Edited version of your private ruling

Authorisation Number: 1051833562878

Date of advice: 4 May 2021

Ruling

Subject: Foreign income - international organisation

Question 1

Are the payments you received as a volunteer assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Does section 6-20 of the ITAA 1997 apply to exempt the payments you received as a volunteer with an International Organisation on the basis that they are exempted by subsection 6(1) of the International Organisations (Privileges and Immunities) Act 1963 (IOPIA 1963)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You reside in Australia and are a resident of Australia for tax purposes.

You entered into a contract to work as a volunteer with an International Organisation (the Organisation) in a foreign country.

In the role, you received various allowances to assist you with your accommodation and living costs.

The allowances you received covered your basic accommodation and living costs.

You chose to live in a way in which your allowances would cover your living expenses because you did not want to live outside your means.

In your role, you were to focus your work on the following tasks, under supervision of your immediate supervisor:

•         Monitoring and reporting on your field of expertise, including liaising with the country task-force and partners, drafting reports and notes

•         Working with colleagues in-country, monitor and report on compliance and identify opportunities for linkages with the work of the colleagues on the ground with other processes

•         Support the Organisation's work in your field of expertise

•         Support the work of the Organisation through work in a team setting. This will include participation as an active member in various team projects focusing on:

-        Support on monitoring and reporting activities

-        Drafting of talking points, briefing notes and preparation of background documents

-        Liaise with other entities on developments relevant to your field of expertise

-        Assist with research and analysis.

The expected results of your role were as follows:

•         To develop an understanding and contribute to the work of the Organisation in your field of expertise

•         To develop an overall understanding of the Organisation's system

•         The development of capacity through coaching, mentoring and formal on-the-job training

•         A final statement of achievements.

In your role, you state that you were not just working towards one report or result; you had a variety of tasks and activities as outlined above.

You were not a member of any boards during your time in the role.

You did not have anyone reporting to you.

You did not engage any other person to perform any part of the work of the position, nor could you have if you had wanted to.

There were many people in the teams with similar roles to yours, so it is hard to say whether your exact role existed before and after you occupied it. You did not have a direct hand over from anyone and your handover was to your supervisor, not to a replacement. However, you think the Organisation would have intended to keep the team at the same level of staffing if possible. 

During your time with the Organisation, you worked solely for the Organisation. You believe you could have applied for other employment opportunities, but you would have had to declare them to the Organisation to ensure there was no conflict of interest, and it would have been difficult as you were working full time.

There was no requirement that, if there was a defect in your work, you were under an obligation to return to correct the defect.

Your days and hours of work were determined by the Organisation.

The Organisation provided you with a computer and phone to carry out your work duties.

You were entitled to annual leave.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-20

International Organisations (Privileges and Immunities) Act 1963 Subsection 6(1)

International Organisations (Privileges and Immunities) Act 1963 Paragraph 6-1(d)

International Organisations (Privileges and Immunities) Act 1963 Paragraph 6-1(e)

International Organisations (Privileges and Immunities) Act 1963 Part 1 of the Fourth Schedule

International Organisations (Privileges and Immunities) Act 1963 Item 2 of Part 1 of the Fourth Schedule

International Organisations (Privileges and Immunities) Act 1963 Part 1 of the Fifth Schedule

International Organisations (Privileges and Immunities) Act 1963 Item 2A of Part 1 of the Fifth Schedule

Reasons for decision

Assessability of payments received as a volunteer

The assessable income of an Australian resident taxpayer includes ordinary income (income according to ordinary concepts) gained from all sources, whether in or out of Australia (section 6-5 of the ITAA 1997).

In determining whether an amount is ordinary income, the courts have established the following principles:

•         what receipts ought to be treated as income must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as a statute dictates otherwise;

•         whether the payment received is income depends upon a close examination of all relevant circumstances; and

•         whether the payment received is income is an objective test.

Relevant factors in determining whether an amount is ordinary income include:

•         whether the payment is the product of any employment, services rendered, or any business;

•         the quality or character of the payment in the hands of the recipient;

•         the form of the receipt, that is, whether it is received as a lump sum or periodically; and

•         the motive of the person making the payment. Motive, however, is rarely decisive as in many cases a mixture of motives may exist.

Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as ordinary income.

