Private ruling: International income
Date of advice: 20 July 2020
Published: August 2020
Ruling period: Year ended 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Does subparagraph 6(1)(d)(i) of the International Organisations (Privileges and Immunities) Act 1963 (Cth) apply to exempt from income tax the remuneration you derive from your employer on the basis that you are an office holder? | A1: Yes | Q2: Does subparagraph 6(1)(d)(i) of the International Organisations (Privileges and Immunities) Act 1963 (Cth) apply to exempt from income tax the remuneration you derive from your employer on the basis that you are an office holder should your contract be extended, and your circumstances remain the same? | A2: Yes

Relevant facts and circumstances: You have been engaged since early 2020 as the Manager of your organisation's office in Australia. Your office is in Australia. The Headquarters are located overseas however you are located in Australia due to its proximity to Asia and the Pacific. The location of your office was determined by your employer. You are paid by the Organisation A (the Organisation). Your role is managing the coordination of a global initiative. This international development program is jointly funded by various governments. Given your work is focussed on providing a centralised point that coordinates various government donors and international partners, it is difficult to specify a work product or specific report, program etc. outcome as the work has a focus on continuous coordination rather than achieving a specific outcome. You manage a team of 4 staff who report to you; and you report to a manager. You have not engaged any other individual to perform any part of your duties and do not believe you would be able to do so under the terms of your contract. Your current contract is from early 2020 until mid-2020 however you have been continuously employed in this role since early 20XX under a series of different contracts. Whilst your contracts have always been short term, you have understood that it will be ongoing provided you meet the contract requirements. You do not accrue leave or other similar entitlements while engaged as a contractor with the organisation. Your hours of work are determined by the organisation and you are not entitled to work for any other organisation while employed in this role. You are responsible for the entire body of work and believe that you would be responsible for correcting any defects in such work if you were to meet the deliverables in your employment contract. You pay for internet charges, but all other office expenses are paid for by the organisation which also provides all computer and telecommunications equipment. You have provided an employment certificate as well as other documents such as your Consultancy Agreement and the Terms of Reference for your contract. You also provided a copy of your employer's Human Resources Manual, which sets out the standards, conditions of service and procedures governing the engagement of consultants. Your remuneration is $XXX US which is paid monthly based on a 240-day working year. Consultants are only paid for days worked as certified during the period of engagement. As an official, you are responsible for negotiating agreements and agreeing details on behalf of the organisation. You then pass the agreement to senior management for formal signature. The manager allocated to sign such agreements depends on the value of the agreement. You are unaware of any specific written instrument which confers such powers to negotiate on your position. You are also actively involved in the recruitment of staff for the Organisation. You are required to sit on recruitment panels, compile employment contracts, determine salaries, set start and finish dates and complete performance appraisals. However, as per the negotiation of contracts, you then pass the recruitment papers to the Human Resources Department who formally arrange the recruitment processes. You are not empowered to hire and dismiss employees as this power is vested in the Human Resources Department. Your secretariat is a project and hence you have a project coordination role in that you manage this secretariat and are responsible for its output. You also approve projects but, as per the negotiation of contracts, you then pass the papers to senior management to formally sign the papers. In your role you work with government officials in a wide range of governments around the world. You normally engage directly with the Australian equivalent of X to Y. As part of your engagement you pledge to carry out your duties in an impartial manner that equally benefits all member countries and do not provide preferential treatment to any individual country, including your home country.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5(2) | Income Tax Assessment Act 1997 subsection 6-15(2) | Income Tax Assessment Act 1997 section 6-20 | International Organisations (Privileges and Immunities) Act 1963 Subsection 5(1) | International Organisations (Privileges and Immunities) Act 1963 Part 1 of the Fourth Schedule

Reasons for decision: Detailed Reasoning - Assessable income - general: Subsection 6-5(2) of the Income Tax Assessment Act 1997 ( 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 the provision of 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 income tax. Paragraph 2 of Part 1 of the Fourth Schedule to the IO(P&I)A provides that a person who holds an office (other than a high office) in an international organisation will be exempt from taxation on salaries and emoluments received from the organisation. Subsection 5(1) of the IO(P&I)A states that the regulations may declare an organisation to be an organisation to which the IO(P&I)A applies. The Schedule to the Specialized Agencies (Privileges & Immunities) Regulations 1986 (SA(P&I) Regulations) lists the Organisation as a specialized agency. Regulation 3 of the SA(P&I) Regulations states that each specialized agency is an international organisation to which the IO(P&I)A applies, therefore your Organisation is an international organisation to which the IO(P&I)A applies. Under subregulation 8(1) of the SA(P&I) Regulations, a person who holds an office (other than a high office) in a specialized agency has the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A, including an income tax exemption on salaries and emoluments received from the organisation. Article VI, Section 19(b) of the Convention on the Privileges and Immunities of the Specialized Agencies1948 (the Convention) provides that 'officials' of a specialized agency (such as your Organisation) will enjoy the same exemptions from taxation in respect of salaries and emoluments paid to them by the specialized agency and on