Edited version of your written advice

Authorisation Number: 1051437276417

Date of advice: 5 October 2018

Ruling

Subject: Engagement of working holiday maker – 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 period:

Year ending 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You intend on hosting an au pair from Country A in your family home in Spring 20XX.

You have children aged X months and a Y years old.

The au pair will be part of a cultural exchange and will only be required to assist with a small amount of care for your children on a casual basis, along with other minimal household chores.

The initial appointment will be up to the au pair; however, he/she has expressed a wish to stay in Australia until Summer 20YY, and they may extend his/her stay.

There will be no trial period in place.

No notice will be required to be given by either party in order to terminate the arrangement.

The au pair will be living with you as a family member and will be expected to contribute around the house by doing weekly chores in the same way as a member of a family household.

You will be welcoming the au pair into your family home so they can get acquainted with the customs and culture of Australia.

You will take the au pair on family outings and holidays, traveling together as a family.

Your au pair will be speaking the language of Country A with you in your home to pass this language and culture to your children and husband, as your Country A relatives live elsewhere and your husband does not speak or understand this language.

It is of great importance to you to teach the Country A culture and value system to your family.

In addition to the cultural exchange, your au pair has expressed interest in pursuing postgraduate studies in Australia.

Your au pair would like to investigate Australia’s natural ecosystems whilst living here.

The majority of help you will require from your au pair is set around your husband’s time away from home and your au pair’s travel plans.

Your au pair’s commitment to your family (a small amount of care for your children on a casual basis, along with other minimal household chores) will be approximately X hours per week.

In return, you will provide your au pair with their own room and ensuite, food, use of your motor vehicle, and $Y per week of pocket money to enable him/her to enjoy their time in Australia.

The pocket money paid to the au pair is not contingent on any specific duties they need to perform, and if the au pair decides to travel for an extended period, the pocket money will still be paid.

If the au pair does not provide any domestic assistance, he/she will still be paid the pocket money, and will not be required to repay any of the pocket money if he/she do not perform any domestic duties.

You are looking at the arrangement as having an extra pair of hands to help, should the au pair be available, especially if one of your children is unwell.

You will be returning to work on a part time basis following a period of leave, and you will have flexible working arrangements with the ability to work from home for a significant portion of your employment.

Your X year old child will be in day care for the Y days a week that you will be working.

Due to this, your au pair will rarely be the sole carer of the children, as you estimate that either you or your husband will be at home for over 90% of the time.

Whilst the au pair will not have any set list of duties, during the times your husband will be away for work, your au pair will be required to assist with child minding and light household duties on a casual basis only with flexible hours.

There are a number of household tasks and child related activities that are nearly impossible to do by yourself when your husband is away working, given that you have children.

You anticipate that your au pair will assist swimming lessons for your children and grocery shopping when your husband is away for work.

When your husband is at home, your au pair will be pursuing his/her hobbies, finding extra work if they choose to, exploring local attractions and possible future studies.

There is no contract or agreement in place.

You have made a house manual for your au pair that includes all of your family’s birthdays, upcoming family holidays, Wi-Fi password, alarm code, social online “meetup” groups that match the au pair’s hobbies and local bus routes.

You have obtained a definition of au pair from Fair Work Australia which states that au pairs often assist parents with child care (but aren’t sole carers), assist with general household tasks that are not related to children, and also assist with light household duties that are related to children, such as folding and tidying up.

You have also sourced information from Fair Work Australia which states that an au pair might stay with a family for the cultural experience and provide only a small amount of assistance looking after children, and that an au pair in this situation is less likely to be considered to be an employee unless the family has a lot of control over the au pair’s day to day activities.

You believe that the arrangement between you and the au pair will align with the information you have sourced from Fair Work Australia, as your au pair will be assisting you in a more “mother’s helper” role with the care of your young children and will rarely have sole care of your children.

You as the host family will not have control over the au pair’s day-to-day activities and there is no contract in place, meaning that your au pair has the liberty to come and go as he/she pleases.

Relevant legislative provisions

Income Tax Rates Act 1986 Section 3A

Income Tax Assessment Act 1997 Section 6-5

Tax Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

Summary

In many cases, engagement of an au pair would give rise to an employee/employer relationship and related withholding obligations.

However, the situation you intend to have with your au pair has a number of unique factors which lead to the conclusion that it is a domestic arrangement with the cultural exchange element being the dominant characteristic.

There is no requirement for you to register and withhold tax from the money paid to your au pair.

Detailed reasoning

Withholding requirements for employers

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 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.

Meaning of employer/employee

The expression ‘employee’ is not defined in income tax legislation. Therefore, it has its ordinary meaning. The ATO 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.

Application to your circumstances

You have stated that you’re Au Pair:

′ has not signed a contract or any type of agreement;

′ will have a more “mother’s helper” role in relation to the care of your young children;

′ is here primarily as part of a cultural exchange;

′ is living with you as a family member, sharing in light household chores; and

′ is only required to assist with a small amount of care of your children for what you estimate to be less than 10% of the time as sole carer.

