Owning a Superyacht – Employment Taxes

Operating a superyacht in Australia brings with it all sorts of considerations, not least employment taxes – it’s a wide net that catches many fish, but are they all reeled into the boat?

Introduction

Doing business in Australia can be complicated, especially for those operating a superyacht. Australia’s elaborate regulatory and taxation environment is anything but idyllic, and while business-based taxes (such as corporate and indirect taxes) often receive the most attention, it’s often employment­ related taxes that get overlooked or, worryingly, ignored completely.

Dealing with Australian employment taxes can be complicated. Issues such as employment status (employee versus contractor), tax residency, and whether there’s the provision of an employment­ related benefit can all cause headaches for both owners and crew members alike. Added to this is that where the Australian Taxation Office (ATO) finds evidence of non-compliance, the penalties can be very harsh.

The main employment-related taxes affecting superyacht owners and crew include Pay-As-You-Go (PAYG) withholding taxes, usually withheld from salary and wages; superannuation, a mandated savings scheme levied on a percentage of salary and wages; and Fringe Benefits Tax (FBT), which is paid where benefits are provided instead of salary. Importantly, these employment taxes can apply regardless of whether the yacht is being operated commercially, and even if the owner is not an Australian resident. This means that some foreign-flagged vessels spending time cruising in Australia could still have tax issues to manage.

Crew perspective

Australian crew members are subject to the full scope of Australian taxation law, regardless of the amount of time spent chartering in Australian waters. Australian tax residents are subject to PAYG withholding on all their income earned while in Australia, which serves to withhold the correct amount of individual income tax owed by the employee to the ATO from their salaries or wages.

The individual income tax rate for Australians working on superyachts is the same tax rate all Australian residents are subjected to. However, if their position on the yacht is their primary income source, they can claim the tax-free threshold (currently $18,200) on their PAYG withholding amounts.

Even if income is deemed tax-free when the yacht is operating in an overseas destination, Australian tax residents are still required to pay tax on their international income. If foreign employers do not engage in PAYG withholding, the expectation to manage tax obligations falls to the Australian tax resident.

What is interesting to note is how Australia’s taxation of superyacht employees compares to other popular international chartering destinations both in Europe and Asia-Pacific regions. In the UK, crew members are entitled to claim a 100-percent deduction on their taxable income if they work on a ship for half a year. Most of the European countries with similarly strong maritime industries provide a comparable degree of income tax support to their maritime workers. For Australians, there are no tax deductions or exemptions that provide any income support or tax relief for seafarers.

For non-Australian tax residents, certain benefits exist in Australia’s income tax laws that are designed to provide tax assistance to foreign crew members of superyachts. The nature of their work often entails travelling between multiple international tax zones, which can put foreign workers in a tough situation as it opens their income up to the possibility of double taxation.

Fortunately, if a superyacht crew member is a foreign resident of a country that holds a tax treaty with Australia, their wage doesn’t need to be taxed in Australia. There are around 40 countries that hold a double taxation agreement with Australia. If the worker is from a country that has no double taxation agreement, they potentially open themselves up to serious pain as the ATO can claim income earned in Australia in addition to any foreign income earned in non-treaty zones throughout the financial year as theirs.

If the foreign superyacht worker operates in Australia for an extended period (generally over six months in a year), their tax treaty no longer applies, and they may be deemed a taxable resident of Australia. If this occurs, special immigration and visa requirements exist that permit working in Australia for extended periods specifically for non-resident superyacht employees. These crew members are eligible for a Temporary Activity visa, which gives these workers the ability to enter Australia on multiple occasions for up to 12 months, provided they continue to work as a crew member on the same superyacht in Australia.

This visa affords foreign crew members temporary residency status, which provides them with Australia’s national employment standards and protections, ensuring they are paid according to Australian awards and covered under Australian employment law. Unfortunately for them, temporary residency also deems foreign superyacht workers as taxable residents, entitling the ATO to assess any income they receive while working in Australia, including income earned from employment conducted overseas while holding temporary resident status in Australia.

Crew and superannuation

Another employment-related issue often overlooked is the superannuation implications for chartered superyacht crews. Superannuation is owed to all crew members operating in Australia on top of wages, regardless of the employee’s residency status (including temporary and non-resident). While this is standard for all Australian resident employees, for foreign superyacht workers only operating in Australia’s tax zone for a few months at a time, these superannuation payments can easily become lost income.

Charter workers from certain countries are covered by bilateral super agreements, which are similar to double taxation treaties in that they prevent an employer from making double superannuation payments to an employee. These agreements exist with countries that offer an equivalent social security scheme to superannuation, which notably excludes China, the UK, Canada and some large EU countries.

Foreign charter workers not covered under bilateral agreements are able to claim what is called a Departing Australia Superannuation Payment. This allows the workers to access the super they accrued while working on charter vessels in Australia after they leave Australian waters. However, they must claim the payment within six months of leaving Australia, otherwise the ATO gets to keep it. When receiving their payment, foreign crew members get the benefit of another Australian employment tax, as a final tax is withheld from their payment.

Owners’ perspective

Owners of yachts operating in Australia are potentially subject to a legislative minefield when it comes to employment tax requirements in Australia. Considerations around the PAYG scheme, FBT, and whether GST is payable on crew wages are all factors of yacht-related employment.

As mentioned earlier, if crew members are non-residents under a tax treaty, they are deemed non-taxable. In this instance, an owner does not have to withhold tax under a PAYG scheme or worry about FBT obligations. However, if the crew is deemed taxable because they are an Australian resident or do not/no longer fall under a tax treaty, the owner may be liable for all these taxes. Ultimately, it becomes the employer’s responsibility to register employees for PAYG and ensure the appropriate amount of tax is withheld from their wages. It’s also the employer’s responsibility to ensure these employees have an Australian tax file number.

If an owner is required to withhold tax from payments to employees under PAYG, chances are they may also have FBT obligations. A fringe benefit is an extra benefit an employer provides to an employee (or their family) on top of their wage, with FBT serving as a tax on the cost of these benefits. For superyacht crew members, examples of fringe benefits include expenses like meals, accommodation or activities. Health insurance or entertainment expenses may also be caught.

As with all other superyacht employment taxes, the eligibility of the owner’s FBT obligation entirely depends on the taxability status of the crew member (tax treaty resident/temporary resident etc). FBT always applies to benefits given to Australian residents. Fortunately for yacht owners operating a charter enterprise, these taxes can generally be claimed either as GST credits or as an income tax deduction.

Adding to the regulatory complexity surrounding yacht-related employment is the possible inclusion of GST on employee (or contractor) wages. Generally, GST should not be payable on any wages paid to the crew. However, if the crew operating in Australia is outsourced from an external supplier who carries on an enterprise here, the yacht owner may have to pay GST on these wages. Where a yacht owner is able to be registered for Australian GST, any GST paid on relevant costs should be refunded by the ATO.

Operating a yacht in Australia, whether privately or for charter purposes, can present a risk that owners and crew may have employment tax-related liabilities here. To mitigate these risks, proper planning is required to ensure there are no surprises if and when the ATO asks questions.

This article appeared in Ocean Magazine, Issue 107 – May/June 2023.