Edited version of your written advice

Authorisation Number: 1051491048808

Date of advice: 14 May 2019

Ruling

Subject: PAYG withholding – 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

Yes

This ruling applies for the following period

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commenced on

1 July 2018

Relevant facts and circumstances

You are a private household wanting to be a host family of an au pair.

You have X children, all under XX years old.

You have sought an au pair from a similar background to you, as you wish the children to interact with someone from your culture and to learn the language.

You require the au pair to have experience with children but not to have any formal child care qualification.

You have prepared a manual for the au pair. Anything not covered in the manual is agreed to verbally and mainly on a day to day basis.

In describing the arrangement you have stated that the ‘Cornerstones of our agreement are: work for approx. XX-XX hours a week (Mon-Fri) which covers X-Xh child care per day as well as preparing dinner and some light household duties. We also expect them to help in the house as every other.

Adults and thus, assisting with cleaning the table after dinner, emptying the dishwasher...’

You are looking at paying the au pair ‘pocket money’ of approximately $XXX-XXX per week to assist with their personal outings and travel expenses.

You will also provide the au pair with accommodation, meals and utilities (electricity, water, wifi).

You will encourage your au pair to explore Australia, practice English and to participate in activities to broaden their experience in Australian culture.

You will take your au pair on family outings on weekends and dining out, all of which you would provide as part of the arrangement.

If the au pair did not carry out the child minding, you would still offer them room and board but no ‘pocket money’.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

Summary

Taking into account all your circumstances it is considered that although there is an element of cultural exchange, the primary character of the arrangement is one for the provision of services. The substance of the arrangement consists of the au pair providing services in return for accommodation, board and payment. The services provided are more than merely ad hoc limited assistance and the benefits supplied in return are more than minor or token in nature. Although the arrangement is less formal than most employment relationships, it is considered that an employer/employee relationship exists and you therefore need to register as an employer of a foreign worker.

Detailed reasoning

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 also states that there is no single feature which is determinative of whether an arrangement is one of employment. Rather the totality of the relationship between the parties must be considered to determine whether, on balance, they are employer and employee.

In additon, the ruling states that in determining this issue, the courts will look beyond the description of the relationship given to it by the relevant parties and instead look to its real substance and the work practices which establish the totality of the relationship.

You have stated that your au pair:

● is treated as a family member;

● is here as part of a cultural exchange and is given the opportunity to explore Australia;

● works for approximately 25-30 hours a week (Mon-Fri) which covers 3-4h child care per day as well as preparing dinner and some light household duties; and

● is expected to contribute to daily housework just like every other family member.

Although you refer to the relationship as a ‘cultural exchange’, we must look at all the circumstances to determine whether it is an employment relationship.

It is clear from the facts provided that the au pair arrangement includes an expectation from you 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, if the au pair does not carry out the child minding that is expected, you will not continue paying the au pair ‘pocket money’. Correspondingly, it is anticipated that if you stopped paying the au pair ‘pocket money’, they would not provide the child minding services. The informality of the arrangement and the lack of detail about PAYG witholding, 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 (approximately XX-XX hours per week) and this work is necessarily 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 ($XXX-$XXX per week ‘pocket money’) as well as other non-monetary benefits such as accommodation 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 shown by your intention to stop paying the ‘pocket money’ if the au pair does not provide the child minding services.

It is clear from the manual you have prepared for the au pair that although the au pair has some input, the host family has ultimate control of the work the au pair undertakes, that is, the au pair is subject to your direction in relation to the child care and other domestic services they provide.

Taking into account all your circumstances it is considered that although there is an element of cultural exchange, the primary character of the arrangement is one for the provision of services. The substance of the arrangement consists of the au pair providing services in return for accommodation, board and payment. The services provided are more than merely ad hoc limited assistance and the benefits supplied in return are more than minor or token in nature. Although the arrangement is less formal than most employment relationships, it is considered that an employer/employee relationship exists and you therefore need to register as an employer of a foreign worker.