Edited version of private advice

Authorisation Number: 1052096026754

Date of advice: 20 March 2023

Ruling

Subject: PAYG withholding

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 as per section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June XXXX

The scheme commenced on:

20 November 2023

Relevant facts and circumstances

You have an au pair living in your home. The au pair has been living with you since 20XX.

The au pair is a trained nurse.

The au pair does not have any formal childcare qualifications.

The au pair has come to Australia to experience a cultural exchange, improve their English and to travel.

The au pair is provided with room and board. They have their own bedroom with en-suite.

They share meals with the family, watch TV and travel with the family when able. She has been to X with the family and to the X on many occasions.

They are treated as a family member.

You have a baby whom the au pair assists with.

You and your spouse both work from home. Your job is flexible, and you can work around the au pair's schedule.

There is no written contract between you and the au pair.

The au pair is not the primary carer and is never home alone with the baby. On one occasion in the evening the au pair cared for your baby whilst you attended a wedding.

The au pair plays with the baby and puts him down for naps (they do not prepare food or feed the baby) and tidies the house. This is a flexible arrangement based on the au pair's availability.

The au pair takes the baby on day outings.

The au pair spends approximately XX hours per week with the baby.

The au pair receives $XXX per week as pocket money. This amount is not tied to the number of hours worked by the au pair.

The au pair receives the money by direct debit into their bank account or is paid in cash.

On one occasion the au pair was paid in kind.

The au pair is returning to her home country in March 20XX.

The au pair has looked into studying an English course and has displayed interest in earning more money in a café. As she arrived late in 20XX, she could not find an English course to commence.

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. It is concluded that an employer/employee relationship exists, and you therefore need to register as an employer of a foreign worker.

Detailed reasoning

The expression 'employee' is not defined in income tax legislation. Therefore, it has its ordinary meaning. We provide guidance to assist in determining whether an arrangement constitutes an employment arrangement in draft Taxation Ruling TR 2022/D3 Income tax: Pay As You Go withholding - who is an employee? (TR 2022/D3).

The traditional view of an au pair was of someone who came to Australia to experience the culture of the country and people. They would be treated like a member of the family and able to experience Australian culture as part of that family. They would generally also be undertaking an English language course and enhancing such language skills within the family they stayed with.

In the past few years, such arrangements have changed to more closely resemble what would be considered an employee/ employer relationship. To determine whether a relationship is one of employee/employer as opposed to au pair and host family, all of the facts and circumstances of the situation must be considered. Paragraph 22 of TR 2022/D3states the 'totality of the relationship between a worker and an engaging entity comprises the legal rights and obligations they have in respect of each other'.

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 uponconsideration:

•         Contractual relationship (written, verbal or implied)

•         Control

•         Risk

•         Delegation of duties

Although you refer to the nature of your relationship with your au pair 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, it is considered that 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 does not alter the fundamental nature of the arrangement.

It is clear that the arrangement anticipates that the au pair will provide XX hours of work per week and this work will necessarily 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 of $XXX per week 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.

Although the au pair has some input into the arrangement, it is considered that the host family would have ultimate control. For example, it would be your expectation that for most days/weeks they would be available to assist with the children for the weekdays you are working. If they did not meet that expectation, then you could terminate the arrangement.

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. It is concluded that an employer/employee relationship exists, and you therefore need to register as an employer of a foreign worker.