Business Models

Charter Boat ownership

At Charter Yacht Solutions we believe that with careful and cautious decision making owning a charter boat can be a rewarding decision.

The purchase price of owning a boat for operation in charter can often be more than that for a private yacht because of the costs associated with making the boat suitable for use as a commercial vessel. These additional costs might inflate the new boat price by between 5% and 10% depending on the level of work required. When considering the pricing difference between what the factories call a “base boat price” and the complete price for a charter boat, it is important to realise that many of the additional extras listed are extras that a private owner would also request when ordering their boat.

In Australia, when considering purchasing a boat for operation as a Charter Boat, the owners can refer to the ATO website and consider, amongst other things explained on the site, the May 2006 press release which relates to the additional “safety net” legislation. In essence owners have a choice between 2 models depending on their personal circumstances and the operating circumstances of the boat:-

1) A Charter Boat Business which in all respects meets the tests of a complete Charter Boat business as described in the Charter Boat Tax Ruling TR 2003/04 released in May 2003. This can be accessed via the ATO website using a keyword search function. A significant factor in this ruling is the need for the business to indicate prospect of profit and significant commercial purpose as shown in the examples within the ruling. This model set up and operated correctly, potentially allows full negative gearing (FNG) in a similar manner to an investment property where surplus losses from one business may be offset against other assessable income.

2) A Charter Boat Enterprise which may not meet all of the tests of a complete Charter Boat business as described in the Charter Boat Tax Ruling TR 2003/04 released in May 2003, however is still an income producing enterprise. This model potentially allows expenses from the boat to be offset against income from that boat however limited to that income only and any additional losses “quarantined” to be offset against any future revenue from that boat (including any profit on sale). This style of business is also referred to as a Hobby Based Enterprise.

Potential Charter Boat Owners should see this new 2 tiered approach as a stable, common sense platform from which to evaluate their charter boat investment and determine the type of structure which would best suit their circumstances.

Just one of many example circumstance sof ownership might be outlined as follows:

If the owner is operating a $420,000 charter boat as a “Charter Boat Business” and has matched the right boat with the right charter company with suitable occupancy and revenue levels being achieved it could be assumed that the approximately 30% of the Gross Revenue will be retained as a Net return before any interest or depreciation is considered.

If the boat was to earn Gross Income of $120,000 per annum (excluding GST) from 175 days of charter revenue in a year it would be appropriate to assume approximately $80,000 of costs would be incurred as expenses including insurance, berthing, annual haul-out and antifoul, engine servicing, other maintenance, cleaning and turn arounds between charters, operator management fees, marketing contributions, annual registration costs, fuel and all other costs associated with the boats operation. This would deliver approximately $30 - 40,000 net return to the owner per annum.

From this position the end outcome with regards the financial benefits of owning a charter boat vary greatly depending on the personal situation of the boat owner and would need to be considered in light of such variables as:-

a) Any loan structure on the boat including the % of purchase price borrowed

b) The personal tax profile of the owner

c) The period of time the boat will remain as a charter boat

d) The intended circumstance of the boat once it has completed it’s charter life

What you might do now:

1. Talk to Charter Yacht Solutions to refine which charter boat best suits your situation and which charter company would be best to manage your boat.

2. With a written email request from you, Charter Yacht Solutions can provide a set of business model templates and other supporting resources that will assist you and your accountant in the process of determining your specific ownership scenario.