Posted 21/05/2021 by Kaushik Ramesh
The Special Recreational Vessels Amendment Bill 2021 (the Bill) extends the sunset date of the Special Recreational Vessels Act 2019 (the SRV Act) by two years, from 30 June 2021 to 30 June 2023. The Bill was introduced on 25 February 2021 and passed the Senate without debate on 18 March 2021. The Bill was subsequently introduced into the House of Representatives on 22 March 2021. The SRV Act allows special recreational vessels (also known as superyachts) to opt into the coastal trading licensing scheme for the first time.
Special recreational vessels or ‘superyachts’
The industry peak bodies, Australian International Marine Export Group (AIMEX) and Superyacht Australia, define superyachts as luxury vessels that are greater than 24 metres in length and with a capacity of less than 12 overnight passengers, excluding crew (p. 8). These same bodies also note that the superyacht industry is a:
… high-value niche industry catering to the needs of high net wealth and ultra high net wealth individuals pursuing an exclusive experience. It encompasses leisure and superyacht charters (term and event/ corporate charters) and their global supply chains. (p. 8).
The superyacht industry has consistently advocated for regulatory reform to encourage greater visitation of superyachts to Australia, arguing that increased visitation would lead to significant onshore spend in sectors such as tourism, hospitality and retail. The industry has indicated that a foreign guest on a superyacht typically spends around $7,500 a day in local economies.
‘Importation’ of superyachts
Of particular concern to the superyacht industry has been the costs associated with ‘importation’ under the Customs Act 1901, where these vessels are deemed to be engaging in the domestic economy.
The then Department of Immigration and Border Protection in a 2015 fact sheet highlighted how this process applied to superyachts prior to the introduction of the SRV Act. Essentially, if a superyacht operator intended to work in Australia (that is to engage in the domestic economy), then the operator had ‘intent to import the superyacht’. Working in Australia would include, for example, offering commercial charters or carrying fare paying passengers (p. 3).
A superyacht that is imported or intended to be imported is subject to assessment for duty and is required to pay 10% of the value of its taxable importation in GST (p. 2).
The superyacht industry has argued that this GST impost is ‘perverse in that it effectively precludes any charter activity in Australian waters of foreign vessels’ (p. 28).
The reforms (and attempts at reforms) outlined below were aimed at addressing this issue. The SRV Act ultimately allowed superyachts to access a ‘shield’ against importation, provided they operate under a licence. This is discussed further below in this Flagpost.
Attempts at reform
Attempts at reform in this area have been centred on trying to bring superyachts within the ambit of the broader coastal shipping framework provided by the Coastal Trading (Revitalising Australian Shipping) Act 2012 (the CT Act). The CT Act requires, subject to some exemptions, any ship that moves cargo or passengers between ports in different states and territories in Australia in connection with a commercial activity to hold a licence under that Act—in most cases the type of licence is dependent on whether the vessel is Australian flagged or foreign flagged. Further information on the operation of the licensing regime is set out on the Department of Infrastructure, Transport, Regional Development and Communications website.
Section 112 of the CT Act provides a shield against the importation assumption under the Customs Act. In effect, a foreign ship that might otherwise be considered to be imported (for example if considered to be engaging in the domestic economy) can potentially avoid this occurring if carrying passengers or cargo under a licence. This is important because importation can have significant implications in terms of taxation, duty and immigration requirements (p. 116).
However, prior to the commencement of the SRV Act, superyachts were unable to access the CT Act licensing framework, and therefore unable to access this shield from importation requirements. This was because recreational vessels are excluded from the operation of the CT Act (CT Act, paragraph 10(f)) and because licences for foreign ships generally require a minimum of five voyages from port to port (see requirements for applications for a temporary licence: CT Act, paragraph 28(2)(a)), which does not suit the operating model of superyachts (see explanation in the Minister’s second reading speech accompanying the introduction of the Bill for the SRV Act).
In 2017, the Government introduced broader reforms to the CT Act in the form of the Coastal Trading Revitalising Australian Shipping) Amendment Bill 2017 (the 2017 Bill). As part of these broader reforms, the Bill proposed to introduce the ability to apply for a licence for single voyages with departures to and from the same port—this was specifically aimed at aligning the CT Act framework with the operating model of superyachts (see explanation in Stuart Robert’s second reading speech in relation to the 2017 Bill). The 2017 Bill however lapsed at the end of the last Parliament on 1 July 2019. Further background on the reforms proposed in the 2017 Bill are set out in the Parliamentary Library’s Bills Digest.
The SRV Act
On 27 November 2019, the Government introduced the Special Recreational Vessels Bill 2019 (SRV Bill), which subsequently passed Parliament and became the SRV Act in December 2019. The SRV Bill was introduced in the context of an expectation of large numbers of superyachts in the Pacific due to the Tokyo Olympics and the America's Cup in Auckland.
The SRV Act effectively allows superyachts to opt into the licensing regime created by the CT Act. While the SRV Act does not contain the term ‘superyacht’, the definition of ‘special recreational vessels’ effectively aligns with industry’s definition of superyachts, that is, a vessel over 24 metres in length designed to be used wholly or primarily for recreational or sporting activities (SRV Act, section 4).
The SRV Act created a new ‘special recreational vessel temporary licence’ category (SRV Act, Part 2) that could be applied for by the owner, charterer, master or agent of these vessels (SRV Act, subsection 8(1)). The number of passengers applied to be carried cannot exceed twelve, which again reflects industry understanding of what a superyacht is (SRV Act, paragraph 8(2)(c)).
The SRV Act effectively allows SRV temporary licences to be dealt with under the CT Act subject to some modifications (SRV Act, Part 3). For example, references in the CT Act to ‘temporary licence’ include references to a SRV temporary licence (SRV Act, section 11).
This means that, amongst other things, superyachts operating under SRV temporary licences enjoy the shield against importation under section 112 of the CT Act. The assumption is that importation and its associated implications (such as duty and GST) would not apply to superyachts, provided they are operating under a licence.
Bill proposes to extend sunset date
Prior to its passage, a provision was added into the SRV Bill to ensure that the SRV Act would sunset on 30 June 2021 (SRV Act, section 17). This provision was originally proposed by the Opposition and incorporated into the Bill through Government amendments . This was noted in Shadow Minister for Infrastructure, Transport and Regional Development, Catherine King’s second reading speech for the SRV Bill:
… the government has indicated that it will incorporate Labor's amendments into the bill. Labor's first amendment is to include a sunset clause on the legislation. The justification for the bill's urgent passage relates to two global events in the western Pacific in the coming 18 months: the Olympics and the America's Cup. It's therefore appropriate to include a sunset clause of June 2021 to ensure that the government actually considers the broader impacts of its new temporary licence regime and uses this period, in essence, as a trial to ensure that there are no adverse consequences for Australian businesses and that the wages and conditions of Australian shippers are not undermined by this process.
The Bill proposes to extend this sunset date by two years on the basis that the COVID-19 pandemic has affected consultation timeframes and so a longer term solution will not be settled before the current sunset date. The lack of debate in the Senate on this proposal indicates that the extension likely has Opposition and cross bench support.