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
Date scheme commenced: 1 March 2018

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? Answer: No

Relevant facts and circumstances: You live in a regional area of Australia. You have two pre-school aged children. You have engaged a young adult from Country X through an online source. This source is a website where au pairs and host families register their interest and find each other. You have a flexible arrangement with your au pair who has use of the internet, telephone and car with no out of pocket expenses. Your au pair stays with you from Monday to Friday and spends their weekends travelling to see more of Australia. Your au pair is available to assist with childcare Monday to Friday during business hours only. They are not expected to do any cooking or cleaning, however they like to cook and has been volunteering to help with cooking. They have also voluntarily assisted with tidying up. You are currently working from home and studying and you have engaged the au pair so that you have more time to focus on work and study. You will be gradually increasing your hours back at your work place. Your au pair is receiving an amount of money per week for approximately 20 hours per week for a period of six months. As you live in a regional area of Australia you felt you had to make your offer more attractive and provide sufficient money to assist with travel out of the area. Your spouse has regular rostered days off and your au pair can have this time to travel. The au pair will not be studying or working elsewhere. You have some guidelines for the home that includes things like there will be no drugs brought into the home. You began to prepare some more detailed guidelines but you have not gone ahead with them. You prefer to leave the arrangement with your au pair as negotiable and flexible. Your au pair can leave at any time however you would prefer that the au pair gave you some notice so that alternative plans could be made. You have read the guidelines relating to working holiday makers and feel that a straight ruling as an employee may prove to be an over-complication or over-qualification of your situation.

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: ● was engaged through a website; ● has not signed a contract or any type of agreement but has a flexible arrangement with you based on providing approximately 20 hours of domestic assistance per week; ● is here as part of a cultural exchange and to travel around Australia; ● is assisting with care of your two children from Monday to Friday during business hours so you are able to focus on work and study which you undertake from home; ● is not required to cook or clean but has volunteered to do so; ● is able to leave at any time however you would like the au pair to give some notice to you so that alternate plans can be made. 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 and see as much of Australia as possible while they are living with you and you give them an amount of money to enable them to do this. The amount of money you provide correlates to the regional area you live in and you believe generous funds are essential because of the extra travel costs dictated by your location. There is no relationship between the amount of money you provide your au pair and the extent or magnitude of any service provided by your au pair. | Detailed Reasoning - Conclusion: You have entered a private or domestic arrangement with your au pair with the cultural exchange element being the dominant characteristic of the relationship. You do not employ your au pair as a domestic worker, and as such, there is no requirement for you to register as a working holiday maker employer or to withhold tax from the money paid to your au pair.