Charter Boats & Tax

Understanding tax in relation to a charter boat is an integral part of any charter boat operation. The information included here has been taken from the ATO website and is designed to give you a basic understanding of Charter Boats and Tax, but it is in no way a replacement for professional financial advice or conducting your own investigation.

When can you claim tax deductions

Prior to claiming any deductions in relation to the charter boat it is worthwhile considering what the ATO deems to be a genuine charter or boat hire business and what criteria your operation must satisfy. The ATO considers whether the activity meets the test by reviewing the following general indicators.

• Whether the business shows significant commercial purpose or character.
• There is a reasonable prospect of profit.
• Shows activities of the kind carried on in a similar manner to those of ordinary trade.
• It is run in an organised, systematic, business-like manner.
• Its activities show repetition and regularity.

Charter agreements

The majority of charter boats operate in a manner where the owner enters into an arrangement to provide the boat to a charter operator, or another party, for the charter operator or that other party to hire, lease or charter to others. This can happen generally in the form of two agreements a lease agreement or a management agreement.

The key indicators a of lease agreement are

• The arrangement grants rights of exclusive use and possession to the charter operator in respect of the boat.
• The charter operator retains a right to all charter income and the owner is entitled to a fixed amount per month or a lease fee based on the usage of the boat.
• The owner does not have any right to non-refundable deposits paid to the boat charter operator by prospective hirer.
• The charter operator acts in their own interest, sometimes to the detriment of the boat owner.

The key indicators of a management agreement are

• The contract for the provision of the boat to the hirer shows that the charter operator is acting as the agent of the boat owner in the boat hire arrangement.
• The boat owner derives income and incurs expenses relating to the charter of the boat.
• The boat owner maintains sufficient control of the operation of the boat.

What if I cannot meet the business test?

Deductions generally were not allowed where the activity was only a passive receipt of income from property such as a lease arrangement or you could not satisfy the ATO's requirements by meeting the business test. However in 2006 the government announced that it would amend the tax treatment of boat hire arrangements to allow taxpayers who cannot demonstrate that they are actually carrying on a business using a boat to claim deductions for costs related to their boating activity. The measure will allow taxpayers who cannot demonstrate that they are carrying on a business using a boat to

• deduct expenditure relating to their boating activity up to the level of income generated from their boating activity.
• allow any excess deductions to be carried forward and deducted against income from that boating activity in future years.

These provisions ensure that where an individual or business generates an income using their boat, they are not unfairly taxed. It also guards against such people using the tax system to subsidise private use of boats.

Which boat loan option is right for you?

Deciding on the right Boat finance option for your situation can sometimes be confusing, Commercial Hire Purchase, Chattel Mortgage, Boat Lease are just a few of the boat financing options, Platinum Direct Finance can assist with your decision making and make the process simple and easy. Use our "Which boat loan product is right for you?" today!

Why use Platinum Direct Finance?

The Platinum Direct Finance group of companies will finance over 800 million dollars worth of equipment and car finance this year! Due to this volume and buying power, we can give our clients access to the best boat finance rates and boat financing products across Australia.

Need further information?

Either complete the friendly boat finance enquiry form and one of our boat finance experts will contact you shortly or talk to an experienced finance consultant on 1300 554 553.