Volunteers can be paid in cash, given non-cash benefits or given a combination of both cash and non-cash benefits. These payments can be given various descriptions, including honorariums, reimbursements and allowances.

How an amount is described does not determine its treatment for tax purposes. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances.

To determine if an amount is assessable, the full facts surrounding both the payment and the recipient must be considered. A payment that is not assessable to a volunteer will have many of the following characteristics:

•         The payment is to meet incurred or anticipated expenses.

•         The payment has no connection to the recipient's income-producing activities or services.

•         The payment is not received as remuneration or as a consequence of employment.

•         The payment is not relied upon or expected by the recipient for day-to-day living.

•         The payment is not legally required or expected.

•         There is no obligation on the part of the payer to make the payment.

•         The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is 'token' depends on the full facts surrounding the payment and recipient's circumstances.

Where a taxpayer's activities constitute a pastime or hobby rather than an income-producing activity, money and other benefits received from the pursuit of that pastime or hobby is not assessable income.

Were you a common law employee of the Organisation?

As indicated above, a payment received by a volunteer may be assessable if it is received as remuneration or as a consequence of employment.

Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees provides guidance in determining whether a person is an employee of another. It is a question of fact to be determined by examining the terms and circumstances of the contract between them having regard to the key indicators expressed in the relevant case law.

Defining the contractual relationship is a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered.

Control

The classic 'test' for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter.A common law employee is told not only what work is to be done, but how and where it is to be done.

Your tasks and duties were mandated by the Organisation, along with your place of work and hours of work. From the information provided, it appears that you had little personal control in how you carried out your duties.

Does the worker operate on his or her own account or in the business of the payer?

The distinction between an employee and independent contractor can be said to be fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own.

You were engaged in the normal functions and business of the Organisation and did not have an independent role. You were not engaged in your own business before or after the engagement.

'Results' contracts

Where the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services.

You were engaged in a 'full-time' role to undertake various duties and tasks during your engagement and were not engaged to produce a particular result or outcome.

Whether the work can be delegated or subcontracted

The power to delegate or subcontract (in the sense of the capacity to engage others to do the work) is a significant factor in deciding whether a worker is an employee or independent contractor.

You were unable to delegate any part of your work.

Risk

Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, he or she is more likely to be an employee.

You carried no personal risk regarding any defects in the work you carried out.

Provision of tools and equipment and payment of business expenses

The provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

You did not have to provide any equipment to carry out your duties.

Other indicators

Other indicators suggesting an employer-employee relationship include:

•         the right to suspend or dismiss the person engaged

•         the right to the exclusive services of the person engaged,

•         provision of benefits such as annual, sick and long service leave and the provision of other benefits prescribed under an award for employees.

You have indicated that the Organisation did not have a right to your exclusive services.

You were entitled to annual leave.

Conclusion

Based on the nature of your engagement with the Organisation and the above factors, it is evident that there is little to distinguish your role from the conditions applying to a regular employee. Therefore, it is concluded that you were a common law employee of the Organisation.

Summary

In your case, the payments you received as a volunteer are included in your assessable income under section 6-5 of the ITAA 1997 because:

•         the payments can be said to have been received as a consequence of employment as we have determined that you were a common law employee of the Organisation

•         you relied on the payments to meet your basic accommodation and living expenses

•         the payments were legally required and expected under the terms of the contract of engagement you entered into with the Organisation

•         the Organisation was obligated to make the payments under the terms of the contract of engagement

•         the payments cannot be described as token amounts as they covered most or all of your basic accommodation and living expenses

Exemption under the IOPIA 1963

An amount is exempt income under section 6- 20 of the ITAA 1997 if it is made exempt from income tax by a provision of either the ITAA 1997 or another Commonwealth law. This includes income received by a person who is connected with an international organisation that is exempted by the IOPIA 1963.

The IOPIA 1963 exempts from taxation certain income of a person connected with an international organisation, to the extent it satisfies all of these elements:

•         the income is received from an international organisation to which the IOPIA 1963 applies;

•         the person is connected with the international organisation in one of the ways set out below; and

•         the conditions and other particulars provided in the 'regulations' for the international organisation are satisfied in relation to the income of the person.

The Regulations for theOrganisation state that the Organisation is an organisation to which the IOPIA 1963 applies.

