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Shipping Reform (Tax Incentives) Bill 2012

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2010-2011-2012

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

SHIPPING REFORM (TAX INCENTIVES) BILL 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

 

(Circulated by authority of the Minister for Infrastructure and Transport

the Honourable Anthony Albanese, MP)

 

Shipping Reform (Tax Incentives) Bill 2012

 

POLICY CONTEXT

 

The Shipping Reform (Tax Incentives) Bill 2012 is part of the Government’s Stronger Shipping for a Stronger Economy legislative package.  The full policy context and background to the package is set out in the explanatory memorandum for the Coastal Trading (Revitalising Australian Shipping) Bill 2012 .

 

Stronger Shipping for a Stronger Economy Legislative Package

 

The shipping reforms are an integrated policy framework consisting of three legislative packages:

 

Coastal Trading

·                 Coastal Trading (Revitalising Australian Shipping) Bill 2012

·                 Coastal Trading (Revitalising Australian Shipping) (Consequential Amendments and Transitional Provisions) Bill 2012

Australian International Shipping Register

·                 Shipping Registration Amendment (Australian International Shipping Register) Bill 2012

Taxation Incentives

·                 Shipping Reform (Tax Incentives) Bill 2012

·                 Tax Laws Amendment (Shipping Reforms) Bill 2012

 

OUTLINE

 

The Shipping Reform (Tax Incentives) Bill 2012 , provides a mechanism for the shipping industry to obtain a certificate as an initial step in gaining access to a range of taxation concessions for the shipping industry (additional criteria are contained in the Tax Laws Amendment (Shipping Reforms) Bill 2012) to encourage ship ownership and ship operations in Australia as well as encourage the employment of Australian seafarers. 

Shipping is a global industry characterised by intense competition among international companies with relatively few barriers to entry and exit.  More than thirty foreign jurisdictions, with which Australian vessels must compete, receive the benefits of fiscal support (e.g. tonnage tax, taxation concessions/exemptions, subsidy schemes) under their home registries. 

Many of these countries have introduced fiscal support measures as a means of retaining ships on their national registers rather than see their national flag ships move to foreign registers over which they have less direct control.  This action has seen their formerly shrinking national registries attract back many of the defecting ships and is consistent with the findings of the House of Representatives Committee on Infrastructure, Transport,



Regional Development and Local Government which noted that supportive fiscal measures had resulted in an increase in additional tonnage back to national registers. [1]

The tax incentives will provide for the following:

· Accelerated Depreciation and rollover relief for owners of Australian registered eligible vessels;

· An income tax exemption (ITE) for Australian operators of Australian registered eligible vessels on qualifying shipping income;

· A refundable tax offset for employers who employ eligible Australian seafarers; and

· An exemption from royalty withholding tax for foreign owners of eligible vessels leased under a bareboat or demise charter to an Australian operator.

 

This Bill is the first step a taxpayer will need to take in establishing their eligibility to access the tax concessions.  It provides for the issue of certificates after the end of the financial year to applicants who meet the requirements of the regime.  It also provides companies applying for these concessions for the first time, the opportunity to obtain a ‘notice’ during the first year of entry that will give them a degree of comfort that the arrangements they propose will meet the requirements of the Shipping Reform (Tax Incentives) Bill 2012 , thus reducing the pressure on both them and the Department when they are compiling their tax returns.

In summary the new legislation will:

 

·          Establish eligibility criteria for access to the taxation concessions by defining an

o    Eligible company, and

o    Eligible vessel;

·          Provide a framework for the Department of Infrastructure and Transport (the Department) to issue applicants with a notice and later a certificate confirming they have satisfied the Department’s requirements for the certification;

·          Provide for the Department to collect and collate data in relation to these reforms; and

·          Provide for decisions to be reviewed if disputed.

 

FINANCIAL IMPACT STATEMENT

 

The Bill is not expected to have any significant financial impact.  The cost of the taxation concessions will be contained in the Explanatory Memoranda of the related Tax Law Amendment (Shipping Reform) Bill.

