Tax treaties can affect Australian tax requirements. Australia has signed tax treaties and double tax agreements (DTA) with other countries.
If a tax treaty or a DTA exists between a foreign-based ship operator's country of residence and Australia, the amount received for carriage of passengers, livestock, mail or goods from an Australian port to another country may be exempt from tax in Australia.
Table 1, below, lists DTAs with Australia with a standard ships and aircraft article. Foreign-based ship operators residentof these countries in the table are not liable for tax on amounts received where passengers or goods are discharged outside of Australia.
Table 2, below, lists DTAs with Australia with a non-standard ships and aircraft article. Foreign-based ship operators resident of these countries should refer to the table to determine whether the freight can be exempt.
See also:
- Taxation Ruling TR 2014/2 clarifies the circumstances when freight may be exempt from tax.
Part A – DTAs with a standard ships and aircraft article and its equivalent |
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Argentine agreement Austrian agreement Belgian agreement Canadian convention Chilean convention Chinese agreement Czech agreement Danish agreement Fijian agreement Finnish agreement French convention German agreement |
Hungarian agreement Indian agreement Indonesian agreement Irish agreement Japanese convention Malaysian agreement Mexican agreement Netherlands agreement New Zealand convention Norwegian convention Papua New Guinea agreement Polish agreement |
Russian agreement Singaporean agreement Slovak agreement South African agreement Spanish agreement Swedish agreement Swiss agreement Taipei agreement Turkish convention United Kingdom convention Vietnamese agreement |
Table 2
Part B – DTAs with a non-standard ships and aircraft article |
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Italian convention |
If the shipowner or charterer is deemed to be a resident solely of Italy, it must also have its effective management in Italy to claim an exemption from tax in Australia for amounts received as payment for carriage of passengers, livestock, mail or goods from an Australian port. If the effective management of the shipping enterprise is outside Italy or Australia, then there is a need to consider the application of the convention's business profits article for determining if the freight may be exempt from Australian tax. |
Kiribati agreement |
Australia has the right to tax freight received for carriage of passengers or goods that are discharged at a place outside Australia. However, the amount of tax which Australia can charge is reduced to half of the amount of tax which would otherwise be payable. |
Korean convention |
Freight received for the carriage of passengers or goods that are discharged at a place outside Australia are not liable for tax in Australia. However, freight received for the carriage of passengers or goods that are shipped and discharged in Australia will fall for consideration under the convention's business profits article. |
Maltese agreement |
Australia has the right to tax freight received for the carriage of passengers or goods that are discharged at a place outside Australia unless the company proves that:
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Philippine agreement |
Australia has the right to tax freight received for carriage of passengers or goods that are discharged at a place outside Australia. However, the amount of tax which Australia can charge on such amounts is limited to the lesser of:
However, freight received for the carriage of passengers or goods that are shipped and discharged in Australia will fall for consideration under the agreement's business profits article. |
Romanian agreement |
If the shipowner or charterer is deemed to be a resident solely of Romania and has its effective management in Romania, then Australia does not have the right to tax the freight received in respect of the carriage of passengers or goods that are discharged at a place outside Australia. If the effective management of the shipping enterprise is outside Romania or Australia, then there is a need to consider the application of the agreement's business profits article for determining if the freight may be exempt from Australian tax. |
Sri Lankan agreement |
Australia has the right to tax freight received for carriage of passengers or goods that are shipped in Australia but discharged at a place outside Australia. However, the amount of tax which Australia can charge on such amounts is limited to the lesser of:
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Thai agreement |
Australia has the right to tax freight received for carriage of passengers or goods that are discharged at a place outside Australia. However, the amount of tax which Australia can charge is reduced to half of the amount of tax which would otherwise be payable. |
United States convention |
Freight received for the carriage of passengers or goods that are discharged at a place outside Australia are not liable for tax in Australia. However, the convention article only gives the United States the exclusive right to tax income from hire fees paid or payable under a time charterparty in respect of a ship that is operated in international traffic by the lessee, if the lessor either:
Whether Australia has a right to tax income from hire fees paid or payable under a time charterparty not dealt with above will fall for consideration under the convention's business profits article. Under this convention, Australia has the right to tax freight received for the carriage of passengers or goods that are 'taken on board ... for discharge' in Australia. However, whether Australia has a right to tax income from the lease of a ship (leasing profits) used to carry passengers, or goods that are taken on board and discharged in Australia, will be considered under the convention's business profits article. |
DTAs and Coasting Trade
A DTA does not exempt a foreign-based ship operator from paying tax on income derived by that vessel engaging in coasting trade in Australian waters.
Coasting trade, also referred to as 'coastal trade', is the carriage of cargo that is both shipped and discharged at Australian ports, or passengers who both embark and disembark at Australian ports.
Coasting trade includes both intra-state and inter-state voyages, and voyages undertaken by licensed and unlicensed ships, whether with or without a voyage permit.
Freight beneficiaries are liable regardless of whether one or more charter party clauses indicate otherwise.
Example: Application of a DTA
A container carrier, 'The Eagle' is owned and operated by 'Hallgrimsson Ltd', a company based in Denmark. A current tax treaty exists between Australia and Denmark and it has a standard ships and aircraft article – refer Table 1. Hallgrimsson Ltd contracts to carry general cargo from both Melbourne and Brisbane to Japan. The company also enters contracts to ship and discharge goods between Melbourne, Port Botany, Newcastle and Brisbane, prior to departing Australian waters for Japan.
Applying the current tax treaty between Australia and Denmark, Hallgrimsson Ltd is exempt from paying Australian tax on any payment received for the carriage of goods shipped in Melbourne and Brisbane and then discharged in Japan.
However, under the tax treaty, the company is still subject to Australian tax for any payment received for the carriage of goods shipped and discharged between Melbourne, Port Botany, Newcastle and Brisbane. The voyages Melbourne-Botany Bay-Newcastle-Brisbane are coasting trade and any payment received is deemed to be assessable income. As a result, an Overseas ships – voyage return form must be lodged and 5% of this amount returned as taxable income.
End of exampleSee also: