Salt, sea and taxes

By Fiona Rotherham

Friday 1st February 2002

The IRD's plans to tax superyacht crew members could force a mass exodus of the high-spending yachties - just when the America's Cup has lured them here

Oh, to be rich and famous. Thousands of us crowded into Auckland's Viaduct Basin during the last America's Cup. Sure, we were there to see the yacht racing, but we could have stayed home and watched them on TV. Most of us just wanted a close-up gawk at the luxurious superyachts lined up in the basin, and a peek at how their wealthy owners spend their time on board.

Some 100 superyachts visited our waters to watch the America's Cup racing last time; around 140 are expected for the 2003 cup. The boat-building industry hopes many will stick around for a while and get some good-priced refits and repairs - a nice little money-spinner for New Zealand. Well, unless the Inland Revenue Department sticks its oar in.

It looks innocuous enough - a small booklet entitled America's Cup 2003: Tax information for overseas participants and visitors to New Zealand.

The IRD's little white book warns that you have to pay income tax if you are: a challenging syndicate; a land-based syndicate; sailing crew members; a judge or an official; or a superyacht operator or crew member. It is the latter that most worries the local boating industry. The PAYE is liable even if the wages are paid offshore.

The tax will be enough to force many of the superyachts to not come here, says Lane Finley, executive director of the marine exporters' group Marex.

Hang on, won't these guys just do what their wealthy owners say? Well, apparently good superyacht crews are hard to come by, and if half the crew don't want to come because they aren't keen on paying PAYE in a country they don't live in and whose facilities they won't use, the owner is likely to listen to them and simply fly to Auckland for the racing. The yachts will head to cheaper waters (most likely Australia, which is also pitching hard for superyacht business) for their refits. And we aren't talking small-fry in terms of business lost.

New Zealand's superyacht exports grew by $66 million in the March 2000 year, and are estimated to be $150 million in the year ending this March. And that's just the boatbuilding side. These high-worth owners also spend a lot of money while in town, including $25 million annually on refits and repairs.

Marex recently commissioned a report from Deloitte on all the tax issues facing superyachts, so there would be no nasty surprises when they arrive. There were tax problems last time around but, curiously, not over PAYE. Although income tax law covering these crew members remains unchanged since the last cup, the IRD chose to turn a blind eye. The little white book changes all that.

"These boats have been coming here for 20 to 30 years and no one has ever said a word about this," says Allan Jouning, former captain of superyacht Itasca, which sailed here for the 1999/2000 cup. "They're just waiting until the world's attention is on us and then they'll do it."

IRD, in a written reply to Unlimited, says the tax on superyacht crew members is no different to that of any other resident or non-resident person performing services in this country. As to why it hasn't applied the law before, IRD says it is up to the yacht owners to deduct the tax from crew members' wages and it is simply reminding them to do so as part of an overall raising of public awareness of tax obligations.

The crew members can avoid the tax if they are here less than 92 days. Trouble is, most of the superyachts stay for up to six months. They are expected to arrive around October or November this year for the start of the Louis Vuitton Cup challenger series. Their owners return to watch the America's Cup finals and most of the yachts linger until the end of the cyclone season in March.

Deloitte says double tax agreements can provide some relief for crew members but only if certain conditions are met - typically, being in the country less than 183 days and having an employer who is a non-resident. Again, the trouble is that only a few of the sailors pay tax in a country covered by our double tax agreements, Jouning says. Most are non-residents without bank accounts, who merrily avoid paying tax in any country as they live on board a foreign-flagged vessel. They spend their lives constantly on the move from port to port.

If the IRD enforces this tax, New Zealand will be the only country in the world forcing these crew members to fork out for PAYE. Fort Lauderdale is the biggest superyacht port in the world, yet the Americans have never tried to tax the crews.

"I'm not saying we have to follow what everyone else does, but when you're different to everyone else on tax, you are going to stand out pretty badly," Jouning says.

The industry has already had some success on the tax front with GST. An amendment was recently passed by parliament to allow zero-rating of non-fixed items on board the yachts (such as the spare anchor) and on consumable goods supplied to foreign-based pleasure craft leaving New Zealand, on the basis that stores are likely to be consumed outside New Zealand and therefore not subject to GST.

If IRD won't back down on PAYE, Marex plans to lobby government on the increasing value to the general public of these superyacht visits. IRD says the likely gain from the move is impossible to calculate precisely, but would be several million dollars. But Finley disputes that figure. "For the sake of a few dollars, IRD will end up turning away a huge amount of dollars."

Fiona Rotherham
fiona@unlimited.net.nz

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