Private ruling: PAYG withholding
Date of advice: 9 January 2019
Published: April 2019
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you required to register as an employer of a working holiday maker and withhold 15% tax on money paid to a live in Au Pair? | A1: Yes

Relevant facts and circumstances: Your au pair joined your household in the 20XX financial year and will stay with you for approximately six months. Your household consists of yourself, your spouse and your two children. You and your spouse are employed full time. One child is at school and the other child attends long day care five days per week. During school holidays the school age child will attend vacation care. You decided to host an au pair from a particular country as your spouse has a family connection with the country. Your spouse studied the language after completing high school and is currently undertaking private language tuition. Your oldest child has been learning the language through a private tutor for the past 12 months and you intend for your younger child to commence language lessons when they commence school next year. The object of you hosting an au pair is to provide a cultural and foreign language experience for your two children. The Placement Process After deciding to host an au pair, you researched the best way to do this online. You found an agency that offers to facilitate cultural exchange placements of au pairs with families in Australia. You wanted to ensure that any person you invited in to your home would be a suitable placement with a young family, and could provide references to their good character. You met your au pair via Skype prior to agreeing to participate in the exchange placement. However, it was not a formal job interview. The purpose of the Skype meeting was to get to know the au pair and determine whether you thought she would be a compatible member of your family. The au pair’s family also participated in the discussion. Following this meeting, the au pair indicated their interest in a placement with your family. The exchange placement was confirmed when the agency provided you with a Letter of Invitation (the Letter), which was signed by yourself, your spouse and the au pair. You paid the agency a fee for facilitating the placement, however you do not have an ongoing relationship with the agency. You understand that the agency will remain in contact with the au pair through the cultural exchange to assist with organising social opportunities and to provide support to them during their time in Australia. The Placement – specific details As detailed in the Letter, it is the parties’ express intention that the au pair lives in your home as a member of your family. The Letter includes the following statement; “Au pairs are expected to undertake reasonable chores which are limited to childcare and light housework. In exchange, host families provide au pairs with suitable accommodation (comprising of a private bedroom), full board and pocket money comprising of a Weekly Allowance. Au pairs are not ordinarily intended to be and it is not currently the intention of the parties for the au pair to be, an employee, housekeeper or nanny of the host family” The Letter was prepared on the basis that your au pair would assist with child minding and other household chores for around 35 hours per week. After your au pair began the placement, you realised that you would not need the nominated amount of assistance with the running of your household. For example, you had considered that the au pair may look after your youngest child two days a week. However, you ultimately decided it was preferable that they remain in day care. You discussed this with your au pair and between the three of you, you agreed to the narrower scope of responsibilities. In addition, various matters set out in the Letter are directed at ensuring that host families participating in the Cultural exchange do not take advantage of their au pairs or treat them as domestic servants. Each party must give at least two weeks prior notice if they wish to have early termination of the placement. Assistance with child care and other domestic duties Your au pair has agreed to undertake various chores to assist with the running of the household, including assisting you with child care and light housework. The Letter does not detail the extent of these, rather they are subject to agreement between the parties. The Letter indicates that the arrangement involves assistance with domestic chores of 35 hours per week, however, it is your understanding that this represents the upper limit as you do not require this amount of either child care or other services. In actuality, assistance with these household chores will amount to approximately 25 hours per week. This will primarily involve taking your child to and from school during school term, and minding your child in the morning and in the afternoon when you are at work. You have not prepared a list of household chores that must be completed throughout the day. You have agreed with your au pair that they will contribute to maintaining the general upkeep of the house in the same way they would in their parents’ home. Weekly pocket money You have agreed to provide your au pair with weekly pocket money of $XXXX per week. The amount was worked out based on guidance from the agency regarding pocket money offered by other families participating in the cultural exchange. The agency indicated that as part of the placement au pairs are provided weekly ‘pocket money’ and that this is typically $XXX per hour of assistance provided with household chores or child minding. You chose to base the calculation of pocket money on $XXXX per hour as this amount was above the recommended amount and you thought it would make a placement with your family more attractive. You estimated that you would require 35 hours of assistance with child minding and household chores and therefore offered pocket money of $XXXX per week. The offered pocket money did not change in spite of the subsequent reduction in assistance required to approximately 25 hours. As you live away from the centre of your city, you wanted to make the offer of a cultural exchange with your family more appealing. You offered a competitive amount of pocket money to allow a placement with our family to be compared on a relative basis against placements with other