Subsection 6(1) and Part I of the Second to the Fifth Schedules to the IOPIA 1963 inclusive set out the taxation exemptions that can be conferred upon certain persons connected with an international organisation. Relevant to your case, this includes a person who holds an office in an international organisation (but who is not a holder of a high office), as per paragraph 6(1)(d) of the IOPIA 1963. As per item 2 of Part 1 of the Fourth Schedule to the IOPIA 1963, this includes an exemption from taxation on salaries and emoluments received from the international organisation.

Regulation X of the Organisation's Regulations states that officers (other than high officers) of the Organisation are entitled to the privileges and immunities specified in Part I of the Fourth Schedule to the IOPIA 1963, which includes the exemption from taxation on salaries and emoluments mentioned above.

For completeness, we note that the IOPIA 1963 may also exempt the income of a person who is 'serving on a committee, or is participating in the work or performing a mission', as per paragraph 6(1)(e) and item 2A of Part I of the Fifth Schedule to the IOPIA 1963. However, we note that the Organisation's Regulations concerning persons performing missions for the Organisation do not provide for the exemption from taxation on salaries and emoluments provided by item 2A of Part I of the Fifth Schedule.

From the above, the payments that you received in relation to your engagement with the Organisation will be exempt from income tax if it can be shown that you were a holder of an office (but not a high office) of the Organisation when you were undertaking your role.

As per South Sydney District Rugby League Football Club Ltd v. News Ltd [2000] FCA 1541, in determining what the nature of a relationship is 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. Although, the label attached to a relationship is a relevant consideration, 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 'volunteer' and examine the substance of the relationship.

The Commissioner's view on the meaning of office holder

The terms 'office' and 'office holder' are not defined by the IOPIA 1963 or the ITAA 1997 and therefore, they take their ordinary meaning.

The Commissioner's view on the meaning of office holder is set out in draft Taxation Ruling TR 2019/D1. Paragraph 27 of TR 2019/D1 states that a holder of an office may include a person who works as an employee of an international organisation, but it does not include a person (whether an employee or not) who is:

•         locally engaged and paid an hourly rate, or

•         engaged as an expert or consultant.

An appointment, office or position must exhibit the characteristics of an office holder. As per paragraph 25 of TR 2019/D1, the characteristics of an office holder for an appointment, office or position are:

•         independent existence - the office must exist regardless of the individual who occupies the office from time to time. This means that if the individual currently occupying the office vacates that office, the office must continue to exist to be filled by another individual;

•         duties, functions, responsibilities or powers - the office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function. These features of the office (or of the panel, board, committee or tribunal to which the individual has been appointed) would usually be specified in the relevant legislation or statutory instrument (or for a common law situation, foundation document or equivalent document of that nature); and

•         the relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

Paragraph 29 of TR 2019/D1 provides an example of a person who is an office holder:

Chris is employed by an international organisation in a role where he leads a team that provides ongoing professional advice the organisation relies on to carry out its core functions. Chris has significant organisational responsibilities and functions which include developing organisational strategy and managing employees. He is also able to engage and enter contracts on behalf of the organisation and make financial commitments. If Chris was to leave the organisation another person would be engaged as there is an ongoing need for the responsibilities and functions that he undertakes to continue to be performed. Chris is a person who is an office holder for the purposes of the IOPI Act.

The case law on the meaning of office holder

In determining who is an office holder, it is not enough 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.

As discussed in paragraphs [31] and [34] of Jayasinghe [2017] HCA 256 (Jayasinghe case), the term 'office' cannot be defined by reference to permanence or succession. Whether a person holds or performs the duties of an office in an international organisation concerns the relationship between the person and that organisation. As per paragraph [37] of the Jayasinghe case, the substance of the terms of the engagement of the person and the relationship between that engagement and the organisation's performing its functions must be considered. Whether someone is an office holder is a question of fact, considered on a case by case basis.

It should be clear from the duties and authority associated with the person's position within the international organisation why the privileges and immunities are conferred. As per paragraph [38] of the Jayasinghe case, a person is unlikely to be an 'office holder' if their terms of engagement place them outside the organisational structure and do not include defined duties or authority in relation to the organisation and its functions. This is consistent with the purpose of the IOPIA 1963 to confer privileges and immunities to assist organisations to perform their functions, rather than to personally benefit persons connected with the organisation (see paragraph [39] of the Jayasinghe case and paragraph [54] of Macoun v. FCT (2015) 257 CLR 519).

