Issue
Is the income derived by an Australian resident as the holder of an office in an international organisation, for services performed during a secondment with an Australian organisation in Australia, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA1997)?
Decision
No. The income derived by an Australian resident as the holder of an office in an international organisation, for services performed during a secondment with an Australian organisation in Australia, is not assessable under subsection 6-5(2) of the ITAA 1997, as the income is exempt from tax under the International Organisations (Privileges & Immunities) Act 1963 (the IO(P&I)A) and the Specialised Agencies (Privileges & Immunities) Regulations 1986 (the SA(P&I) Regs) which were made under the IO(P&I)A.
Facts
The taxpayer is an Australian citizen and a resident of Australia for tax purposes.
The taxpayer is the holder of an office in an international organisation (the international organisation). The office is not a 'high office', as that term is defined in the SA(P&I) Regs.
The international organisation is listed in the SA(P&I) Regs.
The taxpayer was on secondment from the international organisation to an Australian organisation in Australia for a period of two years.
The taxpayer remained a staff member of the international organisation during the secondment period in Australia, was bound by the standards of conduct for staff members and continued to be subject to the international organisation's Staff Regulations and Rules.
The taxpayer continued to be subject to the authority of the Director-General of the international organisation and performed their duties under the overall supervision of the international organisation.
The taxpayer provided professional services to the Australian organisation during the secondment in Australia.
The taxpayer's remuneration was paid by the international organisation, which was reimbursed by the Australian organisation.
The taxpayer's duties were performed in Australia.
Reasons for Decision
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 provided as an employee is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Subsection 6-20(1) 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.
Subsection 5(1) of the IO(P&I)A provides that the 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 an 'international organisation to which this Act applies' to mean an organisation that is declared by the regulations to be an international organisation to which this Act applies.
Regulation 3 of the SA(P&I) Regs provides that each Specialized Agency is an international organisation to which the IO(P&I)A applies. The term 'Specialized Agency' is defined in Regulation 2 to mean an agency specified in column 2 of an item in the Schedule to the Regulations. The international organisation is listed as a Specialized Agency in Column 2 of the Schedule to the SA(P&I) Regs. Therefore, the international organisation is an international organisation to which the IO(P&I)A applies.
Subparagraph 6(1)(d)(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 I of the Fourth Schedule upon a person who holds an office in an international organisation to which this Act applies, not being an office prescribed by the relevant regulations as a high office.
Entitlement to exemption from tax under the IO(P&I)A is conditional upon a person being the holder of an office in a prescribed international organisation.
Paragraph 2 of TD 92/153 provides that the phrase 'person who holds an office' in relation to a prescribed international organisation covers those people who work as employees for that organisation.
For the purposes of this case, subregulation 8(1) of the SA(P&I) Regs provides that a person who holds an office in a Specialised Agency, other than a high office, has the privileges and immunities specified in paragraph 2 of Part I of the Fourth Schedule of the IO(P&I)A.
The taxpayer holds an office in a Specialised Agency, being the international organisation. The office is not a high office.
Paragraph 2 of Part I of the Fourth Schedule to the IO(P&I)A provides an exemption from taxation on salary and emoluments derived by a person from a prescribed international organisation.
As the taxpayer is the holder of an office in an international organisation to which the IO(P&I)A applies, the income derived by the taxpayer is exempt from tax in Australia in accordance with subparagraph 6(1)(d)(i) and paragraph 2 of Part 1 of the Fourth Schedule of the IO(P&I)A.
Accordingly, the income derived by the taxpayer for the two year secondment period is exempt income under subsection 6-20(1) of the ITAA 1997. Therefore, the income is not assessable under subsection 6-5(2) of the ITAA 1997.