Boat hire arrangements: What tests apply to determine whether activity amounts to the carrying on of a business

A boat hire activity MUST amount to the carrying on of a business to claim any deductions for that boat.

What are the business tests that apply to boat hire arrangements?

General indicators of a business as applied to boat hire arrangements:

Determining whether a taxpayer's boat hire activities amount to the carrying on of a business involves considering the general indicators of when a business exists. No single factor determines whether a business is being carried on. The overall impression gained, once all the business indicators are considered becomes the key factor. These general business indicators include:

• Significant commercial purpose or character:

A business is usually carried on such a scale and in such a way as to show it is being operated on a commercial basis and in a commercially viable manner and, with an intention of producing commercial gain.

• Prospect of profit:

This indicator determines whether the boat owner entered into the boat hire activity with an intention to make a significant financial or commercial gain.

• Activities of the kind carried on in a similar manner to those of ordinary trade:

The boat hire activity is more likely to be a business where it is carried on in a similar manner to other businesses in the industry. Features which may indicate similarity could include; use of boat not primarily directed at private use and the charter operators (whether boat owner operates the activity directly or through another party) has appropriate licenses, permits, experience, indemnity cover and insurances.

• Organised, systematic, business-like manner:

Boat hire activities are more likely to be a business where they are carried out in an organised, systematic and business-like manner.

• Repetition and regularity:

A boat hire activity is more likely to amount to the carrying on of a business where the activity has repetition and regularity in its conduct.

• Size and scale of activity:

Usually, the larger the scale in which the boat owner conducts the boat hire activity the more likely it is that it will amount to the carrying on of a business.

What happens if the boat owner fails the business tests?

If your activity does not amount to carrying on a boat hiring business then deductions that would otherwise be allowable are denied. Nevertheless the boat hire receipts will generally be assessable income. You will also be denied some credits for GST.