The High Court also affirmed the Commissioner's view outlined in paragraph 27 of TR 2019/D1 in paragraph [52] of the Jayasinghe case.

In Edwards v. Clinch [1982] AC 845 it was held that an office was a position of authority to which duties and functions are attached; an independent post, with some degree of permanence, to which successive people can be appointed.

In Federal Commissioner of Taxation v. Sealy (1987) 19 ATR 582 at 286; 87 ATC 5076, which concerned a managing partner of a grazing partnership, Pincus J said:

The word office has a range of meanings. In some contexts, it refers to a position of authority in a governmental or other public organisation. It is difficult to think of any reason why the legislature should have intended to confine the concession to instances in which the terminated position is one of a public character or of any high degree of permanency. Presumably, no one would dispute that the position of managing director of a public company could be regarded as an office.

In AAT Case 8603 93 ATC 148; 25 ATR 1082, Deputy President BJ McMahon dealt with the case of a taxpayer who had been an Inspector of Schools and who became (when that position phased out) a Cluster Director. Paragraphs [14] and [15] read as follows:

14. The word "office" is a word that had been considered in many cases but no satisfactory definition has emerged. As was pointed out in Grealy's case [Grealy v. Commissioner of Taxation (1989) 24 FCR 405; (1989) 20 ATR 403; (1989) 89 ATC 4192] the word usually connotes a position of defined authority in an organisation, such as a director of a company, or a tertiary education body. Their Honours held (at 4197 column 2) that it was not a word normally applicable to a relatively low level employee, such as a university lecturer. As the court observed the applicant, like many holders of professional employment, is not made an office holder merely because her position has a name.

15. This view was consistently taken by the Boards of Review. For example, in Case K4, 78 ATC 29 [(1978) 22 CTBR (NS) 212], Mr Dempsey suggested that an office connotes something more than substantial, something more in the nature of a continuing executive position, the holder of which has distinct responsibilities. In Grealy's case itself, their Honours noted that the word "office" usually connoted a position of defined authority. [additional case citations added]

AAT Case 12,178 (1997) 97 ATC 407; (1997) 37 ATR 1174 concerned a taxpayer who received a payment in respect of unused sick leave when he resigned from his position as a Branch Manager after having successfully won a position of Division Director for the same employer (a local council). In determining the case, one of the issues raised was whether the taxpayer was the holder of an office and whether a retirement or termination had occurred. In that case, Senior Member J Block stated:

The test as to whether a position is an office will no doubt usually be one involving questions of fact and degree...

In his findings, Senior Member Block also referred to a few previous cases which looked at the issue of office and at (ATC) 421; (ATR) 1189, he made the following observation:

In Great Western Railway Co v. Bater [1920] 3 KB 266 Rowlett J had held that an office was "a subsisting, permanent, substantive position which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders".

I consider, with respect, that the meaning attributed to the term "office" by Deputy President Thompson in W31 [Case No VT 87/3438 (1989) 20 ATR 3509; (1989) 89 ATC 307] is for Australian purposes, correct. That test would require that it is a position to which "duties are attached, especially a place of trust, authority or service under constituted authority". It is thus clear that the restricted UK view is narrow, when contrasted with the less restricted Australian approach. [additional case citations added]

Your circumstances

The word 'office' connotes a position of defined authority in an organisation, such as a director of a company or the president of a club. The holder of a professional employment is not an office holder merely because the position has a name. An office holder's position is more than something which is important or substantial within an organisation.

In your case, your volunteer role with the Organisation involved such activities as researching and analysing certain issues, monitoring and reporting of these issues, liaising and working with others in a team setting, liaising with other entities and partners, drafting of talking points, briefing notes and preparation of background documents.

Consequently, from the information provided, it is evident that you were not an 'office holder' in respect of the role you had with the Organisation because you:

•         were not in a leadership or management role

•         did have any staff that reported to you

•         did not have any authority in relation to decision making in the Organisation or managing the operations of the Organisation

•         had no authority or right to enter into any legal or financial commitments or incur any obligations on behalf of the Organisation.

Therefore, as you were not an officer holder of an international organisation, the payments you received are not exempt income under paragraph 6(1)(d) of the IOPIA 1963.

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