the same conditions as are enjoyed by officials (office holders). You have provided your letter of offer which specifies that you are a fixed term contractor. This letter of offer does not specify that you hold an office in the Organisation. In paragraph 24 of Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax it states that an office typically has the following characteristics - · independent existence - the office must exist regardless of the individual who occupies the office from time to time. If the individual that currently occupies the office vacates that office, the office must continue to exist to be filled by another individual · duties, functions and responsibilities - the office must have identifiable duties, functions and responsibilities or powers other than merely an advisory function, and · the relevant duties, functions and responsibilities, or powers must attach to the office itself, rather than the individual who occupies that office. The Commissioner's views on what is an office holder are set out in in draft Taxation Ruling TR 2019/D1. As is apparent from the Commissioner's views and the relevant case law in determining who is an office holder it is not sufficient to simply be an employee and thereby be regarded as an office holder. An office holder is someone who has identifiable duties, functions, responsibilities or powers to carry out. It does not include an employee who is merely following the command of a higher-ranking person. This does not take away from the fact that an office holder may be an employee - it illustrates however that a person who is an employee is not necessarily or automatically to be taken to be an office holder. The employee manual supplied outlines your employer's view that uninterrupted contracts may give rise to unwarranted expectations of continuity of employment. Also, those consultants are normally used in an advisory, consultative or demonstrative capacity. The short-term nature of your employment contract suggests that the continuing existence of your position cannot be guaranteed. Equally, while you negotiate contracts, coordinate and approve projects, liaise directly with various governments and are deeply involved in recruitment and engagement of employees; all such matters are formally approved by managers above your level of responsibility. Such an arrangement suggests that your role may be described as that of a short-term contractor with limited formal authority. However, 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. In support of this, reference is made to paragraphs [134] and [135] of Finn J's judgment: [134] 3. It is legitimate for parties to avoid the "unwanted consequences" of a particular category of legal relationship by seeking to cast it in a form that takes it outside that category of relationship: Colbron v St Bees Island Pty Ltd (1995) 56 FCR 303 at 314. But whether or not they are successful in achieving that end does not depend simply upon whether, in an express provision of their agreement, they attribute or deny to their relationship a particular legal character - be this, for example, employer and employee: Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385; principal and principal or principal and agent: Board of Trade v Hammond Elevator Co , above; or partners: Ex parte Delhasse ; In re Megevand (1878) 7 Ch D 511. The parties cannot by the mere device of labelling, no matter how genuinely intentioned, either confer a particular legal character on a relationship that it does not possess or deny it a character that it does possess: Ex parte Delhasse , above, at 532; see 2A Corpus Juris Secundum, "Agency", §7; see also the observations of Lord Denning in Massey v Crown Life Insurance Co quoted in the Australian Mutual Provident Society case , above, at 389. [135] 4. Save where an express labelling provision is shown to be a sham, the provision itself (as a manifestation of the parties' intent) must be given its proper weight in relation to the rest of their agreement and such other relevant circumstances as evidence the true character of their relationship. This may lead to its being disregarded entirely: Ex parte Delhasse , above; Board of Trade v Hammond Elevator Co , above; or to its being given full force and effect: Australian Mutual Provident Society v Chaplin , above. And such will depend upon whether, given the actual incidents and content of the relationship (ie "the factual relation") to which the parties have consented, they have consented "to a state of fact upon which the law imposes the consequences which result from agency": Branwhite's case, above, at 587; Restatement, Second, Agency , §1 comment b. The label attached to a relationship is a relevant consideration in making findings and decisions in respect of that relationship. However, as per the South Sydney District Rugby League Football Club Ltd Case it is not appropriate to make decisions solely based on such a label, in particular where the underlying substance of that relationship differs from the label attached to it. 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. Despite the above factors, your role also involves duties which exceed those which would normally be assigned to a consultant. You have ongoing responsibility for a significant project, liaise directly with governments around the world and carry significant responsibilities. Despite your engagement papers describing you as a consultant, your actual duties and responsibilities indicate that you are in fact an office holder. You hold significant responsibilities in that you - · hold significant responsibility for managing an international project · liaise with senior executives in governments in many countries outside Australia · negotiate and approve contracts in international settings · play a significant role in recruitment, remuneration and termination of the employees of the Secretariat These duties and responsibilities would attach to the position itself and indicate that it has an independent existence. This means that your role goes beyond being an advisor and have duties related to that specific ongoing role. If you were to leave this position, it is likely that you would need to be replaced as that position would need to be filled. | Detailed Reasoning - Conclusion: On balance the Commissioner considers that you hold an office in the Organisation. You are therefore entitled to the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A as you hold an office as specified in the Schedule. Accordingly, the income derived by you is not assessable under subsection 6-5(2) of the ITAA 1997. Similarly, any non-salary benefit allowances you derive as part of your employment such, as a daily subsistence allowance, are also exempt and are not assessable.