A boat hire activity MUST amount to the carrying on of a business to claim any deductions for that boat. Deductions are not allowed where the activity is only a passive receipt of income from property.
Broadly, there are two types of arrangements:
- The owner enters into an arrangement to provide the boat to a charter operator, or another party, for the charter operator or that other party to hire, lease or charter to others. This is the arrangement most commonly used.
- The owner directly provides the boat for hire, lease or charter including through an agent.
Deductions for a boat hire activity are not denied if the boat owner …
'…use(s) the boat (or hold(s) it) mainly for letting it on hire in the ordinary course of a business that [they] carry on.'
The use of the boat has to be analysed in both a quantitative as well as a qualitative sense. Whereas, a time comparison would suffice in the majority of cases, other factors, such as the withdrawal of the boat for private purposes for all or most of the peak season may indicate that the main purpose for holding the boat throughout the year was for private use.
See Fact Sheet Boat Hire Arrangements: No Deductions where Activity is only a Lease, for information on the type of boat hire activity which is considered to be a lease arrangement that does not qualify as a business.
Indicators that the arrangement between a boat-owner and a charter operator is a management agreement include:
- The contract for the provision of the boat to the hirer shows that the charter operator is acting as the agent of the boat owner in the boat hire arrangement.
- The boat owner derives income and incurs expenses relating to the charter of the boat.
- The boat owner maintains sufficient control of the operation of the boat.
Indicators that the arrangement between a boat owner and a charter operator is a lease, include:
- The arrangement grants rights of exclusive use and possession to the charter operator in respect of the boat.
- The charter operator retains a right to all charter income and the owner is entitled to a fixed amount per month or a lease fee based on the usage of the boat.
- The owner does not have any right to non-refundable deposits paid to the boat charter operator by prospective hirers.
- The charter operator acts in their own interest, sometimes to the detriment of the boat owner.
Indicators which could determine that a business is being carried on are:
- The extent to which the boat owners participate in, and the effective control they have over, the operation of the charter activity. This is shown by the level of services provided by the owner to the boat hirer, either directly or through the charter operator, in addition to hire of the boat.
- The extent to which they share in the risks and rewards of the activity.
- Whether the activity meets the 'general indicators' of when a business is carried on as discussed in detail in paras 62 to 92 of Taxation Ruling TR 2003/4 on Boat Hire Arrangements. These include:
1. significant commercial purpose or character
2. prospect of profit
3. activities of the kind carried on in a similar manner to those of ordinary trade
4. organised, systematic, business-like manner
5. repetition and regularity; and
6. the size and scale of the activity.
Where a boat is held or used in a manner that satisfies subsection 26-47, expenses referable to the taxpayer's personal use of the boat are not allowable deductions. Suggested methods of apportionment are contained in TR 2003/4 as follows:
- Expenses directly attributable to private use are not allowed (e.g. fuel or catering).
- Variable expenses could be apportioned according to percentage usage (e.g. general maintenance).
- Fixed expenses unrelated to use of the boat could be apportioned based on period of time (e.g. interest and depreciation).
Last Modified: Monday, 16 June 2003