The goods and services tax is a broad-based consumption tax and, in general, is levied on most goods and services consumed in Australia. Introduced in 2000, the GST applies to imported and domestically produced goods, including boats.

The standard GST rate is 10 percent, applied to the taxable value of goods and services at each stage of the supply chain. This tax, if applied, has implications for boat owners as importing vessels into Australia triggers various GST and duty implications for individuals and businesses involved in the transaction.

 

GST on imported vessels

When importing vessels into Australia, GST is generally payable on the determined customs value of the vessel plus any applicable shipping and insurance costs as well as customs duty. The GST liability arises at the time of importation.

Interestingly, if the vessel is overseas and the sale occurs in Australia, and it can be shown on the purchase contract that GST has been paid prior to the vessel entering Australia, GST will not be payable.

The catch for many is that this is generally not the case as the sale price is often not including GST, so while the price seems too good to be true, it is too good to be true, and the vessel will incur GST unless an exemption can be applied.

A common misconception is that GST is not payable on secondhand vessels. This occurs when the purchaser does not realise that the purchase of the vessel, regardless of age, is a taxable supply in accordance with the act. However, being secondhand, the purchase price will be the controlling factor in how much GST is payable. Some exemptions may apply.

A further misconception is where the purchaser paid value-added tax (VAT) in the European Union and then believes, because this was paid, that GST is not payable when entering Australia. Unfortunately, this is not the case and GST will be payable on the import unless an exemption can be applied.

As far as the Australian Taxation Office is concerned, these purchases and imports are fairly easy to track and apply the GST. But what appears not to be enforced is when the purchase or supply of a vessel has occurred in Australia with no GST paid, and then the owner departs Australian waters in the vessel and returns. In these cases, it seems the GST is too difficult to enforce from a practical point of view.

GST exemptions and concessions

Certain exemptions and concessions may apply to mitigate the GST burden on importing vessels, for example:

• • temporary importations for specific purposes (such as boat shows or demonstrations) may be eligible for GST deferral or exemption
  • GST relief may apply to vessels imported for commercial purposes, subject to compliance with specific criteria and documentation requirements
  • imported vessels intended for use solely as commercial ships may qualify for GST exemption under certain conditions.

Input tax credits

Importing vessels for commercial purposes by businesses may allow a claim for input tax credits (ITCs) to be made against the GST paid on importation. ITCs allow businesses to offset the GST paid on imports against their GST liabilities on sales or other taxable supplies, reducing their overall tax burden.

While the lure to avoid GST by claiming the vessel is for commercial purposes is tantalising, establishing a vessel for commercial purposes must be considered at the build stage or by purchasing a vessel that has been purpose-built in survey, otherwise the cost to transfer the vessel into survey may be far more expensive than the GST that was initially being avoided.

Compliance and documentation

Importers must fulfil various requirements to ensure GST compliance when importing vessels, such as:

• • lodging customs declarations accurately
  • disclosing relevant details of the imported vessel and its value
  • maintaining proper documentation, including invoices, bills of lading, insurance certificates and customs declarations to support the importation and GST calculations
  • ensuring the timely payment of GST liabilities to the ATO, with penalties applicable for non-compliance.

For these reasons, employing a competent shipping agent and maritime lawyer allows for this process to proceed smoothly, as customs officers are sticklers for the correct documentation.

Impact on stakeholders

The GST implications for importing vessels can impact various stakeholders involved in the maritime industry in a variety of ways, including the following:

• • importers may bear the direct GST liability (if applicable) and must factor it into their import cost calculations and financial planning
  • boat dealers, brokers and other intermediaries facilitating vessel imports need to understand and comply with GST regulations to provide accurate advice and services to their clients
  • maritime businesses, including shipbuilders, repair yards and service providers, may be affected by changes in vessel importation patterns resulting from GST considerations.

Customs value determination

The customs value of a vessel is generally determined for importation into Australia based on the market value, and highlights the importance of seeking an independent appraisal in the case of a secondhand vessel. Given the customs duty, which if applied will be 5 percent of the vessel’s value, an accurate valuation is crucial as market values change for secondhand vessels.

There may also be situations where exemptions can be applied – for example, where the vessel is 24 metres or longer, the customs duty may be avoided if the bounty rule can be applied. Another possible exemption is where a free-trade agreement exists between Australia and the country of origin.

The GST and customs duty both have significant implications for importing vessels into Australia, affecting individuals, businesses and the maritime industry as a whole. Understanding the application of GST, exemptions, compliance and potential impacts is crucial for stakeholders involved in vessel importation.

By navigating GST and customs duty regulations effectively, importers, brokers and industry players can streamline operations, mitigate tax liabilities and contribute to the growth and sustainability of Australia’s maritime sector. Most importantly, they can correctly advise and guide the boat owner when purchasing or building their dream boat.

About the author

Ocean’s resident legal expert Marcel Vaarzon-Morel, a professional lawyer and director of Vaarzon-Morel Solicitors, specialises in the marine industry and maritime law.

vaarzonmorelsolicitors.com.au

Disclaimer. Ocean Media takes no responsibility for the views held in this article. Readers are always encouraged to obtain their own advice particular to their individual situation.