The Australian Government has released draft legislation to enact the tax reforms for the Australian Shipping Industry announced last year.
The reforms are part of a package intended to stimulate the industry and create an internationally competitive industry.
The package of reforms comprises:
- tax exemption for qualifying activities by Australian shipping companies
- simplified licensing for shipping activities
- establishment of an Australian International Shipping register
- establishment of a Maritime Workforce Development Forum
These reforms build on the discussion paper and consultation process referred to in Shipping Matters dated 13 September 2011.
These reforms are welcome but without conclusion of the "compact" with the Labour movement may have little impact on cost competitiveness of Australian ships and very little impact on the Australian industry.
Income Tax Exemption
Qualifying activities of corporate Australian ship operators will be exempt from income tax.
Companies must obtain a certificate of compliance annually from the Minister for Transport. Certificates will be issued to an entity for a vessel where the following conditions are met:
- the vessel is over 500 gross tonnage
- the vessel is between 200 and 500 gross tonnage and the Minister is satisfied that it is used mainly to carry cargo from or within
- regional or remote Australia
- The vessel is registered on the general register or the international register established under the Shipping Registration Act.
- The vessel is not a
- Recreational vessel
- Fishing or fishing support vessel
- Offshore industry vessel (a vessel used mainly in exploring or exploiting mineral and other non living resources of the seabed and its subsoil)
- Inland waterways vessel
- Salvage vessels
- Vessels used mainly in stationery position
- Government vessels
- Australian (or other countries) defence force vessels
- The vessel was used or available for use wholly or mainly for business or commercial activities involving carrying shipping cargo or shipping passengers on voyages.
- The vessel need only be operated by the company as the following activities (examples "core shipping activities") would also be included as qualifying activities in relation to a vessel operated by a company
- Carrying cargo or passengers
- Crewing the vessel
- Carrying goods on board for the operation of the vessel
- Providing shipping containers
- Loading or unloading shipping cargo
- Incidental activities of value less than 0.25% of core shipping activities ("incidental shipping activities")
The process for obtaining a certificate will incorporate disclosure and approval of the management and minimum training requirements; ensuring that industry plays its part in securing a stable maritime skills base.
Companies will be able to elect to write off vessels over 10 years as an alternative to income tax exemption.
Companies can opt in and out of this concession at any time. Where a company opts in, the remaining deduction can be claimed at the accelerated rate by shortening the remaining effective life of the vessel. Where companies opt out the remaining claims are made over the remaining number of years of the original effective life of the vessel.
Companies claiming on a diminishing value basis can elect to claim the remaining costs at a rate of 15% per annum.
Balancing Adjustments on disposal of Vessels
Any assessable balancing charge is deferred until the second income year after the disposal occurs. The balancing charge may be rolled over into a replacement vessel cost base.
This measure only applies where the income tax exemption does not apply at the time of disposal. In that case the balancing charge will be assessable in accordance with the current rules.
Capital Gains Tax
Capital gains made on disposal of income tax exempt vessels are exempt from capital gains tax.
Loss Wastage Rule
10% of exempt shipping income will be applied against and will absorb current or prior year losses from other activities of a corporation.
Royalty Withholding Tax
From 1 July 2012 bareboat charter fees paid by a resident Australian company for a qualifying vessel will be exempt from Royalty Withholding Tax.
Refundable Tax Offset for Seafarers
A refundable tax offset for 27% of the amount of salary or wages paid in respect of Australian resident seafarers who spent 91 days or more on international voyages on qualifying vessels in an income year will be paid to the resident companies who employ the seafarers.
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