Private ruling: Am I in business - boat charter
Date of advice: 20 December 2024
Published: 17 February 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Is the boat charter activity you conduct considered to be carrying on a business for the purposes of section 26-47 Income Assessment Act 1997 ( ITAA 1997) [1] ? | A1: Yes. Having considered your circumstances and the relevant factors set out in Taxation Ruling TR 2003/4 Income tax: boat hire arrangements and Taxation Ruling TR 97/11 Income tax: am I carrying on a business for primary production? , you are using the Vessel (or holding it) mainly for letting it on hire in the ordinary course of a business that you carry on for the purposes of section 26-47. The arrangement between you and the Charter Operator is an agreement for the Charter Operator to manage the operation of your boat hire activities: the Charter Operator will act as your agent in managing your boat hire activities. As you are using the Vessel mainly for the purposes for letting it on hire in the ordinary course of a business that you carry on, you satisfy the requirements set out in paragraph 26-47(3)(b). Consequently, expenses incurred in respect of your Vessel are not reduced under subsection 26-47(3). Subsection 26-47(2) will not operate to quarantine amounts relating to using or holding the Vessel which you could otherwise deduct.

Relevant facts and circumstances: On XXXX, you entered into contract to purchase the boat (Vessel) for $XXXX. Settlement occurred on XXXX. To purchase the Vessel, you obtained two loans. Both loans are at call loans. On XXXX, you entered into the Management Agreement with the Charter Operator. The Management Agreement provides that the Charter Operator will act as your agent in managing charter operations of the Vessel (boat hire activities). The Management Agreement has an ongoing term length until terminated by mutual agreement by both parties. Under the Management Agreement, you: • are entitled to all hiring fees in relation to the charter of the Vessel and must pay a commission to the Charter Operator for the services Provided by the Charter Operator; • are required to maintain the Vessel to a specific standard at all times; • are responsible for ensuring that the Vessel is furnished appropriately and maintained in the condition necessary for the hiring of the Vessel; • must reimburse the Charter Operator for all expenses incurred on your behalf including mooring or berthing facilities fees; and • are obligated to maintain all necessary insurances for the Vessel. Under the Management Agreement, the Charter Operator agrees to provide the following services acting as agent for you: • manage, promote and market the Vessel and produce promotional materials relating to the Vessel; • to use all efforts necessary to charter the Vessel to suitable customers at commercial rates; • to provide ancillary services to customers including: o inquiry and booking services; o support infrastructure for the customers while the Vessel is on charter; o ensuring that appropriate radio communications are in operation; and o garbage and disposal and fuelling facilities. • to provide office facilities within a specified location for the chartering of the Vessel; • to arrange and/or co-ordinate breakdown services or search and rescue operations when required; • to attend to the initial payment of all third party costs and expenses, including: o additional advertising and promotion of the Vessel; o additional administrative costs, including salaries and wages; and o additional costs of operating the charter base. The Management Agreement stipulates that you may instruct the Charter Operator to provide additional services, including: • carrying out repairs and maintenance on the Vessel; • arranging for suitable moorings or berth facilities of the Vessel at the Charter Operator's anchorage; and • additional services for customers on your behalf, including pre-charter training and assistance, briefings in relation to the limitations of the Vessel's permit regarding safe ports and geographical limitations. You obtained a financial projection for the activity which showed a loss in the first year, followed by profits year on year for the following X years. Under the Management Agreement, your private use of the Vessel is to be up to X days per calendar year, which are not cumulative from year to year. The days in which the Vessel are which used for private use must not interfere with the days that the Vessel is booked for charter.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 26-47 | [1] All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified.