Boat hire arrangements: No deductions where activity is only a lease

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

What if the income I get is from leasing my boat?

If you only provide a boat under a lease then generally you are not carrying on a boat hiring business and so you would not be entitled to deductions for your boat. Nevertheless the boat hire receipts will generally be assessable income.

What if the income I get is from hiring my boat out directly or under a management agreement with a charter operator?

If a boat owner receives money from hiring out their boat directly, or under a management agreement with a charter operator, it is still a requirement for this activity to amount to the carrying of a business in order to claim deductions under 26-47 of the ITAA 1997. All the general business indicators must be considered to determine whether a boat hire activity amounts to the carrying on of a business.

What is the difference between a management agreement and a lease agreement?

Indicators of a lease agreement can include:

• Rights of exclusive use/possession of the boat to a charter operator.
• Charter operator retains right to all charter income with owner being entitled to a fixed amount per month.
• Charter operator does not pass on a lease fee based on the usage of the boat.
• Owner does not receive any right to non-refundable deposits paid to boat charter operator.
• Charter operator acts in their own interests and not demonstrably in best interests of the boat owner.

Indicators of a management agreement can include:

• The boat owner shares in the risks and rewards of the business activity.
• The contract for the provision of the boat to the hirer highlights that charter operator is acting as the agent of the boat owner in the boat hire arrangement.
• Boat owner derives income and incur expenses relating to the charter of the boat to third parties.
• Boat owner maintains a sufficient level of control of the boat.