 

 

 

 

 

 

 

 

REGULATORY IMPACT STATEMENT

 

A Regulatory Impact Statement was prepared on the shipping reform package.  This can be accessed at:

 

http://www.infrastructure.gov.au/maritime/shipping_reform/files/RIS_post_OBPR_20110816_formatted.pdf

 

Acronyms

 

Administrative Appeals Tribunal       

AAT

Australian Business Number  

ABN

Australian Company Number

ACN

Accelerated Depreciation

AD

Australian Taxation Office

ATO

Department of Infrastructure and Transport

DIT

Income Tax Assessment Act 1936

ITAA1936

Income Tax Assessment Act 1997

ITAA1997

Income Tax Exemption

ITE

Refundable Tax Offset

RTO

 

 

 



Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Shipping Reform (Tax Incentives Bill) 2012

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

 

Overview of the Bill

This Bill provides a mechanism for the shipping industry to obtain a certificate as an initial step in gaining access to a range of taxation concessions (additional criteria are contained in amendments to taxation law) to encourage ship ownership and ship operations in Australia as well as encourage the employment of Australian seafarers.  This Bill is the first step a taxpayer will need to take in establishing their eligibility to access the tax concessions. It is expected that this legislation will take effect from 1 July 2012.

 

The tax incentives will provide for the following:

·          Accelerated Depreciation for Australian owners of Australian registered eligible vessels;

·          An income tax exemption (ITE) for Australian operators of Australian registered eligible vessels on qualifying shipping income;

·          Access to Accelerated Depreciation and the ITE for Australian owner-operators, where they are able to access both concessions sequentially for the one vessel but not concurrently;

·          A refundable tax offset for employers who employ eligible Australian seafarers; and

·          An exemption from royalty withholding tax for foreign owners of eligible vessels leased under a bareboat or demise charter to an Australian operator.

 

The purpose of the Bill is to provide a gateway to the concessions contained in the Income Tax Assessment Act 1997 for the Australian shipping industry.

 

In order to access the accelerated depreciation, ITE or refundable tax offset a company must demonstrate that it is a trading or financial corporation under Australian law with an eligible vessel, (that is a seagoing vessel not excluded by the provisions of section 10(4), of 500 gross tonnage or more and is registered on the Australian General or International shipping registers.  In addition a company wishing to access the ITE must meet the management requirements - these requirements are directed an increasing the maritime activities conducted in Australia relating to strategic, commercial, technical and crew management.  To access the ITE it must also have a training plan directed at increasing the employment and training of Australian seafarers.  Both the management and training requirements will be elaborated in regulations.

Human rights implications

The Bill engages the following human rights:

 

Right to Privacy

Right to freedom of opinion and expression

 

Article 17 of the International Convention on Civil and Political Rights (ICCPR) specifies that no one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation, and that everyone has the right to the protection of the law against such interference or attacks.   Article 19 provides, amongst other things that subject to restriction in certain limited situations everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice.   

 

Clauses 18 and 19 of the Bill enable the Minister (or Department on his behalf) to seek information, including documents, from anyone the Minister reasonably believes can provide him with information in relation to a company’s status as a trading or financial corporation and its registration on the Australian registers, and in the case of the ITE the management and training requirements, which form the basis of the company’s application for a certificate (or notice) to enable its access to the shipping concessions.  Individuals have 14 days after the request has been made to produce the information or documents. 

 

While the request may be directed to an individual the information sought would in all cases be in respect of a company as the concessions are limited to incorporated entities.  Clauses 22 and 23 enable the Minister to retain and make copies of documents for as long as is necessary to replace them with certified copies for use in all courts and tribunals.  Clause 20 establishes an offence for failure to comply, but clause 21 allows for compensation to pay for the reasonable costs of complying with the request.

 

It should also be noted that a decision made by the Minister in relation to a refusing to issue, vary or revoke a certificate or notice is reviewable by the Administrative Appeals Tribunal.

 

While this Bill imposes an obligation to provide information or documents relevant to demonstrating how a company meets the management and training requirements described in the Bill and in regulations, the Minister must have reasonable grounds to seek that information or documents.  The ability to compel the production of certain information is considered necessary, reasonable and proportionate because a corporate entity that has been granted a certificate will be entitled to substantial benefit in the form of reduced or exempt income tax so long as it subsequently complies with the provisions in the Income Tax Assessment Act 1997 (ITAA). 

 

Clause 25 of the Bill allows the Secretary of the Department to publish certain aggregate information about an entity, a consolidated group or MEC or a vessel and to disclose information to the Commissioner (of Taxation) or other person specified by regulation.  However, the information that may be published or disclosed relates to the grant of a Certificate, or a Notice, but excludes personal information (within the meaning of the Privacy Act 1988 ).  The information is therefore confined to that which relates to companies seeking access to the concessions and is considered necessary, reasonable and proportionate as it will allow the publication of information that will allow assessment of the effectiveness of the concessions and where appropriate the disclosure of relevant information to the Australian Taxation Office, should for example it wish to undertake an audit of a company’s claims.

