The Australian government recently announced a package of reforms aimed at revitalising the Australian shipping industry. These reforms involve the following four elements:
- tax reform
- the creation of an Australian International Shipping Register (AISR)
- a new licensing regime
- workforce skills development.
The key elements of the reforms will be the tax exemptions and the AISR. Australia is competing with quality shipping registries, such as Singapore, Hong Kong and the UK to attract ships onto its register. Costs savings that may be produced by these reforms are what will attract ships to the AISR. Our discussions with key players in the industry indicate that tax exemptions alone will not necessarily make Australia a persuasive business proposition when it comes to the registration of ships.
Since the announcement in September last year, the Department for Infrastructure and Transport (Department) has consulted with shipping industry stakeholders through individual consultations and industry forums.
On 19 December 2011, the exposure draft Coastal Trading Bill (Coastal Trading Bill) and Coastal Trading (Consequential Amendments and Transitional Provisions) Bill (Coastal Trading Consequential Amendments Bill) were released for public consultation. The bills are the first two of six bills to be introduced to Parliament in 2012 as part of the package of reforms.
The draft Coastal Trading Bill proposes to replace Part VI of the Navigation Act 1912 (Cth) and to establish a new licensing regime for vessels engaged in the Australian coastal trade. As the bill is currently drafted, it will be compulsory for vessels engaged in coastal trading to hold either a general, temporary or emergency licence. Unlicensed ships will no longer be able to operate in Australia coastal trades through the use of permits.
The Coastal Trading Consequential Amendments Bill provides for transitional arrangements and ensures consistency with the new regime by amending relevant legislation.
Key details of the new coastal trading regime
The draft Coastal Trading Bill will replace the existing regulatory framework (Part VI of the Navigation Act 1912 (Cth), the Navigation (Coasting Trade) Regulations 2007 (Cth) and Ministerial Guidelines).
In brief, the implementation of the draft Coastal Trading Bill will:
- introduce a three tier licensing regime with general, temporary and emergency licences for the interstate coastal trade (see new coastal trade licensing regime below)
- allow licensed ships to receive foreign Government subsidies
- abolish the Single Voyage and Continuing Voyage Permit system
- introduce a mandatory reporting and publishing scheme (see mandatory reporting requirements below)
- introduce a civil penalty and infringement notice regime (see civil penalties below).
The intrastate shipping trade will continue to be regulated by the States and the Northern Territory although, consistent with the existing position, vessels engaged in intrastate voyages are able to opt-in and be covered by the proposed new regime.
The new coastal trade licensing regime
As currently drafted the Coastal Trading Bill provides that, in order for a ship to engage in the coastal trade in Australia, that ship must be licensed with a general, temporary or emergency coastal trading licence.
General licences are only available to Australian flagged ships registered under the Shipping Registration Act 1981 (Cth). Ships registered on the proposed AISR will not be eligible for a general licence.
Ships holding a general licence will:
- have unrestricted access to coastal trades for a period of up to five years at a time
- be subject to the Fair Work Act 2009 (Cth)
- be subject to annual mandatory reporting requirements, which are discussed in further detail below.
General licences will also give ships access to proposed Australian taxation incentives. Detailed information on this aspect is to be released in future bills but in summary the proposals include:
- income tax exemption on qualifying income from shipping for Australian shipowners flagged on the primary register or AISR
- accelerated depreciation over ten years for Australian vessels, rather than the current period of 20 years, to encourage renewal of an ageing fleet
- roll over relief scheme allowing Australian shipowners to defer tax liability arising from capital gains or profits on the sale of existing vessels, when replacing the vessels with new vessels
- a European style PAYE rebate for the shipowner in respect of Australian seafarer's personal income taxation contributions whilst engaged on international voyages
- royalty withholding tax exemption for vessels on bareboat charter from a foreign company to an Australian company.
It will be a condition of holding a general licence that the seafarers engaged on a ship are Australian residents or hold a temporary visa.
Foreign flagged and AISR registered ships will be entitled to operate a specified coastal trade under a temporary licence.
Ships holding a temporary licence will be:
- restricted to a nominated coastal trade (passengers or cargo) for a specific number of authorised voyages during a specified time period of up to 12 months
- able to hire foreign crew members
- subject to the Fair Work Act 2009 (Cth) for its crew members
- (in respect of ships registered on the AISR) eligible for proposed taxation incentives.
Applicants can only make one application for a temporary licence in a 12 month period and will need to provide the following details at the time of making the application:
- type and capacity of the ship for a specified voyage. If vessel details are not known at the time of application, a description of the type and size of the vessel expected to be used
- type and volume of cargo expected to be carried
- ports at which cargo will be taken on board and unloaded
- if relevant, passenger numbers and ports at which passengers are expected to be taken on board and disembarked
- if the ship is known at the time of application, evidence of AISR or foreign registration.
Holders of a temporary licence will be subject to making a specified number of voyages as authorised in the licence for a period of up to 12 months and mandatory reporting requirements at the end of each voyage.
