Private ruling: Assessability of foreign income
Published: October 2014
Ruling period: 1 July 2012 to 30 June 2014.
Date scheme commenced: 1 July 2012.

Ruling: Questions and answers: | 1. Is the income from your role with an international organisation exempt from taxation in Australia under the provisions of section 23AG of the Income Tax Assessment Act 1936 ? | No. | 2. Is the income from your role with an international organisation exempt from taxation in Australia under the provisions of the International Organisations (Privileges and Immunities) Act 1963 ? | No. | 3. Is the income from your role with an international organisation exempt from taxation in Australia under the provisions of the Diplomatic Privileges and Immunities Act 1967 ? | No.

Relevant facts and circumstances: You were appointed to a position with an international organisation. You were based overseas. You were paid a salary. The international organisation receives funding from Australia's Overseas Development Assistance (ODA) budget and other sources, including funds from other donor countries. Australia is one of a number of member countries of the international organisation. Your role was to manage the whole of the organisation. You believe example 6 in Taxation Ruling TR 2013/7 applies to you. You do not believe example 10 in Taxation Ruling TR 2013/7 has any application to your circumstances. You remained a resident of Australia for taxation purposes throughout your appointment in the role with the international organisation.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-20 | Income Tax Assessment Act 1936 Section 23AG | Diplomatic Privileges and Immunities Act 1967 | Diplomatic Privileges and Immunities Regulations 1989 | International Organisations (Privileges and Immunities) Act 1963 | Specialized Agencies (Privileges and Immunities) Regulations 1986

