Bavaria Charter Yacht Ownership and the 30% Investment Allowance Tax Break
The Federal Government announced recently an increase in the 10% “Temporary Investment Allowance” to 30% as further stimulus to encourage businesses to invest in Capital Equipment and Vehicles. The 30% Investment Allowance applies to Charter business investment. Bavaria Yachts Australia and Finlease have worked together to create working models for new Bavaria Yachts being placed into charter programmes.
Subject to acceptance by the Senate the following will apply: The allowance gives businesses a “one off tax deduction” equal to 30% of the capital cost of eligible new equipment and motor vehicles. This is in addition to the standard depreciation claimed for such assets. For example, on a $100,000 machine this equates to an extra $30,000 as a “one off” tax deduction.
The main points:-
• For new assets only
• Must have a cost price in excess of $10,000 ($1,000 if company turnover is less than $2mil p/a)
• Eligible capital equipment (including charter yachts on a full-blown business plan)
• Acquired or ordered between 13th December 2008 and 30th June 2009
• Installed & ready for use by 30th June 2010
What does this mean for charter ownership?
In as layman terms as possible, putting a yacht in charter as a “business” results in a yacht which earns excellent charter revenue which is sufficient to cover all of the operational and holding costs of the boat and provide a surplus “net income” to the owner before interest and depreciation costs.
Provided the boat is operated as a “business”, tax losses generated through the one-off Investment Allowance (30%), depreciation and interest claims which exceed the “net income” can be offset against your other taxable income (including salary). Note: there is no clawback on the 30% Investment Allowance when the boat is ultimately sold at some later point in time.
Additional benefits that reduce the real cost in year one.
For example: If a new charter yacht purchase was $270,000 (after GST rebate) then your taxable income would be reduced by the 30% investment allowance ($81,000) plus depreciation
(which is typically claimed under the STS provisions at 15% WDV depreciation in year one ($40,500) and 30% WDV depreciation in each subsequent year). In summary, the told deprecation and investment allowance in year one is $121,500, i.e. 45% of the cost value of the yacht. If your marginal tax rate was 45% then the boat cost has been reduced by $54,675 tax savings before taking into consideration the net charter revenue from the boat.
Total Yacht incl. QLD Survey $300,000.00
Total ex 10% GST $270,000.00
Investment Allowance $81,000.00
Tax rebate effect at marginal tax 45% $36,450.00
Tax rebate effect at marginal tax 40% $32,400.00
Tax rebate effect at marginal tax 30% $24,300.00
Year 1 depreciation 15% $40,500.00
Tax depn effect at marginal tax 45% $18,225.00
Tax depn effect at marginal tax 40% $16,200.00
Tax depn effect at marginal tax 30% $12,150.00
Act now to secure maximum benefits and ensure a space in a charter fleet.
Charter companies only have a finite number of spaces in their fleets so it’s important to get organised, choose the right boat and confirm your intent with both the charter company and Bavaria Yachts to ensure you can take full advantage of these incredible, once-in-a-lifetime tax breaks.
Bavaria Yachts has excellent relationships with many charter companies across Australia and would be happy to discuss your requirements further.
NB: North South Yachting and Finlease strongly urge you to seek qualified tax and accounting advice on these matters to understand how they can be of specific benefit.