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Tax Guidance Issued For Foreign Ships Visiting Australia

by Mary Swire,, Hong Kong

04 May 2012

The Australian Taxation Office (ATO) has recently issued guidance on the tax requirements that must be met by foreign-based ship owners and charterers carrying passengers, livestock, mail or goods shipped in Australia.

To satisfy the requirements, those ship operators (both non-residents and Australian residents whose principal place of business is outside Australia) must lodge an Overseas Ships - Voyage Return, and pay the assessed tax liability. The tax payable is commonly referred to within the shipping industry as 'freight tax', and is a liability of a ship operator who receives the freight payment for carriage.

Such a voyage return must be completed and lodged with the ATO for each vessel deriving income from voyages within Australian waters. This includes both intra-state and inter-state voyages, as well as a ship's departure voyage. This can include the 'transhipment' of cargo and/or paying passengers (that is, transferred from one vessel to another).

The Australian tax code states that 5% of any amount received, as payment for carriage, is deemed to be taxable income derived in Australia. Where a contract may specify potential payments other than the agreed fee or 'freight', amounts paid for such as 'demurrage' and 'dispatch money' will affect the total amount received for carriage.

Therefore, the source of income is based on the location of the activity rather than where the payment is made or where the contracts are signed, and the freight tax does not apply to amounts received for a ship's journey to Australia (such as freight paid in respect of cargo loaded in an overseas port and transported to an Australian port).

It is noted that operators of cruise liners or any other visiting ship that derive income from fares, for the carriage of passengers embarking in Australia, should be aware that such income is subject to freight tax.

The existence of tax treaties can affect the Australian tax requirements. Where there is a double tax agreement, or tax treaty, between a freight beneficiary's country of residence and Australia, the voyage from an Australian port to another country may be exempt from tax.

TAGS: compliance | tax | business | marine | double tax agreement (DTA) | law | Australia | fees | agreements | tax rates | trade

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