Edited version of private advice

Authorisation Number: 1051805708428

Ruling

Subject: Cultural exchange au pair

Question

Is the Au Pair arrangement classified as a cultural exchange?

Answer

Yes

This advice applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The arrangement commences on:

Is already in place

Relevant facts and circumstances

You are intending to host Au Pairs from different countries.

You and your husband are both employed and have flexible hours and working from home arrangements.

You have three children. The older children are in school full-time and the youngest attends childcare five days per week.

The people you choose will hold a working holiday visa.

You use social media to find your Au Pair or word of mouth

No formal contract will be in place.

The Au pair will stay for a period of between 2 - 6 months to experience the Australian culture while saving costs on accommodation.

The Au Pair will be free to study English and travel as they wish.

The Au Pairs will be asked to assist with light household duties and to support the parents with occasional ad hoc childcare.

In addition, you have a house cleaner so the Au Pair would not be expected to undertake any heavy housekeeping tasks.

The older children assist the new Au Pair by showing them where the school is, soccer fields, playgrounds etc are. You engage with the Au Pair prior to their commencement via video call where you share what a day in the life of your family is. On the second video call you allow them to meet the children. The children ask the potential Au Pair if they play sport, video games, what they do for fun, what their favourite foods are and what flavour ice-cream they like. Either parent is usually home while the Au Pair is assisting - rarely are they left on their own with the children.

The Au Pair and the older children will be required to attend their own daily tasks such as clean their room, make their bed, prepare snacks, empty dishwasher and tidy the family/play area and attend their laundry.

The Au Pair is required to assist for a minimum of 3 hours per day and a maximum of 6 hours per day.

The Au Pair would be free to travel, work and experience Australia.

The Au Pair would be paid a small allowance to support their travel and cultural experience.

The Au Pair is not required to pay for any household expenses while living with you for example internet or electricity.

The Au Pair is included in family outings if they wish to attend. You cover all expenses for these outings. They are treated as part of your family.

The Au Pair is not required to have any experience or specific skills for the job.

There is no link between the tasks done by the Au Pair and the amount of money they are paid.

You intend for this to continue on an ongoing basis.

You have a renovated home and separate bedroom and ensuite that the Au Pair will live in.

The Au Pair has full access to all areas of your home to use.

Relevant legislative provisions

Income Tax Rates Act 1986 Section 3A

Income Tax Assessment Act 1997Section 6-5

Reasons for decision

Summary

The situation you intend to have with your au pair 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

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 childcare 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 other family members provide to your child; 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 will encourage 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 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.