Issue
Is the income received by an Australian resident taxpayer from an international organisation in Japan assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The income received by an Australian resident taxpayer from an international organisation in Japan is not assessable under subsection 6-5(2) of the ITAA 1997 as it is exempt from tax under the International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)A).
Facts
The taxpayer is a resident of Australia for tax purposes.
The taxpayer provided services as a consultant to an international organisation in Japan.
The taxpayer is not an official or employee of the international organisation.
The taxpayer does not have a fixed base available in Japan to perform those services.
The taxpayer received income as a consultant in respect of those services.
Reasons for Decision
Subsection 6-5(2) of the 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.
However, subsection 6-15(2) of the ITAA 1997 provides 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 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.
Paragraph 6(1)(e) of the IO(P&I)A provides that the Regulations may confer any or all of the privileges and immunities set out in Part I of the Fifth Schedule upon a person who is serving on a committee of, or participating in the work of, or performing a mission on behalf of, an international organisation.
Regulations relating to the international organisation have been made under the IO(P&I)A.
Those Regulations provide that a person who is performing, whether alone or jointly with other persons, a mission on behalf of the international organisation has all the privileges and immunities specified in Part I of the Fifth Schedule to the IO(P&I)A.
Paragraph 2A of Part I of the Fifth Schedule to the IO(P&I)A provides an exemption from taxation on salary and emoluments received from the organisation.
In determining liability to Australian tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one.
Schedule 6 to the Agreements Act contains the double tax agreement and the protocol between Australia and Japan (the Japanese Agreement). The Japanese Agreement operates to avoid the double taxation of income received by Australian and Japanese residents.
Article 10 of the Japanese Agreement provides that remuneration derived by a resident in Australia in respect of professional services or other independent activities of a similar character shall be taxable only in Australia unless the taxpayer has a fixed base available in Japan to perform those services.
The consultancy income received by the taxpayer is in respect of 'professional services' under Article 10 of the Japanese Agreement. Therefore the consultancy income is taxable only in Australia as the taxpayer does not have a fixed base available in Japan to perform those services.
As the taxpayer is participating in the work of the international organisation, the income received by the taxpayer is exempt from Australian tax in accordance with the IO(P&I)A and the Regulations relating to the international organisation made under that Act. As the income is exempt under section 6-20 of the ITAA 1997, it is not assessable under subsection 6-5(2) of the ITAA 1997.