Tax Change For Superyacht Crews
28 May 2002
Cabinet has agreed to a tax change, effective immediately, that will exempt crewmembers of visiting superyachts from paying New Zealand income tax.
The change was brought about after representation from the Marine Industry, who feared their sector would lose millions of dollars of income as a result of superyachts not staying for refits in New Zealand.
“This decision has been made on a sound economic basis,” Minister for the America’s Cup Trevor Mallard said today.
“While the crewmembers themselves are undertaking employment for reward in New Zealand, the yachts upon which they serve are in New Zealand only for the private and domestic purposes of their owners. They are not here to conduct business.
“Yet there is evidence that the way we tax the crews of the yachts while they are in New Zealand was causing the superyachts to spend less time in New Zealand than they otherwise might have. As a result the marine industry was missing out on refits that could last many months.
“New Zealand’s boat builders and refitters are among the best in the world. They have a reputation for quality and innovation that is seeing New Zealand become the preferred South Pacific destination for superyachts needing maintenance and refitting.
“The government had two choices: keep the tax law the same, and have the yachts and the refit business leave the country or change the tax laws, keep the vessels here and have it flourish. That is what drove our decision.
"To remove the barrier, the government has decided to change the law so that superyacht crewmembers are exempt from New Zealand income tax if the yacht is in New Zealand for private and domestic purposes,” Trevor Mallard said.
Details of the
legislation will be worked-out with industry representatives
and then included in one of the taxation bills currently
before Parliament. Once enacted, the change will be
effective from today.
Question and answers
attached
Questions and answers
Why do the crew of
visiting super-yachts have to pay NZ income tax?
All
non-residents temporarily employed in New Zealand are
generally subject to our income tax laws. There is a
limited exception for persons (other than some entertainers)
who are in New Zealand for less than 92 days and are
employed by a non-resident - provided their income is
taxable in their country of residence. Bilateral tax
treaties can modify these rules.
Will the tax change apply
to other people, such as entertainers, who are also in New
Zealand temporarily?
No. Non-residents who come to New
Zealand for commercial reasons (including entertainers) will
continue to be subject to the existing rules.
If we don’t
tax the crews and there is no GST on the work done on the
yachts, what does New Zealand stand to gain out of this
arrangement?
The New Zealand economy gets the benefits of
any refit or maintenance work undertaken on a yacht that
would otherwise have gone elsewhere, plus any spending by
the crews. The government benefits from income tax on the
providers of refits, PAYE on the wages of refit workers and
any GST on purchases by the crews.
Do super-yacht crews
visiting other countries have to pay income tax
there?
Our understanding is that the laws applying to
super-yachts are pretty much the same everywhere: income tax
applies, but with significant local variations around things
like exemptions for short-term stays and income thresholds
that apply before tax is imposed. Whether they are actively
enforced is another matter.
Is the law change just a tax
concession?
No. Because the superyachts are in New
Zealand for private purposes, the proposed change also
reflects the practical reality that the employment of crew
on superyachts visiting New Zealand has no meaningful
connection with New Zealand. Taxing crew of superyachts just
doesn’t make sense if they can escape the tax so easily by
leaving New Zealand on their yachts and going elsewhere for
their refits – possibly Australia. In that case, New
Zealand won’t collect any PAYE. Nor will it get the refit
and tourism business that superyachts bring to New Zealand.
Will this change create a tax loophole?
No. It is
intended that this change will have very limited
application. But the government will be keeping a close eye
on its application in practice. If it transpires that this
new law is being used for tax avoidance purposes the
government will review its scope and application.
When
will the change be enacted?
The law change will have
effect from the date of announcement. The government will
move as quickly as the legislative programme will allow to
enact these changes. We will include them in a tax bill
that is currently before Parliament's Finance and
Expenditure Committee. It is uncertain, at this stage,
exactly when that bill will become
law.