Around the world the treatment of boat ownership by the Taxation and Revenue Authorities of the specific country of operation differs. The Multihull Solutions team can assist prospective boat owners in sourcing information relevant to each operating region.
The majority of charter boats (where the boat owners individually earn income in excess of $250,000 p/a) are seen by the ATO as a hobby based business. Under a ‘hobby based business”, charter boat owners are permitted to claim deductions through depreciation and interest expenses (if applicable) up to the level of the boat’s net income. In other words, where a charter boat earns a net income of $46,000, the charter boat owner can claim deductions up to that level. On occasion, charter boat business can also have the benefits of full negative gearing (similar to an investment property).
In Australia, the treatment of boat ownership from a taxation perspective was somewhat unclear following reviews by the ATO in 2003. Positive clarity returned to the industry following the publication of a Press Release in May of 2006 and subsequent ATO announcements.
Owning a boat and having that boat managed by a bonafide charter company is a viable option of yacht ownership, and may provide a range of positive solutions for an owner looking for a unique business opportunity. It is important that all charter boat owners (and their accountants) avail themselves of information pertaining to the Australian Taxation Office treatment of Boat Hire Arrangements.
A range of information and explanation can be found on the ATO website
The press release contained within the May 2006 Budget (see link below) heralded the commencement of a fair tax treatment for charter boat owners by setting a minimum base level of tax deductibility, while still maintaining the opportunity of total deductibility for owners who are able to fully satisfy the business test as set down in the Charter Boat Ruling issued in May 2003 – TR 2003/04 Income Tax “Boat Hire Arrangements”.
This press release and subsequent legislative changes (effective July 1st 2007) introduced a second tier or base level of deductibility, which allow owners to claim annual charter boat expenses to level of their annual charter boat income, with any surplus expenses quarantined and carried forward to be offset against any future income from the charter boat business.
Having established this minimum level of deductibility, full deductibility is still available where businesses fully satisfy the business tests as set out in TR 2003/04, allowing annual charter boat expenses which exceed the annual charter boat income to be offset against other applicable, assessable income within that year.
The following link will direct you to the Tax Ruling TR 2003/04: Tax Ruling TR 2003/04.
The following link will direct you to the Tax Laws amendment 2007. Note Schedule 2 – Taxation of Boating activities. This relates, amongst other things, to the second tier or base level of deductibility: Tax Laws Amendment 2007.
The following link will direct you to the Explanation Memorandum relating to the relevant Tax Laws Amendment 2007. Note Chapter 2 – Taxation of Boating Activities. This explanation Memorandum relates, amongst other things, to the second tier or base level of deductibility: Explanation Memorandum.
The links here are a selection of those relating to the Charter Boat ownership on the ATO website and they are provided as a reference only. We strongly recommend that you visit the ATO website yourself and avail yourself of the relevant information.
The statements contained within this website are not to be construed as formal tax advice and potential charter boat owners should seek qualified, independent and expert advice in this area.