Edited version of your written advice

Authorisation Number: 1051431007036

Date of advice: 19 September 2018

Ruling

Subject: Am I in Business? – Au Pair

Question

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

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are hosting an au pair who will live in your home to experience the Australian culture and lifestyle.

There are no agencies or external parties involved in arranging this au pair arrangement.

There are no written contracts in place to regulate this arrangement. You have established an informal verbal arrangement to cover such things as house rules and respect for each other’s privacy. You have written an “Au Pair Manual” which is a household manual which outlines:

● General household information

● Information about the children

● General household rules and guidelines

● General tips about our household

● Public transport information

● Local attractions

You have an informal verbal agreement about the obligations and rights between the au pair and yourselves.

Either the au pair, or you, may end the au pair arrangement at any time. If this is the case it is expected that either party would try to give as much notice as possible. If the arrangement were to end you do not anticipate withholding any pocket money that was already payable.

The au pair will contribute to common household duties, including helping with the children and light household chores. The au pair has responsibilities on a casual basis, usually 3 – 4 days each week. The hours the au pair works are not set but the times are determined in advance for planning purposes for both you and the au pair. Your spouse and you are the primary people responsible for the children when you and/or your spouse are present with the children.

You and your spouse both work. You are home for the majority of the time but the au pair will be expected to look after the children themselves occasionally.

On average, the au pair will be undertaking child minding and household tasks for 20 – 30 hours per week.

If the agreed upon hours are not met you would enter discussions with the au pair as to why. You would be prepared to negotiate new hours that were suitable to both parties.

The au pair receives $X per week pocket money which is not dependant on the exact hours worked. This amount was set by assessing the amount they would require to cover various activities to reasonably enjoy themselves and explore the local area. You also took into account that the Au Pair World website and other Au Pair guides that suggest $6 to $8 per helping hour.

In addition to the pocket money you also provide:

● A phone plan at a cost of $Y per month

● Unlimited use of Wi-Fi, video streaming services and the home facilities as would any family member

● All food and basic toiletries

● A local transport card was also provided upon arrival

The au pair has deferred their courses in order to experience the local culture and to live in an English speaking country. This will help them to develop their English language skills and better prepare them to become an English teacher in their home country.

Your au pair will not be studying any courses while in Australia.

They hold a working holiday visa.

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.

A contract does not need to be in writing; rather it can be verbal. Also, a contract may be implied; this is where some of the terms are not expressed in words either orally or in writing.

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 being treated as 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;

● shares in household chores and childminding at hours which are set in advance;

● assist with the childcare on a flexible basis.

It is clear from the facts provided that the au pair arrangement includes an expectation from you and your spouse that services be provided by the au pair and the au pair has an expectation to receive money in return. Although you contend that the primary purpose of the au pair arrangement is cultural exchange, it is anticipated that if the au pair did not carry out the child minding that was expected, you would not continue paying the au pair ‘pocket money’ and you would terminate the arrangement. Similarly, it is expected that if you stopped paying the au pair ‘pocket money’, they would end the arrangement. The informality of the arrangement and the lack of detail about PAYG, superannuation, workers compensation etc. do not alter the fundamental nature of the arrangement.

It is clear that the arrangement anticipates that the au pair will provide a certain number of hours work (20 – 30 hours per week) and this work will be scheduled in advance for the convenience of all parties to the arrangement. In return for this anticipated work the au pair will receive a specified consideration ($X per week “pocket money”) as well as other non-monetary benefits such as food and board. While the amount of pocket money is not set by reference to the number of hours worked there is a clear link between the work which is anticipated and the remuneration as witnessed by your intention to discuss the situation and re-arrange work hours should the anticipated work not be worked by the au pair.

The above indicate a clear element of ultimate control of this arrangement in that the household set the working hours, the working conditions, childcare, rules of the household, time off, strategies for managing the children, use of household equipment etc. It is also likely that your household would have the ultimate control to require the au pair to be available for a particular task or a particular time.

Taking into account all your circumstances it is considered that an employer/employee relationship exits and you therefore need to register as an employer of a foreign worker.

Other information

We note that in your private ruling application you referred to some edited versions of private rulings issued to other taxpayers. The decision in each private ruling is dependent on that ruling’s particular facts and can only be relied on by the taxpayer to whom that ruling is issued and for the period the ruling is issued for.