House of Representatives

Tax Laws Amendment (Shipping Reform) Bill 2012

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 5 Seafarer tax offset

Outline of chapter

5.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to entitle a company to a refundable tax offset (a seafarer tax offset) for salary, wages and allowances paid to Australian resident seafarers who are employed to undertake overseas voyages on certified vessels, if the company employs the seafarer on such voyages for at least 91 days in the income year.

Context of amendments

Operation of existing law

5.2 Shipping companies are currently taxed in line with companies in other industries and can claim salary, wages and allowances paid to seafarers as a tax deduction.

Rationale for changes

5.3 The seafarer tax offset is designed to stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills.

Summary of new law

5.4 A company is eligible to claim the seafarer tax offset - a refundable tax offset linked to the concept of withholding payments paid to Australian seafarers for overseas voyages - in certain circumstances. The overseas voyage must be made by a certified vessel, and the seafarer must be employed, by the company claiming the offset, on overseas voyages made by certified vessels for at least 91 days in the income year.

Comparison of key features of new law and current law

New law Current law
A refundable tax offset is available to employers of Australian resident seafarers. No equivalent.

Detailed explanation of new law

5.5 Section 13-1, the list of tax offsets, is amended to include withholding payments made to Australian seafarers. [ Schedule 3, item 1, section 13-1 ]

5.6 The table in section 67-23 lists the tax offsets which are subject to the refundable tax offset rules. This table is amended to include a new item 13 - the tax offset in relation to seafarers available under new Subdivision 61-N. Under the ITAA 1997, Division 67 must state that a particular tax offset is subject to the refundable tax offset rules. [ Schedule 2, item 3, section 67-23 ]

5.7 Subject to certain conditions, a company may be entitled to a refundable tax offset for payments made to Australian seafarers who are employed to undertake overseas voyages on certified vessels. [ Schedule 3, item 2, section 61-695 ]

5.8 The seafarer tax offset is designed to stimulate opportunities for Australian seafarers to be employed or engaged on overseas voyages and to gain maritime skills. [ Schedule 3, item 2, section 61-700 ]

Entitlement to the seafarer tax offset

5.9 In order to be eligible to claim the seafarer tax offset, a company must meet certain qualifying criteria and pay Australian seafarers to undertake qualifying employment.

Qualifying company

5.10 A company is eligible to apply for the seafarer tax offset for an income year if:

the company is a corporation to which paragraph 51(xx) of the Australian Constitution applies; and
the company employs at least one individual in qualifying positions, on certified vessels, for qualifying overseas voyages for a minimum of 91 days in the income year.

[ Schedule 3, item 2, subsection 61-705(1 )]

5.11 Paragraph 51(xx) of the Australian Constitution provides that the Parliament has the power to legislate for the peace, order, and good government of the Commonwealth with respect to foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth.

5.12 The company eligible for the seafarer tax offset is the company who is employing the individual seafarer. This may not necessarily be the company operating the certified vessel. If an individual is employed by a crew management company or through a labour hire arrangement, and is contracted to work on vessels operated by a third party, whichever company's payments to the individual incur a withholding obligation under section 12-35 or subsection 12-60(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) is the company eligible for the seafarer tax offset. [ Schedule 3, item 2, paragraph 61-705(2 )( a )]

Example 5.16 Staffworks is a crew management company with a register of employees. Bluewater is a shipping company. Bluewater contracts with Staffworks to provide, Matthew, an engineer to undertake an overseas voyage on a certified vessel, the Harker. Staffworks pays Matthew to serve on Bluewater's vessel, and in doing so incurs a withholding obligation under subsection 12-60(1) of Schedule 1 to the TAA 1953.Assuming the other eligibility conditions are met, Staffworks is eligible to claim the seafarer tax offset on the relevant payments it makes to Matthew. In negotiating the labour hire arrangement, Bluewater provides Staffworks with a copy of its certificate for the Harker.

