Edited version of your written advice

Authorisation Number: 1051382455568

Date of advice: 5 June 2018

Ruling

Subject: Tax on payment to Au Pair

Question

Are you required to register as an employer of a working holiday maker and withhold 15% tax on pocket money paid to a live-in au pair?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You are intending to host an au pair.

You have invited the au pair to stay with you to experience the Australian culture and lifestyle.

Your au pair will have their own room.

You will provide the au pair with meals, use of the home facilities and the family car.

You will invite the au pair to participate in all family activities and you will bear the cost of any meals or activities outside of the home.

You will pay the au pair pocket money each week for them to spend on exploring the country while they are living with you.

Your au pair will contribute to household duties, including helping with child minding and light household chores.

The au pair’s commitment to contributing to household duties will be flexible, based on the travel plans of the au pair.

You do not see this commitment extending beyond 30 hours per week.

Your parents also contribute to the care of your children when you are required to be at work.

Your au pair will have access to a ‘house manual’ that will contain general information about your household – contact details, Wi-Fi password, children’s routines, information re the local area and transport.

You have two children one aged 3 one aged 11 months.

Your 3 year old attends pre-school 3 days a week.

You and your spouse are employed.

Relevant legislative provisions

Income Tax Rates Act 1986 Section 3A

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

From 1 January 2017, employers of working holiday makers are required to withhold tax from amounts they pay to their workers under the pay-as-you-go (PAYG) system.

The amended legislation requires employers of working holiday makers to register with the Commissioner, which will allow such employers to withhold tax at income tax rates applying to working holiday makers.

A working holiday maker is an individual who holds a Subclass 417 (Working Holiday) visa, a subclass 462 (Work and Holiday) visa or certain related bridging visas which are issued by the Department of Home Affairs (previously known as the Department of Immigration and Border Protection). The visas allow young adults aged 18 to 30 from eligible partner countries to work in Australia while having an extended holiday. Work in Australia must not be the main purpose of the visa holder's visit.

An employer needs to register with the ATO before employing a working holiday maker. Once registered, an employer will be able to withhold a flat rate of 15% up to $37,000 in total payments made to each individual working holiday maker within an income year. Where total payments exceed $37,000, different rates apply.

Employer/employee

The expression ‘employee’ is not defined in income tax legislation. Therefore, it has its ordinary meaning. The Tax Office provides guidance to assist in determining whether an arrangement constitutes an employment arrangement in Taxation Ruling TR 2005/16 Income tax: Pay As You Go withholding from payments to employees.

TR 2005/16 explains that the relationship between an employer and employee is a contractual one, and is often referred to as a contract of service; an employee contracts to provide their labour.

The ruling provides key indicators that should be considered when determining whether an individual is an employee: an individual is more likely to be an employee if these indicators tend to suggest that this is the nature of the arrangement upon consideration:

● the degree of control exercised by the person for whom the work is done

● the obligation to work

● the hours of work

● the mode of remuneration

● the provision and maintenance of equipment

● any provision for leave

● the power to delegate, and

● the deduction of income tax.

You have stated that your au pair:

● is a family member for a certain time period;

● is here as part of a cultural exchange and is given regular opportunities to explore your part of Australia;

● is providing your family the opportunity to learn about alternative cultures;

● is living with you as a family member, sharing in household chores and

● assists with the care of your two children on a flexible basis.

You have invited your au pair into your home under a domestic arrangement, principally to benefit both parties from a cultural exchange. An incidental element of the arrangement is that the au pair will supplement the care you and your spouse and parents provide to your children; however, you are not reliant on your au pair to provide full-time care or to carry out domestic duties around your home as a domestic worker.

You are encouraging your au pair to travel around Australia while she is living with you and you give her an amount of money to assist her to do this. There is no relationship between the amount of money you provide your au pair and the extent and magnitude of any service they provide.

It is clear from your circumstances that no employer/employee relationship exits and you do not need to register as an employer of a foreign worker.