Private ruling: PAYG withholding - engagement of working holiday maker - au pair
Date of advice: 20 February 2020
Published: April 2020
Ruling period: Year ending 30 June 2020
Date scheme commenced: 1 July 2019

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: You are a parent with three children aged X, X and X. You are in full-time employment. Your X year old attends child care X days a week. Your X year old and X year old attend school. Your parent contributes to the care of your children while you are at work. This will continue while the au pair is present in your home. You are currently hosting an au pair at your home. You engaged the au pair on an online site. A X week period elapsed between you making initial contact with the au pair and the au pair arriving in Australia. During that X week period, you and the au pair discussed mutual expectations in written and verbal communications. You pay the au pair $XXX each week. This amount was arrived at by you after discussion with a friend who has previously hosted au pairs. The amount to be paid was also discussed with the au pair before their arrival in Australia. The au pair has a Working Holiday visa (subclass 417). The au pair has organised their own travel insurance. You provide the au pair with meals whilst they are at your home, their own room, use of your home's facilities and use of the family car. You also bear the costs of any meals or activities outside the home and provide the au pair with a card for use of public transport. The au pair will be required to spend an average of XX hours per week doing babysitting and household chores. Chores the au pair will undertake include preparing meals, bathing children and getting children ready for bed. If the amount of time spent on chores is less than XX hours per week the au pair will still receive $XXX. You invited the au pair to stay with your family to experience the Australian culture and lifestyle and for you to learn about their culture. At the beginning of each week, you talk about what the family schedule will be for the upcoming week and how the au pair fits into this schedule. Examples of this include: babysitting, chores and coming to family gatherings and or celebrations. If the situation arose where you were not satisfied with the au pair's interactions with the family, you would discuss this with them and provide feedback about how they should change the situation. You have also stated that if this was not effective, you would ask the au pair to leave at their earliest convenience. The au pair has a qualification in nutrition and dietetics and is preparing to study a master's degree in their home country later in XXXX. They do not hold any qualifications in childcare. They have experience babysitting younger cousins and siblings. The au pair is not enrolled in any English language or similar course. You agreed on their arrival date prior to them coming to Australia but did not agree on an exact departure date until they arrived.

