Private ruling: Requirement to register as an employer of a working holiday maker
Date of advice: 9 April 2018
Published: June 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you required to register as an employer of a working holiday maker and withhold 15% tax on pocket money paid to your current live in au pair? | A1: No

Relevant facts and circumstances: You will be hosting au-pairs in your family as a cultural exchange. You have never used an agency because you are from Country X and you have contacts there. You are from Country X and your spouse is Australian so your home language is not spoken at the home unless there is another person from that country present. You invite young children from Country X to stay with you to experience the Australian culture and lifestyle in your family environment. It is beneficial for your children to stay in touch with the Country X culture and to further improve their language skills. Your current au pair was introduced to you through a friend of the family; they wanted to come to Australia. This is purely a private arrangement with no external assistance. You have two children. Your au pair assists with child minding and light household duties on a casual basis with flexible hours. Help is mainly required in times when your spouse is away at work. They are away regularly and home for two to four weeks at a time. When your spouse is at home the au pair spends time your part of Australia. You work flexible hours and sometimes from home. The au pair will be helping out with school pickups and drop-offs, general childminding and light household duties. The youngest is in childcare three days per week so the au pair helps out the other two days as well as some weekend care. There is a roster on the fridge so that the au pair knows when you will be at the office and when you will be home. There is also a house manual which contains the wi-fi password, school times and general information about household routines. There is no formal agreement in place. Your au pair is a family member and will contribute to household duties like any other adult in a shared house. The hours are set around your spouse’s time away from home and the au pair’s travel plans. Hours are usually kept on a demi au pair basis which are a maximum of 20 hours per week. In return you provide a room, food, board and an amount of pocket money for bus fares, treats, entertainment and to enable them to explore your part of Australia, meet people and have the best possible cultural experience.

Relevant legislative provisions: Income Tax Rates Act 1986 Section 3A | Income Tax Assessment Act 1997 Section 6-5

Reasons for decision: Summary: The situation you 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 - 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. | Detailed Reasoning - 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: ● has not signed a contract or any type of agreement and is here purely under a private arrangement with no external assistance; ● 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 improve foreign language skills; ● is living with you as a family member, sharing in household chores just as any adult living in a shared house; and ● assists with the care of your two children 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 provide to your children; 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 are encouraging your au pair to travel around your part of 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 or magnitude of any service they provide. | Detailed Reasoning - Conclusion: The situation you 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.