families. The weekly pocket money is a fixed amount. It is provided to your au pair regardless of how many hours they assist with child minding or other domestic duties. The weekly pocket money will also be paid during the school holidays when your two children will be in either long day care or vacation care. Your au pair is not required to complete time sheets or account to you how they have used their time. The quantum of the weekly pocket money was not calculated taking in to account the value of the non-monetary benefits that would be provided to someone receiving full board and lodging in your home. You will provide the au pair with the use of a vehicle and will pay all running costs (including petrol) whether or not the au pair is using the vehicle to complete household chores or for social outings. It is your understanding that the au pair will pay the insurance excess in the event that they have an accident driving the vehicle for social purposes. You will invite the au pair to participate in all family activities and will bear the costs associated with these activities. For example, the cost of admission to wildlife parks, meals at restaurants and travel to events. You have provided the au pair with a transport card that they can use for travel when completing household chores or for their own social outings. Other matters You purchased a welcome basket of various goods to welcome your au pair to your home, consistent with how you would have welcomed and international guest or family member that was staying with your family for an extended period of time. You have organised various social and family activities so that your au pair has an opportunity to experience a number of different aspects of Australian lifestyle and culture. During school holidays you placed your eldest child in vacation care. You organised for your au pair to visit another city for approximately one week to stay with another family member who is closer in age to your au pair. You thought it would be good for your au pair to spend time exploring the other city with someone closer to their own age. You provided your family member with money to cover some of the cost of having your au pair stay with them. You paid your au pair pocket money during this time. You also took your au pair to visit a regional city for a weekend. You stayed with family friends over the weekend and you paid for all food and entertainment during family outings (e.g. pick your own fruit and farm visit, dining out etc). Your au pair joined you and other family members on a trip and you covered the cost of activities and lunch. You arranged for your au pair and yourself to attend a theatrical performance. You booked and paid for the tickets. Subsequent to your au pair joining your household, the au pair’s parents emailed you to introduce themselves and said that they would be coming to Australia in December and that they would like to meet you. You have invited your au pair’s family to stay with you for Christmas. Your au pair then plans to travel around Australia with their parents before returning to stay with your family in the second week of January. You will continue to pay pocket money during this time.

Relevant legislative provisions: Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision: Summary: Where an au pair is on a genuine cultural experience, being treated as a member of the family, potentially enrolled in an English language or similar course, while providing only incidental domestic services (minimal hours), it would be less likely they would have entered into a legally enforceable contract and be employed by the host family. The prime motivation for the family in such a case is to provide a cultural experience and the family may not obtain the degree of benefit from the arrangement that the au pair does. It is also likely that, the more informal the arrangement, the more likely that one or other of the parties is not obliged to fulfil its obligations under an informal arrangement such as this. This would particularly be the case if payment of the au pair’s expenses is discretionary, varies, or is not directly related to work performed by the au pair. In contrast, and as is outlined in your proposal, an au pair working and being remunerated for significant hours of service, with distinct responsibilities and duties would more likely be a party to a legally enforceable, express or implied contract and would be considered to be employed by their host family. | 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. 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 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. 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. Traditionally, au pairs came to Australia on a cultural experience and were treated like members of the family, helping out with incidental childcare in exchange for the Australian experience and some pocket money. At times, the au pair would be studying English while in Australia and immersing themselves in a local family would help enhance these language skills. They would not be expected to work during their study hours. This type of au pair were commonly referred to as ‘demi au pairs’ and it was expected that the au pair must enrol in an English language or other academic program in conjunction with their au pair arrangement. While this type of au pair still exists, the cultural exchange factors have diminished and the distinction between an au pair engaged as part of a cultural experience and an au pair employed purely for domestic and childcare assistance has blurred. In order to determine whether or not there is an employer/employee relationship between a host family and an au pair, it is necessary to establish whether their arrangement constitutes: ● a legally enforceable contract for the provision of the au pair’s services in return for accommodation, board and payment; or ● an informal arrangement primarily aimed at providing the au pair with a cultural experience. | Detailed Reasoning - 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 in order 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 duties explains your children's routine and the au pair’s responsibilities including child minding responsibilities and light housework. Your au pair will be provided remuneration consisting of board, meals, the use of a vehicle, a transport card and pocket