House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 2 - Abolishing the seafarer tax offset

Outline of chapter

2.1 Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to abolish the seafarer tax offset.

Context of amendments

2.2 The seafarer tax offset was introduced in 2012 to provide an incentive for companies to employ Australian seafarers.

2.3 A company is entitled to the seafarer tax offset in an income year in respect of an Australian resident individual if:

•

the company engaged the individual for at least 91 days in the income year under a contract of employment or an arrangement that results in a payment that is subject to pay as you go withholding under subsection 12-60(1) in Schedule 1 to the Taxation Administration Act 1953;

•

the individual was engaged as a seafarer (a master, deck officer, integrated rating, steward or engineer) on a voyage to or from a place outside Australia; and

•

an entity holds a certificate for the vessel(s) on which the individual is engaged under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 (broadly, for a company to obtain a certificate, the vessel must meet certain tonnage, registration and usage requirements).

(section 61-705 of the ITAA 1997)

2.4 The amount of the tax offset is equal to 30 per cent of the amounts either paid to the individual (or individuals) in respect of their employment (including leave entitlements), or paid for the training of the individual (or individuals) that is relevant to their employment (section 61-710 of the ITAA 1997).

2.5 The offset is refundable, allowing the company to receive a refund of up to the full amount of the offset from the Commissioner of Taxation if they have no income tax liability to firstly offset (see section 67-23 of the ITAA 1997).

2.6 The rationale for the introduction of the seafarer tax offset was to stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills. Since its introduction in 2012, the seafarer tax offset has been claimed annually by fewer than 20 taxpayers, in respect of, in total, around 250 employees.

2.7 The low level of claims for the seafarer tax offset indicates that it has not achieved its policy intent. It has not been an effective stimulant for the employment of Australian seafarers on overseas voyages.

2.8 The savings from this measure will be redirected by the Government to help repair the Budget and fund other policy priorities.

Summary of new law

2.9 Schedule 2 amends the ITAA 1997 by repealing Subdivision 61-N of the ITAA 1997 to abolish the seafarer tax offset for the 2015-16 income year and later income years.

Comparison of key features of new law and current law

Detailed explanation of new law

2.10 Schedule 2 amends the ITAA 1997 to repeal Subdivision 61-N of the ITAA 1997. [Schedule 2, item 2, Subdivision 61-N of the ITAA 1997]

2.11 Subdivision 61-N provided for the seafarer tax offset, setting out which entities were eligible and the amount of the offset. As a result of the repeal, the offset will cease to be available.

Consequential amendments

2.12 Schedule 2 also makes a number of minor consequential amendments to the ITAA 1997 and the Shipping Reform (Tax Incentives) Act 2012 to remove references to the seafarer tax offset elsewhere in these Acts. [Schedule 2, items 1, 3, and 4, tables in sections 13-1 and 67-23 of the ITAA 1997 and the note to section 4 of the Shipping Reform (Tax Incentives) Act 2012]

Application and transitional provisions

2.13 The repeal of the seafarer tax offset (and the related consequential amendments) will apply to assessments for 2015-16 and later income years. [Schedule 2, item 5]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

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

2.14 This Schedule 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

2.15 The seafarer tax offset is available to companies that employ Australian residents as a seafarer on a voyage on an eligible vessel to or from a location outside Australia. To be an eligible vessel, an entity must hold a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 in respect of the vessel. Broadly, such a certificate can be obtained where the vessel meets certain size requirements, is intended for travel on international waters and is registered on an Australian shipping register.

2.16 Companies eligible for the concession receive a tax offset for 30 per cent of the costs of the engagement of the Australian resident. This offset is refundable.

Human rights implications

2.17 This Schedule does not engage any of the applicable rights or freedoms.

2.18 The offset is only available to companies and the benefit it provides is, at most, minor.

Conclusion

2.19 This Schedule is compatible with human rights as it does not raise any human rights issues.