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

Reasons for decision: Summary: After looking at all of your circumstances, it is considered that although there is an element of cultural exchange, the primary nature of the arrangement is one of employee/employer. You are providing the au pair with accommodation, board and payment in return for them providing you with childcare and provision of domestic duties. As your relationship with the au pair has been determined to be one of employer and employee, you are required to withhold 15% tax. | Detailed Reasoning - Detailed reasoning: From 1 January 2017, employers of working holiday makers have been required to withhold tax from amounts they pay to their workers under the pay-as-you-go (PAYG) system. Before an employer employs a working holiday maker, they are required to register with the ATO. 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. | Detailed Reasoning - Employer/employee: The traditional view of an au pair was of someone who came to Australia to experience the culture of the country and people. They would be treated like a member of the family and able to experience Australian culture as part of that family. They would generally also be undertaking an English language course and enhancing such language skills within the family they stayed with. They may have undertaken work but this would not have interrupted their study obligations. In the past few years, such arrangements have changed to more closely resemble what would be considered an employee/ employer relationship. To determine whether a relationship is one of employee/employer as opposed to au pair and host family, all of the facts and circumstances of the situation must be considered. There are factors that indicate that a relationship would be employee/employer rather than au pair and host family: | Detailed Reasoning - Contractual relationship: In order to determine whether there is an employer/employee relationship between a host family and an au pair, it is necessary to establish whether the arrangement is either: · 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 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. Intention to create legal relations can be inferred by both verbal and written communications. In your instance, you have discussed mutual expectations both verbally and in writing. Although you have indicated that there is no formal contract between you and the au pair, a contract can be implied where it is clear that parties intended to create legal relations. Indicia that point to the existence of a valid contract include: - The need for one party's offer to correspond with the other's acceptance - here you have indicated that you discussed the au pair's position via verbal and written methods of communication six weeks prior to their arrival. You agreed on their date of departure once they arrived in the country and discussed what was expected of them during her time at your house. You also discussed the money that would be paid to the au pair. - Consideration is provided to the au pair in the form of $XXX per week, accommodation, use of the family car and provision of food. In return, the au pair is expected to work for an average of XX hours a week, performing duties including child care and household duties. Here, each party can be shown to have provided valuable consideration. - Terms agreed to be certain and complete - prior to the au pair coming to Australia, with the exception of the exact duration of the au pair's stay you discussed money, chores, mutual expectations and how the au pair would integrate into your family. You also discussed how the situation would be resolved if you were unhappy with the au pair and couldn't resolve the situation. - Intention to create legal relations can be evidenced by the surrounding circumstances in the individual case. Here,there are more indicators that point toward intention to create legal relations than not. The au pair is not enrolled in any English language or similar courses, they will be working an average of XX hours a week. The online site where you engaged the au pair, also recommends that you sign an agreement before you engage the au pair to ensure there is agreement and consensus about mutual rights and obligations for both parties. The above factors point to the existence of a contract between you and the au pair. Once it is determined that a legally enforceable contract is present, the next step is to determine whether there is an employment relationship or an independent contractor relationship. 'Employee' is not defined in the income tax legislation. It therefore takes on its ordinary meaning. It will be a question of fact whether someone is considered to be an employee. Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees provides some guidance in determining what constitutes an employee. The primary criteria to consider are: | Detailed Reasoning - Control: The degree of control which the host family can exercise over the au pair is a classic test for determining the nature of the relationship: Hollis v Vabu (2001) 207 CLR 21. In your situation, you have indicated that the au pair will work an average of XX hours a week and their schedule will be based on your family's plans for the week. You have a high degree of day-to-day control over the au pair. You are able to control whether their stay with you continues or is terminated. You control the number of hours that they work, the type of work they do and when that work is to be carried out. The au pair is expected to work an average of XX hours a week. Although the au pair has some input into the hours they work and the arrangements made, you have ultimate control over these matters. In addition, the au pair will be expected to fit around your family arrangements. This indicates that the relationship is not equivalent to that of a member of the family and has the character of an employee/employer relationship. | Detailed Reasoning - Integration: The au pair provides direct services to you and your family. They don't conduct their own business nor do they have the ability to conduct their operations independently. They provide services that are essential to the running of your family. To provide such services, they use your equipment including your car and internet. They do not hold themselves out as working independently and although not involved in a business with you, as stated above, they do provide direct services to you. They live with you and are integrated into your family. | Detailed Reasoning - Results: You are providing the au pair with $XXX a week. You have stated that they do not have a set number of hours they are required to work and that it will be negotiated at the start of each week. However, you have stated that the approximate number of hours per week they will be required to work is XX hours. Notwithstanding that the au pairs hours may vary slightly, it is considered that the au pair will be paid for the amount of hours worked, rather than to achieve a specific result. This is another indicator that they are an employee. | Detailed Reasoning - Delegation: None of the circumstances you have outlined indicate that your au pair has any ability to delegate any of their tasks or roles. The fact that they cannot delegate their duties is another indicator that points to them being an employee. | Detailed Reasoning - Risk: The au pair has obtained their own travel insurance. However, you will bear the risk of any costs arising out of injury the au pair may incur in carrying out their work. | Detailed Reasoning - Tools and equipment: On the facts provided, the au pair is not required to supply any tools or equipment to perform the activities as part of their au pair role. Although there is a cultural aspect to the arrangement, the primary purpose for you engaging the au pair is for them to provide child care and domestic services in exchange for food, board and money. When weighing up the indicators, it can be seen that as a host family you will be exercising a great deal of control over the arrangements you have with your au pair. You determined how much you will pay the au pair, the working conditions, the duties, the terms of engagement and the circumstances under which the au pair can be terminated. Your au pair is likely to have some input into the detail of these arrangements however we consider that you will have ultimate control and would be able to direct the au pair to undertake a particular task or role as required. Therefore, on balance, we consider that there is an employer/employee relationship between you as a host family and the au pair.