money of $XXX per week. Based on the above, it is concluded there is an implied contract entered between the parties. | 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. Paragraph 7 of TR 2005/16 states: 'Whether a person is an employee of another is a question of fact to be determined by examining the terms and circumstances of the contract between them having regard to the key indicators expressed in the relevant case law. Defining the contractual relationship is often a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered.' The ruling provides key indicators that should be considered when determining whether an individual is an employee or independent contractor at common law. I have listed the key indicators from the ruling that are relevant to your situation: Control test - The degree of control which the host family can exercise over their au pair is a classic test for determining the nature of the relationship: Hollis v Vabu (2001) 207 CLR 21; 47 ATR 559. At common law employee is told not only what work is to be done, but how and where it is to be done. However, the mere fact that an agreement may specify how the services are to be performed does not necessarily imply an employment relationship. The Full Bench held in Swift Placements Pty Ltd v. WorkCover Authority of New South Wales [2000] NSWIR Comm 9 that control over a worker did not merely relate to the on-the-job situation, but rather the ultimate or legal control over the worker. It stated: …control by an employer over an employee is not to be viewed merely in the on-the-job situation in directing a person what to do and how to do it, but rather in the sense of the ultimate or legal control over the person to require him to properly and effectively exercise his skill in the performance of the work allocated … Ultimate control would, amongst other things, enable the relevant entity to withdraw the worker from an assignment and terminate the contract with the worker. However, specifying in detail how contracted services are to be performed does not of itself necessarily imply an employment relationship. A host family has a high degree of day-to-day control over their au pair. They usually set the working hours, what is to be done during that time, and when it needs to be done (for example, picking up kids from school, taking them to classes, providing food at specific times of the day). The host family provides the au pair with a written or verbal explanation of the weekly or daily routine, precise duties, time off, strategies for managing the children and can include a curfew time when working the following day. It is likely that the au pair has some input into these arrangements (such as which night they are available for babysitting or when they might decide to travel). However, it is also likely that the host family would have ultimate control to require the au pair to be available for a particular task. This ultimate control is reinforced by the fact that the host family has the right to terminate the arrangement with two weeks’ notice (or without notice in certain circumstances). This means that if the host family is dissatisfied with the performance of the au pair, they can terminate the arrangement at any time. As we have discussed above, you have provided duties which explains your children's routine, child mining responsibilities, and light housework the au pair will be doing. You also expect that either you or the au pair will have the right to terminate the arrangement, should it not be satisfactory, with no notice required to be given by either party. As such you have a strong degree of control of which you can exercise over the au pair, which is demonstrated by the au pair’s defined duties, days they are required to work, and your ability to terminate the agreement. Integration – Unlike a typical commercial arrangement, an au pair is not engaged in a business enterprise of the host family. However, they provide direct services to the host family. From the perspective of a third party, they would be seen to be part of the family (particularly as they live with them) and providing services that are integral to the running of the family. They use the family’s car and equipment (rather than their own) and do not project themselves as operating independently such as through advertising or business cards. In your case the au pair will be providing direct services to your family as outlined in the proposed duties. As such the au pair will work directly for and will be integrated into your family. Results – Although they receive a weekly amount, au pairs usually are paid for hours worked, not for a result. The rate paid to an au pair is usually negotiated between the host family and the au pair. Your au pair will be given pocket money of $XXX for between 25-35 hours of domestic assistance during the week. You have considered the amount of work your au pair will be undertaking and have calculated an amount based on the number of hours worked, whilst also giving consideration to ensuring that they have enough money to support their cultural activities, hobbies and travel whilst they are in Australia. You chose to base the calculation of pocket money on $XXX per hour as this amount was above the recommended amount and you thought it would make a placement with your family more attractive. You estimated that you would require 35 hours of assistance with child minding and household chores and therefore offered pocket money of $XXX per week. This indicates that your au pair will be paid for hours worked, and not for a specific result. Other - Other indications suggesting an employer/employee relationship include: ● the right to suspend or dismiss the person engaged; and ● the right to the exclusive services of the person engaged. | Detailed Reasoning - Conclusion: When weighing up the indicators, it can be seen that 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 with two 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. You propose the au pair will work directly to and will be integrated into the family. The au pair will be paid by the hour and provide a personal service that is not likely to be delegated to a third party. While the au pair will have some reasonable upfront costs, your family will cover all costs associated with the au pair’s duties while working for you. These factors indicate an employment relationship.