Edited version of private advice

Authorisation Number: 1052214622492

Date of advice: 21 February 2024

Ruling

Subject: Am I in business?

Question

Is the boat charter activity you conduct considered to be carrying on a business for the purposes of section 26-47 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Having considered your circumstances and the relevant factors the Commissioner has the view that the boat charter activities are considered to be the carrying on of a business for the purpose of 26-47 of the ITAA 1997.

As you are considering to be running a business, paragraph 26-47(3)(b) of the ITAA 1997 applies so that subsection 26-47(2) of the ITAA 1997 does not prevent you from deducting a loss for their boat charter activity. In other words, you are not required, under subsection 26-47(2) of the ITAA 1997, to quarantine the loss for a deduction in relation to your boat charter activity.

Taxation Ruling 2003/4 Income tax: boat hire arrangements (TR 2003/4) provides an outline of relevant indicators whether a personal is in business regarding boat hire arrangements, notably:

•         Does the activity have a purpose and prospect of profit?

•         Does the activity have a significant commercial purpose or character?

•         Is the activity regular and repeated?

The behaviour of the taxpayer activity demonstrates a commercial purpose and prospect of profit which have been displayed by forecast on display. Further the client discussion to make a sizeable purchase for the boat via a combination of home equity and self-funding.

TR 2003/4 explains that services may be provided directly by the boat owner or through the charter operator as the manager of the boat owner's activity. Though you will only be involved in decisions marking around the maintenance of the vessel and periodic site inspections the charter operator estimates they will operate 200 charters days a year.

Whether letting of a boat on charter amounts to the carrying on of a business rather than passive receipt of income depends on the level of services provided in addition to the hire of the boat. The following services are offer by the charter operator:

•         manages, promotes and markets the boat;

•         issuing of accounts and processing of deposits and payments;

•         arrange suitable mooring or berth facilities for the boat;

•         charter briefing including training and assistance in the correct operation of the boat and safety equipment;

•         garbage disposal and fuelling of the boat;

•         support infrastructure for the hirer while the boat is on charter, including a radio and rescue service; and

•         boat permits for safe ports and knowledge of geographical limitations.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You entered into a sale contract to purchase a charter boat.

You purchased the boat for a sizeable cost which you funded through a combination of home equity redrawing and self-funding.

The boat was previously in a charter as part of a fleet and purchased as a going concern for GST purposes.

You entered into a charter management agreement with the previous owner to act as your agent in managing charter operations of the boat.

You are running the boat charter activity as a sole trader and have put an ABN in place for this purpose.

You obtained a financial projection for the activity which showed a loss in the first year follow by a profit in the second year.

You based the projections on historical performance and future bookings which demonstrated the activity generated a profit over the life of the charter operation.

You will be involved in the decision making around maintenance of the vessel as well as periodic inspections on site. You will maintain records required in order to meet your tax obligations as they fall due.

Private use of the boat of 28 days per calendar year is allowed under the charter management agreement but cannot interfere with the primary goal of commercial charter.

You intend to use the vessel for private use for less than 28 days per year.

You provided a copy of the charter management agreement which contained relevant clauses in relation to the role of the agent.

You provided a copy of your financial projections.

You provided a copy of your purchase agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 26-47

Income Tax Assessment Act 1997 subsection 26-47(2)

Income Tax Assessment Act 1997 paragraph 26-47(3)(b)

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