Get ready Australia – The time to charter is now!

Australia is renowned for its iconic attractions and safe, secluded waters, it’s also home to some of the best repair and refit businesses, marina facilities and supply chains worldwide. However, the reality of doing business here for a foreign-flagged charter yacht can be more challenging.

Introduction

Australia is a beautiful cruising destination. However, despite the endless positives about Australia and its marine sector, the reality of doing business here for a foreign-flagged charter yacht can be more challenging.

Adding to the layers of regulation regarding biosecurity, safety, immigration and entry permits is the potential impact of complying with Australia’s complicated taxation system. While any non-resident wanting to do business in Australia will need to grapple with its tax system, the challenges for a charter yacht are often exacerbated as it may only operate commercially in Australia for a very short period of time.

The Australian tax system largely reflects its geographical isolation and the need to tax more from less. Therefore, it has few concessions for cross-border movement. The December 2019 changes to the Coastal Trading (Revitalising Australian Shipping) Act 2012 (Cth) that introduced a temporary licence for yacht charters were a step in the right direction by removing the Goods and Services Tax (GST) burden of entering a yacht for commercial purposes in certain circumstances. However, the GST payable at the border is only part of the problem.

Once a yacht is in Australian waters, the 10 percent GST remains an issue on charter revenue. However, there are a host of other taxes that may apply to the local operations. Things such as employment taxes, fringe benefits taxes, fuel excise, customs duties and corporate taxes may all provide a compliance challenge for a foreign-flagged charter yacht to navigate.

Added to that is the fact that once liability is identified, actually paying the tax to the Australian Taxation Office can be a mission in itself due to the exhaustive registration and reporting requirements most taxes require before they can be paid.

Competition from the region

Compounding the Australian tax problem is that other jurisdictions within the AsiaPacific region are prepared to make significant concessions to attract foreign-flagged charter yachts. Most recently, the Blue Lane Initiative in Fiji included elements that slashed the tax payable on charter revenue – taking its cue from countries such as Tahiti and New Zealand, who have done the same – while countries such as Thailand have moved to exempt the Value Added Tax (VAT) payable on the yacht’s value on entry.

It demonstrates how competitive it is to attract superyachts and reap the economic benefits that follow. The challenge for the Australian Government is to swim against the general legislative tide of recent years and aggressively cut red tape and regulations for visiting yachts.

How Australia’s tax complexity compares

What is interesting to note is how the Australian taxation system compares to other popular chartering destinations both in Europe and the Asia-Pacific. It illustrates the problem the local industry has faced in attracting foreign-flagged superyachts to Australia for commercial chartering. The table (below) provides a summary of some of the registrations, licenses and taxes that may apply in each jurisdiction for foreign-flagged superyachts visiting for chartering purposes. As the table demonstrates, some elements of the Australian tax regime are far more restrictive than those found in many popular European destinations, and well behind some of the concessions offered by our closest neighbours.

One thing to note about Australia’s GST is that it is ultimately a tax borne by consumers, not businesses. There are often examples where owners are incorrectly advised that any GST paid cannot be refunded, or that any GST payable on importation can only be offset against future GST payable on charter revenue, which can be the case in some developing countries where tax authorities are reluctant to pay tax refunds.

Such examples can potentially sway decision-making against coming to Australia, which is unfortunate given the Australian GST reality is very different. That is, when managed properly, GST should never become a real cost to a yacht owner and any GST paid on relevant costs should be refunded.

There are also other schemes available to ensure the GST does not even become a cash-flow issue, the deferred GST on imports arrangement is a good example.

Does the temporary license regime raise the anchor?

After many long, hard years of lobbying the Australian Government by Superyacht Australia, the changes to the Coastal Trading Act were an important step in establishing Australia as a charter destination for the world’s most luxurious yachts. While the introduction of a temporary licence mechanism removed one of the perceived tax obstacles for foreign-flagged yachts – the GST on importation – the lived experience of the temporary licence regime has been one of potentially more red tape and regulation given some of the rules applying to its issue.

Among other things, these requirements include:

• reporting to the Australian Border Force (ABF) details of the yacht’s arrival, including who and what is on board;
• obtaining a Certificate of Clearance before departing a port and having permission to visit any places other than an appointed port (arriving without permission can be subject to penalties of up to AU$55,000 for a corporate, plus additional clearance costs);
• reporting all goods loaded and offloaded from the yacht and an acquittal of the yacht’s stores (including bunkers) consumed during domestic voyages providing lists of all travellers joining the yacht and, where required, providing their photographic identification to the ABF.

While the temporary licence mechanism does represent a significant stride forward in Australia being able to present a changing tax environment (in a positive sense) for foreign-flagged charter yachts, its use may be more appropriate to yachts where the yacht’s operations are better suited to the increased level of reporting that attaches the issue of the temporary license.

For instance, the temporary license regime may better suit a yacht that picks up a single charter while passing through Australia, whereas a yacht spending a longer period here and undertaking multiple charters may not want to be subject to the increased level of reporting and scrutiny over its operations and movements. For these yachts, a full importation model may be more practically and commercially suited.

Solving the problem

Despite some of the unattractive features of the Australian tax system, the good news for yacht owners and managers is they are all manageable, and with appropriate planning, can even be commercially positive when available tax concessions are accessed. The key to a positive experience is to, where possible, remove the need for yacht owners to deal directly with Australian revenue authorities or navigate the system on their own.

As is the case for any new business venture starting in another part of the world, preparation is important to make sure there are no surprises later on. Optimal outcomes to problems involving tax are rarely achieved retrospectively, and these issues involving superyacht charters in Australia are no different.

Fortunately, there are solutions under the existing Australian tax laws that allow for all the regulatory burdens and complexities of the Australian tax system to be easily managed for non-resident (for tax purposes) entities. These solutions allow for foreign-flagged vessels to charter in Australia without the headache of requiring several registrations and meeting other compliance and regulatory burdens that may otherwise deter potential interest from the region.

Commonly, these solutions involve the appointment of a suitably authorised local fiscal agent to take on the tax liabilities and deal with the Australian authorities on behalf of the yacht owner. What should be of note is the role of these representatives differs from that of a charter broker or land agent as they are technically responsible for tax lodgments of another entity – usually something that requires different types of skills, experience and specific qualifications.

A unique opportunity

Making tax easier for visiting charter yachts can not only be good for the wider Australian economy but for the incredibly hard-working and innovative local superyacht industry that is making significant investments in preparation for a superyacht boom. Local repair and refit businesses, marina facilities and supplychain enterprises are bolstering their operations as they expect the tides and foreign-flagged superyachts to turn toward our incredible Australian landscape.

While the recent change by the federal government presents some optimism that further tax incentives may be introduced, what could be instructive is the negative approach the Australian Labor Party took (when in opposition) to the floating of a full GST exemption on charter yachts by the former government. Perceived tax breaks to superyacht owners often don’t play well politically, especially in a tough economic climate. However, time will tell whether being in government will bring about a collective change of heart and (hopefully) a more pragmatic approach to measures that can boost Australia’s post-COVID tourism recovery.

As some of the largest and most exclusive events on the globe take place in our backyard, culminating in the 2032 Brisbane Olympic Games, now is the perfect opportunity for foreign-flagged superyacht charters to commence in this part of the world. With explosive growth predicted and more people visiting Australian shores each year, Australia is uniquely placed as the perfect superyacht chartering destination as we set sail into the next decade toward 2032.