 

Conclusion

The Bill is compatible with human rights because the extent of any limitation of human rights is reasonable and proportionate to the information sought and benefits conveyed to applicants.

 

Minister for Infrastructure and Transport, the Hon Anthony Albanese MP



NOTES ON CLAUSES

 

Chapter 1—Preliminary

 

Part 1—Short title and commencement

 

Clause 1          Short title

 

This clause provides for the Bill, when enacted, to be cited as the Shipping Reform (Tax Incentives) Act 2012 .

 

Clause 2          Commencement

 

This clause sets out the commencement date for the provisions contained in the Bill to be 1 July 2012.

 

Part 1—Objects and simplified outline of Bill

 

Clause 3          Object of Bill  

 

In line with the general outline above this clause sets out the Bill’s purpose to provide a framework for the taxation incentives for the Australian shipping industry, to encourage ship ownership and ship operations in Australia as well as encourage the employment of Australian seafarers.

 

Clause 4          Simplified outline of Bill

 

This clause sets out the contents of the Bill in summary form and indicates its role in relation to accessing the taxation concessions provided for in amendments to the Income Tax Assessment Act 1997 (ITAA1997). An illustration of how this Bill fits into the process of accessing the tax concessions can be found at figure 1 below:

 

Figure 1: Access to the tax concessions: process

 

·          Notice is for current income year

·          Certificate is for previous income year and may apply for part year

·          Certificates apply per applicant, per vessel, per income year

Clause 5          Definitions

           

Clause 5 sets out the definitions in this Bill.  Most of these are self explanatory.  Particular attention is drawn to the definitions of shipping cargo and shipping passenger which are important to the interpretation of qualifying activities in the amendments to the ITAA1997 in respect of the Income Tax Exemption (ITE). 

 

The definition of shipping cargo is intended to be broad and encompass everything carried for some form of consideration. Similarly the definition of shipping passengers includes all paying passengers. Tonnage is a measurement of the volume of a ship’s enclosed spaces that is governed by the International Convention on Tonnage Measurement of Ships 1969 and applies to all ships built after July 1982.

 

Clause 6          Management requirements

           

This clause provides for the Regulations to specify the management requirements for the ITE. To be eligible for the ITE companies will need to satisfy additional requirements that involve having a substantial proportion of commercial, technical or strategic operations as well as crew management in Australia. 

 

This provision is aimed at growing the maritime cluster of activities performed in Australia.  It is intended that the regulations be framed in a way that enables companies to demonstrate a sufficient mix of these activities are undertaken in Australia.

 

Clause 7          Application to external Territories and outside Australia

 

This clause extends the Bill to every external Territory and to acts, omissions, matters and things outside Australia.

 

Part 2—Certificates for vessels

 

Clause 8          Certificates for vessels

 

This clause provides for the Minister (or the Department on his behalf) to issue a certificate to an applicant if they satisfy certain conditions. These conditions are that the applicant is a company, that they have an eligible vessel (defined in Clause 10) and that the vessel is intended to operate as part of the ‘blue water’ fleet. If the applicant is seeking access to the ITE, the applicant will also need to satisfy additional requirements. As mentioned in Clause 6 the applicant will need to satisfy the management requirements as well as the training requirement which will be spelt out in Regulations to this Bill.

 

 [The training requirement is currently being developed by the Maritime Workforce Development Forum for consideration by the Minister.]

 

The certificate will apply for a whole or part year depending on when the applicant is able to satisfy all of the conditions.  For example if a company demonstrates its eligibility for entry into the ITE from a particular date during the financial year then that will be the date of effect.

 

If the certificate is being sought for the first time in 2012-13 or subsequent, the applicant will be able to apply for a notice from the Department for that first year. The role of the notice provision is set out in clause 14, and in figure 1.

 

The Department may seek further information from the applicant before a certificate is issued (Clause 12) and will not issue a certificate until the applicant meets all requirements. Failure to supply information may result in a certificate not being issued.

 

Clause 9          Shipping exempt income certificates not to be issued in certain circumstances

 

A company (operator) which has been in the ITE regime and has subsequently failed one of the requirements may in certain circumstances be locked out of the ITE for a period of up to ten years. The Minister will determine the length of any lock out period under sub clause 9 (3). This determination under sub clause 9 (5) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . It is included only to assist readers.

