Second Reading SpeechSenator Farrell (Parliamentary Secretary for Sustainability and Urban Water)
The purpose of the government's tax reforms is to encourage and support capital investment.
The Tax Laws Amendment (Shipping Reform) Bill 2012 delivers a best-in-class internationally competitive tax reform package.
The tax concessions contained in this bill aim to address the cost disadvantages faced by Australian ship owners and encourage renewal of the ageing Australian fleet.
The bill provides:
- a zero tax rate for Australian shipping companies;
- provision for accelerated depreciation of vessels via a cap of 10 years to the effective life of those vessels;
- rollover relief from income tax on the sale of a vessel;
- an employer refundable tax offset in relation to seafarers; and
- an exemption from royalty withholding tax for payments made for the lease of shipping vessels.
These concessions are available to companies that satisfy the qualifying conditions and hold a valid certificate, as set out in the Shipping Reform (Tax Incentives) Bill 2012.
Turning to each of these concessions:
Exemption from income tax for ship operators
International experience in Europe, Asia and South America shows that the introduction of financial support-usually in the form of a tonnage tax and personal tax breaks for seafarers working in the international trade-has had substantial and very positive effects.
The bill I introduce today goes a step further-the government is not introducing a new tax in the form of a tonnage tax-instead it exempts qualifying income from shipping from taxation.
The effect of this provision is that Australian resident companies with vessels registered in Australia, including those on the international register, will not pay company tax.
Furthermore, a generous approach is taken to defining these activities that generate eligible shipping income.
This bill provides ship owners with an accelerated rate of depreciation for their ships.
When introducing the previous bill, I mentioned before Australia has an old fleet compared to international standards.
This is in part due to our depreciation rate for vessels being set at 20 years.
This bill cuts that rate in half.
The new depreciation rate will be 10 years.
This provision has multiple effects.
An economic benefit-the cost of operating a 20 year old large bulk carrier is at least 40 percent more than for a five year old ship.
A safety and environmental benefit-newer vessels incorporate new technology making them safer and more environmentally friendly.
An employment benefit as ship building is encouraged.
Roll over relief
The rollover relief concession provides that if a ship is disposed of, ship owners will be able to defer tax due on a balancing adjustment amount by two years.
If a replacement ship is purchased by the end of the two years, the balancing adjustment will be rolled over.
Combined with the accelerated depreciation concession, ship owners will have a greater incentive to invest in more modern and efficient ships.
Refundable Tax Offset
It makes no sense that an Australian seafarer working on a ship in the Port of London should pay Australian income tax while an Australian working as a bartender in a pub in London does not.
This creates a disincentive for hiring Australian seafarers.
Consequently, the bill provides for a refundable tax offset for employers of Australian resident seafarers.
The seafarer tax offset provides an incentive for a company to employ Australian seafarers on overseas voyages.
This will also provide Australian seafarers with the opportunity to develop their maritime skills on ships operating in international trade.
For an employer to qualify for the offset, the seafarer must have served on overseas voyages for at least 91 days in the income year on an eligible vessel.
Royalty Withholding Tax
Finally, payments made for the lease of shipping vessels from foreign resident lessors will be exempt from royalty withholding tax.
This exemption applies to payments made by Australian resident companies for the lease, on a bareboat basis, of qualifying vessels that are used commercially to ship cargo or passengers.
This element is aimed at reducing the costs for Australian shipping operators of securing vessels from overseas.
Together, these tax arrangements ensure investment in Australian shipping will continue.