Private ruling: Requirement to register as an employer of a working holiday maker
Date of advice: 16 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2018
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 a live in Au Pair? | A1: No

Relevant facts and circumstances: You are a host family to an Au Pair who is part of a cultural exchange and is only required to assist with a small amount of care of your children along with other minimal household chores. The Au Pair is living with you as a family member and is required to contribute around the house doing their weekly chores just the same as your own children. As a host family you have welcomed the Au Pair into your home so they get acquainted with the language, customs and culture of Australia as authentically as possible. You regard the Au Pair as neither a nanny nor an employee but a family member for a certain period of time. You provide them with a room/board, food, use of a vehicle and a small amount of pocket money to enable them to enjoy and see our country. You work from home most of the time so you are generally always there. However, holidays mean that working at home can prove to be difficult with constant interruptions. The Au Pair that lives with you is not the sole carer during specific times or days but will rather being helping with the children as an older sibling would. You have contacted Fair Work and the ATO. You provided a website from which you had obtained information. This website advises there is no official au pair contract for Australia and provides a link to the official European au pair contract. The website suggested the contract can be modified according to your needs. Your Au Pair has not signed any official contract or agreement.

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

Reasons for decision: Summary: 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 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; ● is neither a nanny nor an employee but rather a family member for a certain time period; ● is here as part of a cultural exchange; ● is living with you as a family member, sharing in household chores along with their own children; and ● is required to assist with a small amount of care of the two children. ATO Interpretative Decision 2001/381 Income Tax - Payments received under a homestay arrangement looks at a different perspective of a similar arrangement. Under a homestay arrangement, students live with the host family in their home. They are usually provided with their own room and have access to other household facilities. Main meals are provided by the host family. They may also have their laundry and ironing done, and provided with occasional transport. They may be required to help out with household chores and keep their room clean. Income received under the homestay arrangement is determined by the educational institution to cover the expenses of accommodating the student in the home. The amount of the payment is set with regard to the normal cost of supplying food, utilities and overheads for the student. These rates are not regarded as true commercial rates, and there is no built-in benefit component to the taxpayer for the use of parts of the house. The amounts received by the host in these circumstances are made in relation to a non-commercial or domestic arrangement and are therefore not assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Conclusion: The situation you have with your Au Pair is a similar non-commercial or domestic arrangement and not an employer/employee relationship. There is no requirement for you to register and withhold tax from the pocket money paid to your Au Pair.