Edited version of private advice

Authorisation Number: 1052329615783

Date of advice: 6 November 2024

Ruling

Subject: PAYG withholding - engagement of working holiday maker

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 periods:

Year ending 30 June 2025

Year ending 30 June 2026

Year ending 30 June 2027

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

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

The main purpose of the au pair placement is a cultural exchange, which gives the au pair an opportunity to experience the Australian culture and lifestyle. The au pair may wish to seek employment in line with their working holiday visa.

You are expecting a child.

You are looking at paying the au pair pocket money of between $xxx - $xxx per week.

The amount has been calculated upon discussion with your au pair. This was deemed as a fair amount that they would require to cover her basic living expenses while in Australia. The factors that were considered when reaching this amount were the current prices in Australia, basic food and transport costs and the support required of the au pair.

The au pair will also receive free accommodation in your family apartment and will have their own bedroom and bathroom. They will be provided with meals and invited to join in with your family on outings. They will not be required to contribute to any household bills or pay for any expenses incurred on your family outings.

You sourced the au pair online, through social media.

The au pair will be responsible for maintaining household standards within their own room/area, some very light general area housekeeping, and supporting with some childcare requirements.

The au pairs proposed working hours are not expected to exceed 20 hours of work per week. These hours will be over weekdays only and will vary depending on requirements when the child isn't being cared for by the parents or in daycare. The au pair will not be required to work on Saturday or Sunday.

The initial appointment will be from 1st February 20XX - 15 December 20XX.

There is no formal agreement for a notice period required to be given by either party for the arrangement to be terminated however, it has been verbally agreed that one months' notice would be a pragmatic window for both parties.

Relevant legislative provisions

Taxation Administration Act 1953 Section 12-35 of Schedule 1

TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees

Taxation Ruling TR 2023/4 Income tax: Pay As You Go withholding - who is an employee?

Reasons for decision

Considering all your circumstances, 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 the Taxation Ruling TR 2023/4 Income tax: Pay As You Go withholding - who is an employee? (TR 2023/4).

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.

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.

The 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.

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.

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 resemble more closely 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 the facts and circumstances of the situation must be considered. Paragraph 22 of TR 2022/D3 states 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 upon consideration:

•         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 will 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.

The arrangement anticipates that the au pair will provide up to 20 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 between $xxx and $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 infant for the weekdays you are working. If they did not meet that expectation, then you could terminate the arrangement. You could direct the au pair to undertake a particular task. You are also able to determine which au pair is suitable, how much you will pay, the working conditions, the duties, the terms of engagement and you can terminate with four weeks' notice.

Intention to create legal relations:

In most jurisdictions contracts do not need to be represented in writing and oral contracts are as enforceable as written contracts. For a contract to exist, whether written or verbal, the parties to an agreement must intend to create legal relations. If the circumstances show that the parties 'did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts' then there is no contract.

At common law, there are certain requirements that must be satisfied for a valid contract to exist:

•         the need for one party's offer of terms to correspond with the other's acceptance,

•         for the terms agreed to be certain and complete,

•         the need to meet the necessary formalities, and

•         an intention to create legal relations and consideration.

The proposed au pair's duties include childcare responsibilities and some general housekeeping.

Your au pair will be provided remuneration consisting of board, meals, utilities and 'pocket money' of $xxx - $xxx per week. It has been verbally agreed that one months' notice for the arrangement to be terminated by either party would be a pragmatic period of notice. Based on the above, it is concluded there is an implied contract entered between the parties.

Conclusion

Considering all your circumstances, 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.

When weighing up the indicators, as a host family you will be exercising a great deal of control in the arrangements you will have with your au pair. You will determine which au pair is suitable, how much you will pay, the working conditions, the duties, the terms of engagement and you can terminate the arrangement with four weeks' notice.

Your au pair is likely to have some input into the detail of these arrangements, but we consider that you will have ultimate control and would be able to direct the au pair to undertake a particular task.