Private ruling: Foreign income
Published: February 2015
Ruling period: Year ending 30 June 2015

Ruling: Question and answer | Are the salary and wages you earn, while working under contract for your employer in country A, exempt from tax in Australia? | No.

Relevant facts and circumstances: You are undertaking work with an international organization in country A. You perform missions on behalf of the organization. You are employed as a consultant under contract for over 6 months.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 6-5(2) | Income Tax Assessment Act 1997 Section 6-15 | Income Tax Assessment Act 1997 Section 6-20 | International Organisations (Privileges and Immunities) Act 1963 subsection 3(1) | subsection 5(1) | Part 1 of Fourth Schedule | paragraphs 1,2,3,4,5 and 6 of Part 1 of the Fifth Schedule | Specialised Agencies (Privileges and Immunities) Regulations 1986 regulation 3 | subregulation 8(1) | subregulation 9

Reasons for decision: Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived from all sources, whether in or out of Australia, during the income year. Income from professional 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 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) 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. Subsection 5(1) of the IO(P&I)A provides that the Specialised Agencies (Privileges & Immunities) Regulations 1986 (SA(P&I) Regs) may declare an organisation to be an organisation to which the IO(P&I)A applies. Subsection 3(1) of the IO(P&I)A 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 applies, and includes a body established by such an organisation. Regulation 3 of the SA(P&I) Regs says that each Specialized Agency is an international organisation to which the IO(P&I)A applies, therefore your employer is an international organisation to which the IO(P&I)A applies. Entitlement to exemption under the IO(P&I)A depends on whether you were engaged as an independent consultant or as a person who held an office with your employer.. You have confirmed that you are engaged as a short term consultant. Under subregulation 8(1) of the SA(P&I) Regs a person who holds an office, other than a high office, in a Specialized Agency such as the one you work for, has the privileges and immunities specified in Part I of the Fourth Schedule to the IO(P&I)A, including income tax exemption on salaries and emoluments received from the organisation. You are not entitled to the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A as you do not hold an office in within the organization. Regulation 9 of the SA(P&I) Regs applies to the your engagement as a consultant and you are entitled to the privileges and immunities specified in paragraphs 1, 2, 3, 4, 5 and 6 of Part 1 of the Fifth Schedule to the IO(P&I)A, however, income tax exemption is not available for persons serving on a committee or performing a mission (such as independent consultants) for the organization. Accordingly, the income derived by an Australian resident taxpayer as a consultant to the organization in country A is assessable under subsection 6-5(2) of the ITAA 1997.