5.13 For withholding payments to an individual seafarer to qualify for the seafarer tax offset, the individual must be in qualifying employment with the same company for 91 days or more in an income year. Therefore, a labour hire or crew management company can employ a seafarer to work on a number of different certified vessels operated by multiple companies and still pass the 91 day test as long as the labour hire company is still ultimately the employer of the seafarer. [ Schedule 3, item 2, paragraph 61-705(1 )( b )]

Example 5.17 The Harker is a vessel for which Bluewater has a certificate, travelling on an overseas voyage. The first piece of cargo is loaded onto the Harker on 13 February 2013 and the final piece is offloaded on 30 April 2013. Matthew was employed by Staffworks under a labour hire arrangement to serve as an engineer on the Harker during this period of 31 days. The 31 days count towards meeting the 91 days of qualifying employment requirement.Staffworks later employs Matthew under another labour hire arrangement to undertake an overseas voyage as an engineer on the Eldison for which Ford Shipping holds a certificate. Matthew serves a further 65 days on this voyage. As Staffworks is still the company employing Matthew, and incurring the withholding obligation, Matthew's service on the Eldison also counts towards meeting the 91 days requirement. Example 5.18 Eliot is employed directly by Bluewater to serve as a deck officer on the Harker for 46 days. He is later employed directly by Ford Shipping to serve on the Eldison for 62 days. Although he has served more than 91 days in qualifying employment on certified vessels, he has not served more than 91 days with a single employer and so neither employer is able to claim the seafarer tax offset for payments made in relation to Eliot's employment.

5.14 An individual is taken to be employed for the duration of a voyage if the individual is employed in a qualifying role on any day within the period:

starting on the day on which cargo or passengers to be carried on the voyage (or on any part of the voyage) are first loaded into the vessel or when the voyage begins; and
ending on the first day on which all cargo or passengers carried on the voyage (or any part of the voyage) have been completely unloaded from the vessel, or when the voyage ends.

Example 5.19 The Atlantis loads ore in a port in Western Australia and travels to Japan to unload the ore. The unladen Atlantis leaves Japan and travels to its second destination, China. In China, cargo is loaded onto the Atlantis and it then travels back to a port in Western Australia to unload the cargo. The Atlantis has undertaken three voyages, which are counted towards the 91 days. They are:

Australia to Japan: starting when ore is first loaded in Western Australia and ending when the ore is fully unloaded in Japan;
Japan to China: starting when the unladen Atlantis begins its voyage in Japan and ending when that voyage ends in China; and
China to Australia: starting when cargo is loaded onto the Atlantis in China and ending when the cargo is fully unloaded in Western Australia.

The days between each voyage are therefore not counted towards the 91 days (Schedule 3, item 2, subsection 61-705(3)).

Qualifying employment

5.15 For withholding payments to an individual seafarer to be eligible under the seafarer tax offset, the payments must be made in respect of employment that meets certain conditions. Employment on a particular day qualifies if the seafarer:

is an Australian resident for tax purposes [ Schedule 3, item 2, paragraph 61-705(2 )( a )];
is employed as a master, engineer, integrated rating, steward, or deck officer and is employed to undertake an overseas voyage [ Schedule 3, item 2, paragraph 61-705(2 )( b )]; and
undertakes the voyage on a ship for which a company holds a certificate under the Shipping Reform Taxation Incentives Bill 2012 (SR(TI) Bill) applying to that day. A vessel will meet the requirements necessary to obtain a certificate under the SR(TI) Bill if it meets requirements relating to such things as tonnage, registration and usage in that Bill [ Schedule 3, item 2, paragraph 61-705(2 )( c )].

5.16 A voyage is one where the vessel travels a route that includes an overseas voyage. As such, the vessel must travel between:

a port in Australia and:

-
a port outside Australia; or
-
a place in the waters of the sea above the continental shelf of a country other than Australia; or

a place in the waters of the sea above the continental shelf of Australia and:

-
a port outside Australia; or
-
a place in the waters of the sea above the continental shelf of a country other than Australia; or

ports outside Australia; or
places beyond the continental shelf of Australia.

