Private ruling: PAYG withholding – engagement of working holiday maker – au pair
Date of advice: 14 May 2019
Published: June 2019
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023
Date scheme commenced: 1 July 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 a live in au pair? | A1: Yes

Relevant facts and circumstances: You are a private household wanting to be a host family of an au pair. The au pair has no formal qualification in childcare. You intend having a new au pair every X months to fill the same role. There is no written contract in place or trial period for the au pair. You have sought an au pair from a similar background to you, as you wish the children to interact with someone from your culture and to learn the language. You will encourage your au pair to travel in Australia and practice English and to participate in activities to broaden their experience in Australian culture. You have X children. You and your spouse are both employed. You are looking at paying the au pair pocket money of approximately $XXX per week to assist with their personal outings and travel expenses. You will provide a room and board and expect the au pair to contribute to the household duties like any other person in a share house. The au pair will assist with child minding and light household duties on a casual basis with flexible hours. The au pair’s help is mainly required for weekdays when the children are not in child care/school. Weekend hours will be set around the au pair’s social and travel plans. The hours the au pair will help with the children will vary week by week and depend on discussion between the parents and the au pair, taking into account both parties’ requirements. There is no notice required to be given by either party in order for the arrangement to be terminated. Both you and the au pair can exit the arrangement at any time. If the au pair did not show an interest in looking after and engaging with the children, the arrangement would be of little benefit to you and you would ask them to leave and try to find another person to replace them. Your expectation is that the au pair will help with the children for approximately XX hours per week.

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 - 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. A contract does not need to be in writing; rather it can be verbal. Also, a contract may be implied; this is where some of the terms are not expressed in words either orally or in writing. The ruling also states that there is no single feature which is determinative of whether an arrangement is one of employment. Rather the totality of the relationship between the parties must be considered to determine whether, on balance, they are employer and employee. In additon, the ruling states that in determining this issue, the courts will look beyond the description of the relationship given to it by the relevant parties and instead look to its real substance and the work practices which establish the totality of the relationship. You have stated that your au pair: ● is being treated as a family member; ● is here as part of a cultural exchange and is given the opportunity to explore Australia; ● shares in household chores and child minding at hours which vary week by week and depend on discussion between the parties; and ● assists with the childcare on a flexible basis. Although you refer to the relationship 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, you will not continue paying the au pair ‘pocket money’ and you will 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 and the lack of detail about PAYG witholding, superannuation, workers compensation etc. do not alter the fundamental nature of the arrangement. It is clear that the arrangement anticipates that the au pair will provide a certain number of hours work (approximately XX hours 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 ($XXX per week ‘pocket money’) 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 as shown by your intention to terminate the arrangement if the au pair did not show an interest in engaging with or looking after your children. Although the au pair has some input into the arrangement, it is considered that the host family would have ultimate control. For example, it is considered that you would have ultimate control to require the au pair to be available for the weekdays that the children are not in childcare/school. The au pair may not be able to meet these requirements for some weeks if they are travelling but it is your expectation that for most weeks they would be available to assist with the children for the weekdays the children are not in childcare/school. 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.