Private ruling: Am I in business - boat charter
Date of advice: 24 June 2022
Published: October 2022
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 31 January 20XX

Ruling: Q1: Is your boat charter activity considered to be carrying on a business for the purpose of section 26-47 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Under your Agreement, the Charter Operator acts as your agent managing the day-to-day operation of your boat charter activity, and the terms and conditions of the Agreement indicate that it represents a management agreement as opposed to a lease agreement. Also, under the Agreement the Charter Operator provides a number of additional services to charterers, which shows that you are not merely in receipt of passive income. Both these factors point to the conclusion that you are carrying on a business. Additionally, a consideration of the general business indicators provided in TR 97/11 and TR 2003/4 appliedto your boat charter activity, shows that the boat charter activity you have commenced demonstrates a commercial purpose and an intention and prospect of significant commercial profit. The activity also displays repetition and regularity, as well as an organised business-like manner and similarity to other boat charter businesses. As you are considered to be carrying on a business, you satisfy the requirements set out in subsection 26-47(3) of the ITAA 1997. Under this statutory exception, you may deduct any losses or outgoings incurred in relation to your boat charter activities, provided they are not of a private or capital nature.

Relevant facts and circumstances: The partnership (you) has obtained an ABN and registered for GST. You have acquired a boat from a supplier (vessel). The purchase of the vessel was funded from partnership funds, borrowings through a family arrangement, and commercial finance. The vessel will be transferred to the Charter Operator. The Charter Operator will conduct the required checks and registrations if order for the vessel to be used as a charter vessel. It is anticipated that the first charters will begin in the early months of the 20XX-XX financial year. There have been advance bookings made to charter your vessel. 7 bookings have been made to charter your vessel in the second quarter of operation. You signed an agreement with the Charter Operator (Agreement). The Agreement is for an initial period of three years. The Agreement includes the following information: • The Charter Operator will act as your agent in managing the charter operations of the vessel. • You must arrange delivery of the vessel to the Marina at your own expense. You must do all things necessary to have the vessel in working order at the time of delivery, including paying insurance premiums, fees, and compliance with any relevant survey requirements. • The Charter Operator will facilitate all charter bookings by hirers and will use its best endeavours to arrange for the charter of the vessel to hirers. • The Charter Operator is authorised to use the vessel for their own purposes. The Charter Operator will pay you a charter fee on these occasions. • The vessel will only be used within the geographical limits agreed upon by yourself and the Charter Operator. • You will reimburse the Charter Operator for arranging or supplying mooring facilities for the vessel. You authorise the Charter Operator to temporarily move the vessel at your own risk and expense to another place of mooring in the event of an emergency. • You authorise the Charter Operator to conduct the following activities: o Promote, advertise and market the vessel. The Charter Operator will primarily promote the vessel through their website, with additional promotion to occur through boat shows, signage and word of mouth. o Attach signage to the vessel for promotional purposes. o Provide services to hirers such as inquiry and booking, pre-charter training and assistance, support infrastructure while the vessel is on charter, waste disposal and fuelling facilities, and provision of suitably qualified skippers and crew if required. o Clean the vessel and perform other turnaround services as required after each charter. o Conduct any repairs and maintenance required after each charter. Repairs and maintenance up to the value of $XXXX may be conducted without your prior consent, however for anything costing more than $XXXX, the Charter Operator will obtain your consent. You authorise the Charter Operator to spend more than $XXXX on necessary repairs and maintenance if it is not possible or practicable for the Charter Operator to contact you. o Replace all worn and damaged equipment up to the value of $XXXX without your prior consent, however for anything costing more than $XXXX, the Charter Operator will obtain your consent. You authorise the Charter Operator to spend more than $XXXX on urgent equipment replacement if it is not possible or practicable for the Charter Operator to contact you. o You are responsible for ensuring that the vessel is appropriately insured at all times. This includes insurance for loss or damage as well as public liability insurance. You may authorise the Charter Operator to effect and maintain insurance policies for the vessel at your expense. o You are entitled to all charter fees earned. o You will pay the Charter Operator a commission fee and a service fee. You will reimburse the Charter Operator for all other expenses incurred on your behalf relating to the charter of the vessel. o The Charter Operator will provide you with a monthly report containing all charter income earned and all expenses incurred. You authorise the Charter Operator to offset the expenses against the income earned prior to forwarding you the income. o You are entitled to inspect the vessel upon reasonable notice. Prior to acquiring the vessel, you: • Conducted research into boat charters to determine the type of vessel that would maximise the return on investment. • Sought advice about the tax implications of such a venture. • Obtained a projection of the financial performance of the proposed activity over several years. The financial projection indicates that the charter activity will be profitable for the full 10 years covered by the projection. You intend to use the vessel for private use for approximately 15 days per year. The financial projection takes into account this 15 days of private use of the vessel. You will maintain your own records to monitor the performance of the vessel as well as to form the basis for the financial information required to meet taxation obligations when they arise. The records you will maintain will be based on monthly statements and booking reports from the Charter Operator.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 26-47