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Calculating the tax liability

Last updated 27 October 2016

In most cases, the foreign-based entity that owns and/or operates the ship will be a company.

This means the taxable income declared in the Overseas ships – voyage return form is subject to the rate of tax applied to companies in Australia, which is generally 30%. As a result, the tax liability will be assessed as 30% of the taxable income. If you consider the rate of tax applying in your circumstances is another rate, please let us know on lodgement of the return. This tax liability is commonly referred to within the shipping industry as freight tax.

Example: Operator leases ship

A ship operator, whose principal place of business is in Vanuatu, leases (charters) the ship 'East West' from its owner and trades in carrying alumina between Australia and India. It contracts with an Australian exporter to carry a quantity of alumina to Chennai. The bill of lading provides that the cargo is to be loaded at Port Gladstone and discharged at Port Chennai. The agreed freight is $50,000, with 75% to be paid on completion of loading in Gladstone, and the balance on discharge of the cargo in Chennai.

In this case, the deemed taxable income of the ship operator is 5% of the whole amount of $50,000 ($2,500). It is irrelevant that part of the freight is to be paid outside Australia. The key point is that the cargo was shipped in Australia.

Example: Shipowner contracts with exporter

A similar scenario as above applies, except it is the shipowner who contracts with the Australian exporter. In addition, the bill of lading includes a clause specifying that the cargo is to be discharged in Chennai by 30 April and stipulating that demurrage or dispatch money may apply at the rate of $1,000 per day. The cargo is discharged in Chennai on 2 May, so incurring $2,000 demurrage.

In this case, the amount deemed to be received by the shipowner is $52,000 – the agreed freight of $50,000 plus $2,000 added to the freight cost for late discharge of the cargo. As a result, the taxable income of the shipowner is 5% of the $52,000 ($2,600).

End of example