Reasons for decision: Detailed Reasoning - Assessable income - general: The assessable income of an individual who is a resident of Australia for taxation purposes will generally include all the income they earn from all sources, in or out of Australia. However, in some cases a provision of Australia's tax law or of another Commonwealth law might apply to provide an exemption from taxation on income such as salary and wages earned from certain types of employment. In cases where an individual is employed overseas on foreign service, the provisions of section 23AG of the Income Tax Assessment Act 1936 may provide an exemption from taxation in Australia on the salary and wages earned from that foreign service. In cases where an individual's foreign service relates to employment with an international organisation, an exemption from taxation may also be provided by the provisions of the International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)Act) or the Diplomatic Privileges and Immunities Act 1967 (DP&I Act). Exemption from taxation under section 23AG of the Income Tax Assessment Act 1936 - general Subsection 23AG(1) of the ITAA 1936 provides that foreign earnings are exempt from income tax in Australia if all of the following requirements are satisfied: • You are a resident of Australia and a natural person. • You are engaged in foreign service. • The foreign service is for a continuous period of at least 91 days. • You derive foreign earnings from that foreign service. • From 1 July 2009 onwards, the foreign service is 'directly attributable' to an activity that is listed in subsection 23AG(1AA) of the ITAA 1936 (the listed activities include the delivery of Australian ODA by your employer). • The foreign earnings must not be covered by subsection 23AG(2) of the ITAA 1936, the provisions of which make certain foreign earnings not exempt under section 23AG of the ITAA 1936. You were appointed to a role with an international organisation. You were based overseas but you remained a resident of Australia for taxation purposes. Your employment in the role was in excess of 91 days and constituted foreign service for the purposes of section 23AG of the ITAA 1936. The salary you received from the role constituted foreign earnings for the purpose of section 23AG of the ITAA 1936. Considering the above, we can see that you have met the first four requirements for the exemption under section 23AG to apply to you. It follows that we must now consider whether or not your foreign service was 'directly attributable' to one of the activities listed in subsection 23AG(1AA) of the ITAA 1936. As indicated above, the listed activities include the delivery of Australian ODA by your employer. If an individual's foreign service is not directly attributable to one of the activities listed in subsection 23AG(1AA) of the ITAA 1936, the exemption under section 23AG will not apply and there is no need to proceed with any consideration as to whether or not the foreign earnings are covered by subsection 23AG(2) of the ITAA 1936. | Detailed Reasoning - Delivery of Australian official development assistance by an employer: Taxation Ruling TR 2013/7 - Income tax: foreign employment income: interpretation of subsection 23AG(1AA) of the Income Tax Assessment Act 1936 provides guidance on what constitutes delivery of Australian ODA by an employer. Where the relevant activity for the purposes of subsection 23AG(1AA) of the ITAA 1936 is the delivery of Australian ODA, paragraphs 7 and 107 of Taxation Ruling TR 2013/7 essentially provide that an employee's foreign service will be 'directly attributable to' the activities of the employer if the delivery of Australian ODA by the employer is the 'immediate and controlling' reason why the employee is engaged in that foreign service. TR 2013/7 states that where an employee is sent overseas by their employer to deliver Australian ODA that their employer is responsible for delivering, it is clear the employee's foreign service is directly attributable to the delivery of that Australian ODA by the employer (paragraph 108). However; the position is less clear where the employee performs multiple roles (paragraph 109). TR 2013/7 provides that the test to determine whether or not the foreign service of an employee with multiple roles can be said to be directly attributable to the delivery of Australian ODA by their employer is answered by looking to the main (controlling) and most proximate (immediate) reason why the employee is engaged in that foreign service. Paragraph 110 of TR 2013/7 notes that this test will not be satisfied where the activities of the employer are merely a contributory cause to the employee being engaged in foreign service. TR 2013/7 provides several examples of the application of the test to determine the immediate and controlling reasons for an individual's foreign service. Included in these is example 10 (paragraphs 46 to 48 of TR 2013/7 inclusive) which is reproduced in full below: | Detailed Reasoning - Example 10 - Employee of an organisation funded by multiple governments: 46. The Australian government contributes funds to an international development fund in furtherance of the Australian Government's overseas aid program. This expenditure is reportable by DFAT to the OECD DAC as Australian ODA. The fund also receives contributions from other OECD donor countries. The funding from all countries is pooled. 47. Bill is a resident of Australia for income tax purposes and is employed in a foreign country as managing director of the international development fund. As managing director, Bill oversees the entire operation of the fund, which includes overseeing how each country's ODA contribution is spent. 48. Bill's employer is delivering an aspect of Australian ODA in that the employer is carrying into effect Australia's contribution to development efforts in specific countries. However, Bill's foreign service is not directly attributable to this. The immediate and controlling reason for his foreign service is his employment as the managing director of the development fund. The receipt of the funding in furtherance of the Australian aid program, and the subsequent oversight of those funds, is not the immediate and controlling reason why Bill is engaged in his foreign service. Bill's foreign earnings will not be exempt under section 23AG. We consider your circumstances are similar to those of the taxpayer in the above example. That is, that the 'immediate and controlling' reason for your foreign service was not the delivery of Australian ODA by your employer. Rather, the 'immediate and controlling' reason for that foreign service was your employment in a role that required you to manage the whole of the organisation. Accordingly, your foreign earnings will not be exempt under section 23AG of the ITAA 1936 because it cannot be said your foreign service was directly attributable (as required by subsection 23AG(1AA) of the ITAA 1936) to the delivery of Australian ODA by the international organisation you were employed by. | Detailed Reasoning - Exemption from taxation under the provisions of the International Organisations (Privileges and Immunities) Act 1963: In some situations, the provisions of the IO(P&I)A may apply to exempt the income of employees of an international organisation from taxation in Australia. Section 3 of the IO(P&I)A defines the phrase ' international organisation to which this Act applies' as an organisation declared by the regulations to be an international organisation to which this Act applies. 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. Regulation 3 of the SA(P&I) Regs provides that only a Specialized Agency is an international organisation to which the IO(P&I)A applies. A 'Specialized Agency' is defined in Regulation 2 of the SA(P&I) Regs as an agency specified in column 2 of in the Schedule. The international organisation you worked for is not listed as a Specialized Agency in the Schedule to the SA(P&I) Regs and therefore is not a Specialized Agency for the purpose of the SA(P&I) Regs. Therefore the provisions of the IO(P&I)A (including any potential for exemption from taxation) do not apply to the international organisation and persons engaged by it. | Detailed Reasoning - Exemption from taxation under the provisions of the Diplomatic Privileges and Immunities Act 1967: The DP&I Act is an Act relating to Diplomatic Privileges and Immunities, and for other purposes and in some cases it provides an exemption from taxation for certain international organisations and employees of such organisations. Section 5A of the DP&I Act deals with the application of the Act in relation to certain international organisations. Subsection 5A(1) of this Act provides that the Act only applies to an international organisation that is declared by the regulations to be an international organisation for the purposes of section 5A of the Act. The relevant regulations are the Diplomatic Privileges and Immunities Regulations 1989 (DP&I Regs) . The international organisation you worked for is not declared under the DP&I Regs as an international organisation for the purpose of section 5A of the DP&I Act, therefore the provisions of the DP&I Act (including any potential for exemption from taxation) do not apply to the international organisation and persons engaged by it. | Detailed Reasoning - Conclusion: The income from your role with the international organisation is not exempt from taxation in Australia under the provisions of: • section 23AG of the Income Tax Assessment Act 1936 , • the International Organisations (Privileges and Immunities) Act 1963, or • the Diplomatic Privileges and Immunities Act 1967. Accordingly, that income will be included in your assessable income in Australia.