You have also stated that:

′ The pocket money paid to the au pair is not contingent on any specific duties they need to perform, and if the au pair decides to travel for an extended period, the pocket money will still be paid to them.

′ If the au pair does not provide any domestic assistance, they will still be paid the pocket money, and they will not be required to repay any of the pocket money if they do not perform any domestic duties.

′ You are looking at the arrangement as having an extra pair of hands to help, should the au pair be available, especially of one of your children is unwell.

Typically, under an au pair arrangement some of the following indicators of an employment relationship will be present:

′ there is a contract, express or implied, between the two parties

′ the au pair provides services such as child care, cleaning or other domestic services for which they are compensated

′ the family exercises a degree of control over the service provided by the au pair by identifying expectations and making payment or the continuation of the arrangement dependent on these expectations being met

′ there is a usual number of hours that the au pair is expected to work each week

′ the amount and cost of the services provided by the au pair is beneficial to the family compared to purchasing comparable services from third parties

′ payments are calculated with reference to a minimum wage less the value of non-cash benefits provided

′ the au pair has experience with children and/or has responsibility for looking after children on behalf of the parents.

However, the particular circumstances under which you intend to engage your au pair, if adhered to, will not give rise to an employment relationship as most of these factors are not present. For example, although the au pair will provide domestic assistance, pocket money and other benefits will still be provided if the au pair does not provide these services or is travelling and away from your home.

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 provide to your children on a small scale, should they be available; however, you are not reliant on your au pair to provide 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 they are living with you and you give them an amount of money to assist them 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 will be providing, as the monies paid to the au pair is not contingent of any specific duties being performed (the monies will be paid regardless of whether they provide you with any domestic assistance).

Conclusion

The situation you have with your Au Pair is a non-commercial or domestic arrangement and not an employer/employee relationship.

As such there is no requirement for you to register and withhold tax from the pocket money paid to your Au Pair.

Further issues for you to consider

This guidance is general in nature and is not binding on the Commissioner.

Employees

Superannuation Guarantee Ruling SGR 2005/1 - Superannuation guarantee: who is an employee? – this ruling explains when an individual is considered to be an employee under superannuation guarantee (SG) legislation (the SGAA).

If a person is an employee at common law, that person is defined as an employee under the SGAA. However, the classification of a person as an employee for the purposes of the SGAA is not solely dependent upon the existence of a common law relationship. The definition expands the meaning of employee to include certain other persons inclusive of those working under a contract that is wholly or principally for the labour of the person.

On this basis an Au Pair is considered an employee of a hosting family for the purposes of the SGAA.

Salary or wages, ordinary time earnings, exceptions

SG liability will then need to be determined on the basis of the amount of salary or wages (S/W) and ordinary time earnings (OTE) paid to the employee. Additionally, and any relevant exceptions would need to be identified.

The meaning of S/W and OTE is fully explained in Superannuation Guarantee Ruling SGR 2009/2 - Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’.

Under the SGAA a payment will be S/W if it meets the common law meaning of that term or if the extended definition is met. The ordinary meaning of the term ‘salary or wages’ is remuneration paid to employees for their services as employees. Pocket money paid to an AU Pair for child minding and household chores is payment for work performed and is therefore S/W for the purposes of the SGAA.

For S/W to be subject to SG, the S/W have to be OTE and not overtime.

Where no ordinary hours of work are stipulated in the contract of employment, the entire payment is OTE and subject to SG. As such the $100 per week pocket money paid to an AU Pair is OTE.

Exceptions

However, the SGAA states that remuneration under a contract for the employment of a person, for not more than 30 hours per week, in work that is wholly or principally of a domestic or private nature is not to be taken into account as S/W for the purposes of the SGAA.

Similarly, the SGAA states that a person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work.

The terms ‘private’ and ‘domestic’ take their ordinary meaning. For example, if a person is employed to clean another person’s home, or mind their children, this is considered to be domestic or private work. The Au Pair work performed as described is work of a private or domestic nature. If the Au Pair works for not more than 30 hours in a week, she will not be, for SGAA purposes, an employee of the host family for that week. For those weeks where she works more than 30 hours, she will be an employee of the host family and they will need to provide SG support.

However, in addition to satisfying the 30 hour a week test, the employee would also need to be paid $450 or more in a calendar month before the employer is required to provide SG support. For the purposes of calculating an SG shortfall if an employer pays an employee less than $450 by way of S/W in a month, such S/W are not subject to SG. For example, if the Au Pair starts work in the last week of August, works more than 30 hours for the week and is paid $100 for that month (having worked for 1 week), no SG will be payable for that month as her total S/W is less than $450.

Under the SGAA, the full room and board will not constitute salary or wages if it is a housing fringe benefit.

The rulings as referred to above are available by conducting a search of the legal data base on our website at www.ato.gov.au .