and experience. The international organisation set the hours you worked. You did receive any leave entitlements under the contract. You were provided with a round trip to the place of duty. You were provided with insurance to cover occupational injury. You were not compensated for your personal expenses including accommodation, health and travel insurance. The contract required you to carry out the tasks specified under the supervision of the international organisation. The international organisation reserved the right to withhold your payment in full or part if your services were not provided in full or deemed to be inadequate. You did not have other people reporting to you. The contract stipulated that your duties and responsibilities were only those set out in the contract itself. You were measured according to your work and ability to produce the products in a timely manner. The performance indicators included: · Production of at least four products · The inclusion of data analysis in the products · Timely submission of the products · Conducting research of other partners assessments and needs and incorporate new ideas for future assessments and products.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-15(2) | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 6-20 | The International Organisations (Privileges and Immunities) Act 1963 Subsection 3(1) | The International Organisations (Privileges and Immunities) Act 1963 Subsection 5(1) | The International Organisations (Privileges and Immunities) Act 1963 subparagraph 6(1)(d)(i) Summary | The payments that you have received from the international organisation while on assignment are assessable to you as per section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). They are not exempt income for income tax purposes as per section 6-20 of the ITAA 1997 and section 6 of the International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)A 1963). This finding is made as you are not an office holder and that, for the international organisation, the exemption does not extend to experts and consultants. Income exempt on the basis you were an office holder | Are the payments that you received from the international organisation exempt income under section 6-20 of the ITAA 1997 on the basis that you were an office holder under paragraph 6(1)(d) of the IO(P&I)A 1963 (taking into account the Regulations)? No. You were not an office holder, you were instead an expert or consultant while on short term assignment for the international organisation. | Income exempt on the basis you were an expert or consultant | Are the payments that you received from the international organisation exempt income under section 6-20 of the ITAA 1997 on the basis that you were working as an expert or consultant under paragraph 6(1)(e) of the IO(P&I)A 1963 (taking into account the Regulations)? No. The regulations pertaining to the international organisation do not confer any privileges and immunities to persons performing a mission or working as experts or consultants for the international organisation. | Detailed reasoning | Income exempt on the basis you were an office holder | Are the payments that you received from the international organisation exempt income under section 6-20 of the ITAA 1997 on the basis that you were an office holder under paragraph 6(1)(d) of the IO(P&I)A 1963 (taking into account the Regulations)? No. You were not an office holder, you were instead an expert or consultant while on short term assignment for the international organisation. | Reasoning | Income from professional services is ordinary income for the purposes of subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997). However, subsection 6-15(2) of the ITAA 1997 says 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 1963) 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 IO(P&I)A 1963 exempts from taxation certain income of a person connected with an international organisation, to the extent that it satisfies all of these elements: | the income is received from an international organisation to which the IO(P&I)A 1963 applies | the person is connected with the international organisation in one of the ways set out subsection 6(1) of the IO(P&I)A 1963 | and | the conditions and other particulars provided in the regulations for the international organisation are satisfied in relation to the income of the person. | Subsection 3(1) of the IO(P&I)A 1963 defines the term 'international organisation to which this Act applies' to mean an organisation that is declared by the regulations to be an international organisation to which the IO(P&I)A 1963 applies, and includes a body established by such an organisation. | Subsection 6(1) and Part I of the Second to the Fifth Schedules to the IO(P&I)A 1963 inclusive set out the taxation exemptions that can be conferred upon certain persons currently connected with an international organisation. Relevant to your case, this includes the following: | 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) and Part I of the Fourth Schedule to the IO(P&I)A 1963 | Relevantly, as per item 2 of Part 1 of the Fourth Schedule this includes an exemption from taxation on salaries and emoluments received from the international organisation. | The international organisation is an Agency to which the IO(P&I)A applies. | The regulations of the international organisation provides that as a person who held an office in the international organisation, other than a person that is a high office holder, has