Edited version of private advice

Authorisation Number: 1051974598205

Date of advice: 22 April 2022

Ruling

Subject: Am I in business - boat charter

Question

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

Answer

Yes.

The facts and circumstances of this case satisfy the business indicators and requirements provided by Taxation Ruling 2003/4 Income tax: boat hire arrangements (TR 2003/4). Therefore, we consider the taxpayer's intended boat charter activity to be carrying on a business for the purpose of section 26-47 of the ITAA 1997.

As the taxpayer is considered to be carrying on a business, subsection 26-47(3)(b) of the ITAA 1997 applies so that subsection 26-47(2) of the ITAA 1997 does not prevent them from deducting a loss for their boat charter activity. In other words, the taxpayer is not required, under subsection 26-47(2) of the ITAA 1997, to quarantine a loss for a deduction in relation to their boat charter activity.

The main reason the taxpayer's intended boat charter activity is considered to be carrying on a business is in regards to its overall profitability. The actual details should be reviewed at the end of the first year of operation as this private ruling decision will not apply if the taxpayer's boat charter income and expenses vary significantly from the information provided with this application. Should this situation arise, the taxpayer may wish to submit a new private ruling application with updated facts for us to consider.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

The taxpayer is in the process of acquiring a boat, with the intention of placing the vessel in charter in the XX region.

The taxpayer entered into a purchase agreement for the acquisition of the vessel and paid a deposit of XX in XX 20XX.

The boat is expected to be delivered on or about XX XX 20XX.

Once delivered, surveyed and all other requirements are complete, the taxpayer intends for the vessel to be included in the fleet of a charter operator under an agency agreement - they anticipate this to occur around XX XX 20XX.

The taxpayer is currently in discussion with more than one potential charter operators who are long established in the area.

The taxpayer has obtained draft management agreements but has not yet signed any of the agreements.

The initial agreement will be for XX years with an option to extend for a further XX years.

It is expected that any private use will be limited to XX days at most during a XX-month period and such use will be during off-peak times to not interfere with the primary purpose of generating revenue through charters.

Prior to entering the purchase agreement for the acquisition of the vessel, the taxpayer conducted research into the proposed activity. This included:

•         discussions with potential charter operators,

•         seeking advice from taxation advisors, and

•         independent research into the commercial viability of the operation.

The taxpayer's research led them to develop a business plan which included a XX analysis, the identification of the targeted market and a reviewed financial projection to establish the likely performance of the operation over time.

The financial projection was developed by the taxpayer's Tax Agent using the XX value method.

The taxpayer will maintain their own records and receive reports regularly from the charter operator. This will enable them to monitor performance for future planning and provide the required documentation to meet their tax obligations as and when they fall due.

The taxpayer intends to use their ABN as a sole trader.

By utilising a charter operator as an agent, the taxpayer can take advantage of the economies of scale provided by being part of a larger fleet and set up as well as the extensive experience of the operator. This will provide strength to the commercial viability of the proposed enterprise.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 26-47