[ Schedule 3, item 2, paragraph 61-705(2 )( d )]

5.17 Whether or not the vessel travels between two or more ports in Australia in the course of the voyage is irrelevant. [ Schedule 3, item 2, paragraph 61-705(2 )( d )]

5.18 The term 'Continental shelf' is intended to have the same meaning as in the Seas and Submerged Lands Act 1973 .

5.19 For an individual seafarer's employment to count for the purposes of the seafarer tax offset, it must be undertaken on a vessel for which the company operating the vessel has a certificate that applies to the days of the voyage under the SR(TI) Bill. [ Schedule 3, item 2, paragraph 61-705(2 )( c ) and note 1 in subsection 61-705(2 )]

Example 5.20 Ian is an Australian resident employed by Bluewater, serving as a master on the Stirling, which is operated by Ford Shipping and undertaking an overseas voyage. Ford Shipping does not have a certificate for the Stirling. Therefore, Ian's employment does not count towards the 91 day employment requirement and Bluewater cannot claim the seafarer tax offset for any payments made to Ian for his service on that voyage.Amount of the seafarer tax offset

5.20 The amount of the company's seafarer tax offset for the income year is calculated using the following formula:

gross payment amounts x 30%,

and is rounded up to the nearest whole dollar. [ Schedule 3, item 2, section 61-710 ]

5.21 'Gross payment amounts' means the total amount of withholding payments (salary, wages, leave and training allowances), payable by the company in an income year to individuals employed for 91 days or more within the income year, and paid in relation to employment or leave accruing due to being engaged on such a voyage. [ Schedule 3, item 2, section 61-710 ]

5.22 The 'gross payment amount' is calculated with reference to section 12-35 and subsection 12-60(1) of Schedule 1 to the TAA 1953. Section 12-35 defines those payments made to individuals that cause a company to incur a withholding obligation. Subsection 12-60(1) defines the same thing, for individuals employed under a labour hire arrangement.

5.23 The 'gross payment amount' can be calculated by summing any payments made by the company to an individual they employ in qualifying employment for more than 91 days:

that incur a withholding obligation under section 12-35 or subsection 12-60(1) of Schedule 1 to the TAA 1953; and
are made in relation to employment that qualifies for the offset.

Example 5.21 Ford Shipping pays Ian $30,000 in wages and a further $10,000 in bonuses for his work as a master on the Eldison. Ian has done three overseas voyages on the Eldison for Ford Shipping, for a total of 134 days of employment. Ford Shipping has a certificate for the Eldison for each day of Ian's employment. Ian is also paid $30,000 for leave accruing as a result of working for 134 days on the Eldison and is paid $3,000 to undertake a training course that is relevant to his position as a Master.Under section 12-35 of Schedule 1 to the TAA 1953, salary, wages, allowances and bonuses incur a withholding obligation.Ian's gross employment amount is therefore:

$30,000 + $10,000 + $30,000 + $3,000 = $73,000.

Therefore, Ford Shipping can claim a total offset of:

$73,000 x 30% = $21,900.

Ford Shipping also pays Ian a further $10,000 for his work on the Stirling, for which Ford Shipping does not have a certificate. As this is not a qualifying voyage on a certified vessel, the payment does not count for the purposes of the seafarer tax offset. Ian's gross employment amount remains at $73,000 and Ford Shipping's offset remains $21,900.

5.24 Provision is made to enable the Australian Taxation Office to share taxpayer information with the relevant Department in certain circumstances - refer to paragraphs 2.53 to 2.55 in Chapter 2 of this explanatory memorandum.

Application of the seafarer refundable tax offset

5.25 The tax offset is available in respect of qualifying days that occur on or after 1 July 2012. [ Schedule 3, item 2, note in subsection 61-705(2 )]


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