Private ruling: Exempt foreign income
Published: July 2014
Ruling period: Year ended 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Are the salary and allowances you earn from an international organisation exempt from income tax in Australia? | A1: No.

Relevant facts and circumstances: You are an Australian resident for income tax purposes. You perform work as a consultant for an international organisation (the organisation). Your agreement with the organisation is for up to 150 days of work per year. The agreement does not stipulate the periods you must work in the overseas country. Generally you work for several weeks at a time in an overseas country before returning to Australia for several weeks. The majority of work you do for the organisation is performed in an overseas country, with a small amount being done in Australia. You are paid directly by the organisation to a bank account in an overseas country. Your income is not taxed in the overseas country.

Relevant legislative provisions: Subsection 6-5(2) of the Income Tax Assessment Act 1997 | Subsection 6-15(2) of the Income Tax Assessment Act 1997 | Section 6-20 of the Income Tax Assessment Act 1997 | Section 23AF of the Income Tax Assessment Act 1936 | Subparagraph 6(1)(e)(i) of the International Organisation (Privileges and Immunities) Act 1963 | Regulation 9 of the Specialized Agencies (Privileges and Immunities) Regulations 1986 Section 3AAA of the International Tax Agreements Act 1953 | Section 5 of the International Tax Agreements Act 1953

Reasons for decision: Detailed Reasoning - Assessable income: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident will include ordinary income derived from all sources, whether in or out of Australia, during the income year. Indicators of ordinary income include the receipt being: • received periodically and regularly • relied upon or expected • earned • for the replacement of income. Income from your consultancy services is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable. 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. | Detailed Reasoning - International organisations: The International Organisations (Privileges & 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. Subparagraph 6(1)(e)(i) of the IO(P&I)A provides that the regulations may confer all or any of the privileges and immunities set out in Part 1 of the Fifth Schedule of the IO(P&I)A upon a person who serves on a committee, or participates in the work of, or performs a mission on behalf of, an international organisation to which the Act applies. The organisation you consult for (the organisation) is listed in the Schedule to the Specialised Agencies (Privileges & Immunities) Regulations 1986 (SA(P&I) Regs), making it an organisation that the IO(P&I)A applies to. Regulation 9 of the SA(P&I) Regs does not provide any income tax exemption for persons serving on a committee or performing a mission (such as independent consultants) for the organisation. This means that the immunities in Part 1 of the Fifth Schedule of the IO(P&I)A do not apply. The Commissioner's views on the IO(P&I)A are set out in Taxation Ruling TR 92/14 Income tax: taxation privileges and immunities of prescribed International Organisations and their staff (TR 92/14). As outlined in paragraph 12 of TR 92/14, generally, Australia's policy is that experts and consultants of an International Organisation are not exempt from tax in Australia. The limited exemptions provided under the SA(P&I) Regs do not apply to you. Accordingly, the income derived by you as a consultant to the organisation is not exempt income under the IO(P&I)A. | Detailed Reasoning - Convention on the privileges and immunities of the specialized agencies: It is well established, as explained by the Full High Court in Minister of State for Immigration and Ethnic Affairs v. Ah Hin Teoh (1995) 183 CLR 273 that "the provisions of an international treaty to which Australia is a party do not form part of Australian law unless those provisions have been validly incorporated into our municipal law by statute" (Mason CJ and Deane J at para 25). The reasons for this are found in the Constitution, where the power to enter treaties is vested in the Executive under section 61, but the power to make an alter law falls to the Parliament under section 51. The United Nations Convention on the Privileges and Immunities of the Specialized Agencies , to which Australia became a party in 1986, provides that the organisation is a 'specialized agency' and that officials of a specialized agency shall be immune from taxation (sections 9 and 19). However, this convention has not been legislated into Australian law any further than the IO(P&I)A and it's regulations as discussed earlier, and as discussed you are not an official of the organisation. As has been discussed above, the law in Australia is clear that consultants to the organisation are not exempt from taxation in Australia. | Detailed Reasoning - ITAA exempt income: Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with overseas employment income and 23AF of the ITAA 1936 which deals with approved overseas projects. Subsection 23AG(1) of the ITAA 1936 provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax in Australia. 'Foreign service' means service in a foreign country as the holder of an office or in the capacity as an employee (subsection 23AG(7) of the ITAA 1936). As you are not considered to be the holder of an office or an employee, section 23AG of the ITAA 1936 does not apply. Section 23AF of the ITAA 1936 provides relief from Australian income tax for Australian residents working overseas on approved projects. The approval of a project is dependent upon the Minister for Trade being satisfied that the undertaking is an eligible project. In your case, you are performing work on a project that assists farmers with good agricultural training. You have been unable to provide information that the work you undertake is part of an approved project. Consequently, you are not exempt from income tax under this provision. Additionally, you have not been engaged in the service for a continuous period of 91 days or more as required by the section. | Detailed Reasoning - DTA: In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws, but also the double tax agreement between Australia and the overseas country. Under a double taxation agreement between Australia and the overseas country (the Agreement), income derived by an Australian resident in respect of professional services or other independent activities of a similar character are generally taxable only in Australia. Your income as a consultant is not exempt from Australian tax under the Agreement. | Summary: In your case, your income does not fall within any of the above exemptions. Accordingly, your income received whilst working as a consultant for the organisation is assessable under section 6-5 of the ITAA 1997.