ATO Warns Yacht Owners Over Tax Claims

by Mary Swire, Tax-News.com, Hong Kong

08 July 2002

The Australian Taxation Office (ATO) on Friday issued a warning to yacht owners who lease their boats to boat chartering businesses, in order to secure substantial tax benefits.

Tax Commissioner, Michael Carmody announced last week that the ATO is now denying unsupported applications from boat owners endeavouring to reduce their income tax liability by claiming losses arising from boat chartering operations. 'Owners are invited to supply additional information to support their application,' he said in a statement.

Referring to a recent case - in which the taxpayer in question was claiming large losses from the boat chartering operation to offset income tax liability, whilst in actuality only chartering the boat for around 75 days a year - Mr Carmody cited section 26-50 of the 1997 Income Tax Assessment Act, and its predecessor in the 1936 Act, both of which were designed to stop boat owners from claiming losses for tax purposes unless the yacht was genuinely used in the course of daily business:

'The pupose of the provision was to deny deductions for expenditure relating to boats, ski-lodges, holiday cottages and facilities of similar kinds unless a genuine and substantial business need for the facility is established. It was thus an early attempt to deal with arrangements that were basically fringe benefits,' the Tax Commissioner explained, adding that:

'We find it difficult to see that a person owning one yacht and simply leasing it to a charter company could be said to be carrying on a business.'

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