 

Clause 9 also provides an additional requirement in that the applicant will need to make a declaration stating they are not an associate of another operator to establish their credentials.  Associate will have the same meaning as in section 318(2) of the ITAA1936.  For example; Company A operates the vessel, Diamond Lucy, and received a shipping exempt income certificate for the 2012-13 year.  Company A was locked out of the ITE regime in 2013-14.  Neither company A nor any associate of Company A may obtain a shipping exempt income certificate for the Diamond Lucy until the lock out period has expired.

 

Note that if the applicant fails eligibility for a shipping exempt income certificate, it could remain eligible for a certificate in relation to the other tax concessions that do not rely on adherence to the management and training requirements.

 

Clause 10        Requirements for vessels

 

This clause sets out what vessels are eligible for the tax concessions. Vessels will need to be over 500 gross tonnes and registered under either Australia’s primary or International Shipping Registers.  Additionally vessels will not be eligible if they fall within the list of excluded vessels in subclause 10(4).  The list aims to confine the concession to the so called ‘blue water’ fleet.  Cargo Vessels between 200 and less than 500 gross tonnes may also be eligible if they are primarily used in regional or remote Australia and the Minister exercises the discretion to admit them. Vessels operating wholly or mainly from a stationary position are vessels which operate as floating hotels or casinos and are vessels anchored more or less permanently.

 

Clause 11        Applying for a certificate

 

This clause sets out that an application for a certificate must be in the approved form, and will be subject to a fee for cost recovery purposes. The fee will be determined in the Regulations to this Bill. The application form needs to be submitted to the Department at least 30 days before the applicant’s tax return is to be lodged for the year in which the concession is sought.

 

The applicant will complete an application form which will include details on the applicant including their company name, ACN and ABN, the name and registration number of their eligible vessel(s), the dates on which they are seeking a certificate, and the tax concession for which they are seeking a certificate. Tax file numbers will not be required.

 

This clause also sets out how the application form for the certificate will act as a reporting tool to the Department on which tax concessions have been claimed in previous tax years.  If the applicant has previously claimed Accelerated Depreciation ( AD) or the ITE on one or more vessel(s) it must include in the application form the name and number of the vessels it has claimed either AD or the ITE on and if the applicant has claimed the seafarer RTO it must also state on the application form the number of seafarers for whom it has claimed a Refundable Tax Offset (RTO). These details will enable the Department to monitor the success of the concessions.

 

If the form is an application for the ITE it will also contain information relevant to the management requirements in clause 6 and details of the agreed training plan which may require information about a company’s future intentions.

Clause 12        Minister may request further information

 

The Minister ( or the Department on his behalf) may request further information from the applicant. Such further information will need to be returned to the Department within ten days after the request was made.

 

Clause 13         Non-compliance relating to certificates

 

If the Department determines that an applicant has failed to supply additional information requested under Clause 19 or the applicant subsequently fails one of the requirements for a certificate that has been issued, a period of grace may be allowed for the claimant to rectify any breach of the requirements.  If, however, the claimant fails to rectify the breach the Minister may vary or revoke the certificate, by writing to the applicant.

 

For example; S & L Pty Ltd operate the Summer Princess (an Australian registered luxury cruise liner) and purchased a 50,000 tonne bulk carrier (Diamond Lucy) on 1 July 2012.  In March 2013 S & L Pty Ltd submit an application for a notice to the Department seeking access to the ITE for the Summer Princess and to gain access to AD for the Diamond Lucy.  The Department assesses S & L’s application and issues the notice.  In November 2013, S & L Pty Ltd submit an application form for a certificate for each vessel which is subsequently granted and applies for the 2012-13 tax year.  Later in 2014, the Department is advised that S & L are not meeting all the requirements for the ITE and following a series of letters revokes the ITE certificate for the Summer Princess.  S & L Pty Ltd will need to amend their company return to reflect the revocation from the date of its effect.  A data exchange protocol for companies will be introduced between the Department and the ATO as part of these reforms (Clause 26).  S & L Pty Ltd will still hold a valid certificate for AD on the Diamond Lucy for the 2012-13 tax year.

 

 

 

 

 

Part 3—Notices for vessels

           

Clause 14        Notices for vessels

 

This clause provides for the Minister (or the Department on his behalf) to issue a notice to an applicant if they satisfy certain conditions.  A notice is designed to:

 

 (a) provide a certain level of comfort for the applicant that they will subsequently qualify for a certificate (Clause 8) and hence can seek to complete the first step in accessing the various tax concessions provided under the cognate amendments to the ITAA1997 contained in the Tax Laws Amendment (Shipping Reform) Bill; and

 

(b) provide the Department with timely data in order to quantify the extent to which the Australian shipping industry is being assisted by these tax concessions.

 

The Department will issue a notice if the following conditions are met in the application form. The conditions are that the applicant is a company, that they have an eligible vessel (defined in Clause 10) and that the vessel is intended to operate as part of the ‘blue water’ fleet.

 

If the applicant is seeking access to the ITE, the applicant will also need to satisfy additional requirements. As mentioned in Clause 6 the applicant will need to satisfy the management requirements as well as the training requirement which will be spelt out in the Regulations to the Bill.

 

Similarly to clause 13 for certificates, a notice may not be issued if the applicant fails to provide additional information sought under Clause 16.

 

A company may also write to the Minister seeking guidance on how the Bill will apply to a prospective venture.

 

A notice provides a company that is investing in vessels or in the Australian maritime industry generally with an early indication of eligibility.

 

Clause 15        Applying for a notice

 

This clause sets out that an application for a notice must be in the approved form, and will be subject to a fee for cost recovery purposes. The fee will be determined in the Regulations to the Bill. The application form needs to be submitted to the Department at least three months before the end of the income year in which the applicant intends to seek access to a tax concession.  After that the applicant would wait until the end of the financial year and submit an application for a certificate.

 

The applicant will complete an application form which will include details on the applicant including their company name, ACN and ABN, the name and registration number of their eligible vessel(s),  and the dates on which they are seeking a notice. The application form will also include which tax concession they will be seeking a certificate for in the following year.

 

 

 

Clause 16        Minister may request further information

 

The Minister (or the Department on his behalf) may request further information from the applicant if required to confirm their eligibility for a notice. Such further information will need to be returned to the Department within 30 days after the request was made.

 

Clause 17        Non-compliance relating to notices

 

If the Department determines that an applicant has failed to supply additional information requested under Clause 16 or the applicant subsequently fails one of the requirements for a notice that it has been issued, a period of grace may be allowed for the claimant to rectify any breach of the requirements.  If, however, the claimant fails to rectify the breach the Minister may vary or revoke the notice, by writing to the applicant.

 

Part 4—Requesting information and documents

 

Clause 18

 

This clause provides for the Minister (or Department on his behalf) to seek information, including documents, from a person connected with an applicant, other than a lawyer, in relation to the requirements for certificates, including exempt income certificates, and notices, including exempt shipping income notices. 

 

Clause 19 Requesting information or documents

 

This clause allows the Minister to request information or documents in relation to certificates and notices and for the person to produce said information or documents within 14 days after the request has been made.

 

Clause 20 Failing to give information or produce the documents

 

A person will have committed an offence if he/she fails to give the requested information (including any documents) requested under clause 19.

 

Clause 21 Copying documents - compensation

 

A person is entitled to reasonable compensation for costs incurred in complying with clause 19.

 

Clause 22 Copies of documents

 

The Department may inspect and make copies of a document relating to clause 19.

 

Clause 23 Minister may retain documents

 

The Minister (Department) may retain a document under clause 19 only for as long as it takes to replace the document with a certified copy for use in all courts and tribunals.

 

 

 

Part 5—Miscellaneous

 

Clause 24 Review by Administrative Appeals Tribunal

 

Clause 24 sets out that a decision made by the Minister in relation to refusing to issue, vary or revoke a certificate or notice is reviewable by the Administrative Appeals Tribunal.

 

Clause 25 Disclosing information

 

This clause allows the Minister (Department) to publish aggregated information it has obtained from applications to certificates or notices provided it is not personal information within the meaning of the Privacy Act 1988.   Typically this information would indicate the impact that the tax concessions are having in terms of take up and growth in the Australian registered fleet.

 

Clause 26 Approved forms

 

This clause describes how applications to access the tax concessions must be in writing and include all relevant information.

 

Clause 27 Delegation

 

This clause allows for the Minister to delegate any or all of his or her functions or powers to senior officers of the Department or of the Australian Taxation Office.

 

Clause 28 Regulations

 

This clause allows for the making of regulations necessary for this bill.

 




[1] House of Representatives Standing Committee on Infrastructure, Transport, Regional Development and Local Government (2008) Rebuilding Australia’s Coastal Shipping Industry p 10