As more Australian families turn to private childcare options, hiring a nanny is becoming increasingly common. But while the benefits of a nanny are clear—flexibility, continuity, and personal care—the tax implications are often overlooked. If you’re considering or already employing a nanny in 2025, it’s crucial to understand your responsibilities under Australia’s evolving ‘nanny tax’ rules.
What Is the Nanny Tax and Why Does It Matter?
The ‘nanny tax’ refers to the suite of tax and superannuation obligations that arise when you employ a nanny in your home. In the eyes of the Australian Taxation Office (ATO), most nannies are classified as employees—not independent contractors—triggering PAYG withholding, Superannuation Guarantee, and potentially other employer obligations. The ATO has sharpened its focus on household employers in 2025, with new data-matching programs targeting undeclared domestic employment income and non-compliance.
- PAYG Withholding: You may need to withhold tax from your nanny’s pay and remit it to the ATO.
- Superannuation Guarantee: If your nanny earns more than $450 a month (2025 threshold), you must pay 11% super on their ordinary time earnings.
- Workers Compensation: In most states, you must arrange workers compensation insurance for household employees.
2025 Updates: What’s Changed This Year?
Recent policy shifts and enforcement trends mean families can no longer afford a ‘set and forget’ approach. Key 2025 updates include:
- Super Guarantee Increase: The Superannuation Guarantee rate rose to 11% in July 2025, impacting the minimum contribution required for nannies.
- ATO Data-Matching Expansion: In 2025, the ATO expanded its data-matching to include more payment platforms and domestic employment records, increasing the risk of non-compliance being detected.
- Single Touch Payroll (STP) Lite: The ATO now provides a simplified STP reporting solution for household employers, making it easier to report wages and super contributions for your nanny.
- Fair Work Minimum Wage: The national minimum wage increased to $24.30 per hour in 2025. Most nannies must be paid at least this amount, unless covered by a higher award rate.
For example, a Sydney family employing a nanny for 25 hours a week at $30/hour would need to:
- Register as an employer with the ATO
- Withhold and remit PAYG tax from wages
- Pay superannuation quarterly
- Arrange workers compensation insurance through icare NSW
- Report wages via STP Lite each pay cycle
Common Pitfalls and How to Avoid Them
Many families mistakenly believe that paying a nanny cash-in-hand or as an ‘independent contractor’ avoids these obligations. However, the ATO’s criteria for genuine contractors are strict. If you direct your nanny’s hours and duties, supply tools (toys, car seats), or have an ongoing relationship, they are almost certainly an employee.
Typical mistakes include:
- Incorrect Classification: Treating a nanny as a contractor when they meet the employee criteria.
- Missing Super Payments: Failing to pay super on all eligible earnings, including leave and bonuses.
- No Insurance: Overlooking state-based workers compensation requirements.
- Poor Record-Keeping: Not retaining pay slips, contracts, and payment records for five years as required by law.
To stay compliant:
- Use the ATO’s Employee/Contractor decision tool to confirm status
- Register for PAYG withholding online
- Set up super payments via your bank or a clearing house
- Use the ATO’s STP Lite solution to report pay and super
- Keep thorough records of all payments, contracts, and correspondence
Making Nanny Tax Work for Your Family
While the admin can seem daunting, following the rules protects both you and your nanny. Compliant employment means your nanny accrues super, leave entitlements, and insurance cover. For you, it reduces the risk of ATO penalties, backpay claims, or insurance disputes.
Some families choose to hire nannies through registered agencies that manage payroll and tax, but if you employ directly, digital payroll services and STP Lite now make compliance much more manageable. Keeping up with 2025’s rules ensures your family enjoys the benefits of in-home care—without the financial headaches.