the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A 1963, which includes exemption from taxation on salaries and emoluments received from the organisation. | Therefore the payments that you received in relation to your engagement with the international organisation will be exempt from income tax if it can be shown that you are a holder of an office (but not a high office) of the international organisation at the time you were undertaking those assignments. This is a question of fact that needs to be resolved separately for each assignment. | As per South Sydney District Rugby League Football Club Ltd v. News Ltd [2000] FCA 1541 (the South Sydney District Rugby League Football Club Ltd Case) in determining what the nature of a relationship was between two parties it is necessary to look at the form and substance of that relationship. It is not appropriate to adopt the label that one or more parties may have given to the relationship and let that determine what it is. Therefore, in determining the outcome of your case it is necessary to look beyond the label of 'short term consultant' and examine the substance of the relationship. | 'Office' and 'office holder' are not defined by the IO(P&I)A 1963 and the ITAA 1997 and therefore they should take their ordinary meaning. Care must be taken to ensure that it is read with regard to the context of the statutory provision (as per Certain Lloyd's [2009] HCA 56 (Lloyds Case) at [23-26]). | The Commissioner's views on what is an office holder are set out in in draft Taxation Ruling TR 2019/D1. As per paragraph 27 of TR 2019/D1 a holder of an office can 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. | An appointment, office or position must exhibit the characteristics of an office holder. As per paragraph 25 of TR 2019/D1 the characteristics of an office holder for an appointment, office or position are: | 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. | Further guidance on who is an office holder is also provided by Taxation Ruling TR 2002/21. | As discussed in paragraphs [31] and [34] of FCT v. Jayasinghe [2017] HCA 256 (the 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 IO(P&I)A 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). | The High Court also affirmed the Commissioner's view outlined in paragraph 27 of TR 2019/D1 in paragraph [52] of the Jayasinghe Case. | 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 a company. | Following the listed reasons below, your role with the international organisation are best described as that of a consultant, and not an office holder. As such the substance of your relationship is consistent with that of a contractor and what one would commonly understand a 'contractual employee' to be. | You have provided a copy of the Consultant Contract and Terms of Reference which indicate that you are a fixed short term contractor in the capacity of a consultant in a role. The documents do not indicate that you hold an office in the international organisation. | You are not an office holder in respect of the assignments you undertook for the international organisation. | This is because the position you occupied as a consultant for the international organisation did not have any permanence to it and was in function, a purely advisory and support role. This is opposed to an 'office' where the position itself is an ongoing or continuing one, either continuously or for a substantial term even if the person that occupies it at a particular point changes. | Income exempt on the basis you were an expert or consultant | Are the payments that you received from the international organisation exempt income under section 6-20 of the ITAA 1997 on the basis that you were an expert or consultant under the regulations of the international organisation? | No. The regulations pertaining to the international organisation do not confer any privileges and immunities to persons performing a mission or working as experts or consultants for the international organisation. | Reasoning | The regulations of the international organisation only provide an exemption from income tax of salaries and emoluments received by a person who holds an office, or formerly held an office, within the international organisation. | As no part of the international organisation regulations applies to persons connected with the international organisation in the capacity of an expert or consultant, the privileges and immunities set out in paragraph 2A of Part I of the Fifth Schedule to the Act are not available to you to exempt your income from taxation. As such, the payments that you have received are not exempt income on the basis that you are performing a mission or working as an expert or consultant. | Conclusion | Under the regulations of international organisation a person who holds an office in the international organisation has the privileges and immunities specified in Part I of the Fourth Schedule to the IO(P&I)A 1963, including income tax exemption on salaries and emoluments received from the organisation. | However in your case Part 1 of the Fourth Schedule to the IO(P&I)A 1963 which grants the income tax exemption does not apply as you do not hold an office as specified in the Schedule. | Instead you are regarded as an expert or consultant who is performing a mission to the international organisation and no income tax exemption is available for a person working in this capacity. | Accordingly, the income derived by you as a consultant for the international organisation is assessable under subsection 6-5(2) of the ITAA 1997.