The grant of emergency licences will be limited to cargo or passenger movements in emergency situations only with details of the type of emergencies to be prescribed by the Regulations. The Regulations have not yet been drafted but according to the Stakeholder Discussion Paper, such emergencies include natural disasters or other similar critical emergencies.
Australian flagged ships registered under the Shipping Registration Act 1981 (Cth), foreign flagged and AISR registered ships are entitled to apply for emergency licences.
Ships holding an emergency licence will be:
- eligible to operate the licence for a maximum period of 30 days
- able to hire foreign crew members
- subject to the Fair Work Act 2009 (Cth) for its crew members
- subject to mandatory reporting requirements at the end of a voyage during the period of emergency licence.
Mandatory reporting requirements
General licence holders - annual reporting requirements
General licence holders will be required to provide to the Department, no later than ten business days after the end of a financial year, information about the type of cargo carried, ports at which cargo were taken on board and unloaded (for carriage of cargo) and the number of passengers carried, ports at which passengers were taken on board and disembarked (for carriage of passengers).
Temporary licence holders – voyage reporting requirements
Temporary licence holders will be required to provide to the Department, no later than ten business days after the end of a voyage, information about the type of cargo carried, ports at which cargo were taken on board and unloaded (for carriage of cargo) and the number of passengers carried, ports at which passengers were taken on board and disembarked (for carriage of passengers).
Emergency licence holders – voyage reporting requirements
Emergency licence holders are required to provide to the Department, no later than ten business days after the end of a voyage, information about the type of cargo carried, ports at which cargo were taken on board and unloaded (for carriage of cargo) and the number of passengers carried, ports at which passengers were taken on board and disembarked (for carriage of passengers).
The Department is required under the draft legislation to publish the information obtained under the mandatory reporting requirements. This is aimed at providing a more open and transparent system of cabotage.
The draft Coastal Trading Bill introduces a civil penalty and infringement enforcement scheme. Under the proposed framework, failure to comply with the mandatory reporting requirements will result in either an infringement notice being issued by the Department or civil penalties of up to a maximum of A$275,000 in the case of a body corporate and A$5,500 in the case of an individual.
Unlicensed ships trading on the coastal trade will be subject to a maximum civil penalty of A$165,000 in the case of a body corporate and A$330,000 in the case of an individual. These penalties are significantly increased compared to the current regime where successful criminal prosecution results in the maximum penalty of A$25,000 in the case of a body corporate and A$5,000 in the case of an individual.
Transitional arrangements and consequential amendments
Under the transitional arrangements proposed under the Coastal Trading Consequential Amendments Bill, a permit or licence issued under the old regime will remain in force and will end on the earlier of 31 October 2012, the day the permit expires or when the Minister cancels the permit.
Existing licensed foreign registered vessels will be eligible to apply for a transitional general licence, and will be given a period of five years upon the grant of the transitional general licence to transition to Australian registration. Foreign registered ships holding a transitional general licence will not have access to the proposed taxation incentives.
Amendments will be made to the Navigation Act 1912 (Cth) so that ships operating on a temporary licence will be allowed to employ foreign seafarers. This is consistent with the current position with respect to ships trading on Single Voyage and Continuing Voyage Permits.
At a practical level, as currently drafted, the new proposed coastal trading regime appears to be very similar to the current regime. The only new aspects being:
- emergency licences are available to all vessels in emergency situations
- licensed ships are subject to mandatory reporting requirements
- the introduction of a civil penalty and infringement notice regime
- it will no longer be an offence for a licensed ship to be in receipt of a foreign subsidy.
The stated desire of the Government is to improve Australia's overall maritime capability. However, an opportunity has been missed to take a fresh look at Australia's coastal trading regime. Because the new proposed regime continues to differentiate between coastal and international shipping by failing to allow those ships on the AISR to obtain general coastal trading licences, this will, in our view, reduce the chances of success of the proposed reforms as a whole.
The success of the reforms will be measured by the success or otherwise of the proposed AISR. Australia should be focussed on making registration on the AISR as attractive as possible to the international shipping community.
When considering the proposed shipping reforms, the Bureau of Infrastructure, Transport and Regional Economic (BITRE) considered the economic impact of a system which allowed AISR registered ships to engage in both the coastal and international trades. BITRE concluded that, under this scenario, AISR registered ships would reap significant cost savings by being able to reduce the proportion of sailing days in ballast (Regulation Impact Statement, August 2010, [4.3.5]).
What you should do now
The Department will be accepting public submissions on the draft of the Coastal Trading Bill and the Coastal Trading Consequential Amendments Bill until 30 January 2012.
The proposed reforms are currently planned (together with the other four bills not yet announced) for implementation in July 2012. This is an ambitious task ahead of the Government's initial proposal of mid 2013. If the proposed reforms affect your business, this is a good opportunity to consider the draft proposals and to have your say.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.