For Australians interested in travel, one of the appeals of working on a super yacht or cruise ship could be the idea that their income becomes tax-free once they leave Australia.
Unfortunately Australian citizens, and potentially permanent residents, may find themselves still obligated to pay Australian taxes.
The situation has become even more complicated this year, with travel restrictions bringing people to shores they weren’t intending to live on.
The following gives a basic overview of Australian tax residency, with particular regard to individuals working on super yachts or cruise ships. However, since every situation is unique, this information is of a general nature only. You should speak to a qualified tax professional to determine your own situation.
Australian Tax Residents
In simple terms this means that Australian citizens, or long-term residents, who start working on a super-yacht and cruising around the world, will usually be treated as an Australian tax resident.
We note that the Australian government has indicated that it will introduce new residency rules, which among other things will do away with the permanent place of abode test and will introduce a 45 day rule for Australian citizens instead. However, despite being announced these changes are yet to be legislated (as of the date of this blog post) and therefore the question of whether a person has an overseas permanent place of abode continues to be relevant.
Non-Resident for Tax Purposes
Non-residents are only required to pay Australian taxes on income earned from Australian sources. This means that non-residents who are working on superyachts will not be subject to Australian taxes.
While the default may be to assume that anyone who isn’t an Australian citizen is automatically a non-resident once they start working on a ship that cruises around the world, this isn’t necessarily the case either. If their permanent abode is still in Australia, and they continue to hold Australian residency, then they may continue to be an Australian resident for tax purposes as well.
Living in Australia due to COVID-19
One of the factors further complicating issues is the travel restrictions due to the coronavirus pandemic.
Australian citizens have returned to Australia, despite permanently residing in other countries. Australian residents who were travelling have found themselves stuck in other countries. Non-residents who were not planning to stay in Australia have been stuck living on Australian shores. Individuals who have been travelling around in cruise ships may find themselves particularly susceptible to these issues.
The Australian government has indicated that anyone living in Australia solely because of coronavirus, will continue to hold their previous residency, as long as they plan to, and actually, return to their place of residency as soon as practical once travel restrictions have been lifted. However, this is not a concession in law and a lengthy stay in Australia could trigger Australian residency, for example if there is an intention to reside here, regardless of the reason for that intention.
Place of “abode”
Living on a cruise ship or superyacht is usually not considered to be sufficient to establish a permanent home. The situation could be different if you have legal rights to reside in a particular country and you do so on a cruise ship.
This means that Australians who simply start working on such ships will typically continue to be Australian residents, no matter how long they stay on such ships or how long they are employed overseas in these roles.
If an Australian has moved overseas and clearly established and used their permanent place of abode in another country before, or perhaps during, their time employed on cruise ships or super yachts, then their situation may be different.
Example of an Australian citizen with ties to various countries, who is working on a Superyacht
To understand how the situation can get a little tricky, consider this example of an Australian citizen.
Scott is an Australian citizen who moved to Singapore in 2000 and became a non-resident for Australian tax purposes by virtue of living in Singapore on a permanent basis. In 2005 he started working on international yachts and was paid in USD. After commencing this job he has rarely been back to Singapore.
Since his yacht licence was not recognised in Australia, Scott had no intention of returning to Australia to work. He still kept an Australian bank account with a reasonable amount of money that he could use during holidays in Australia to visit with family every year or so. He also holds bank accounts in various other countries and visits various other countries in between working as well.
In 2019 Scott was granted permanent residency in France, however work commitments meant that he had not actually spent much time in France.
Scott became, and continues to be involved in a romantic relationship with a Samoan national who also works on the superyachts. She is not an Australian citizen and has never lived in Australia. She has only visited Australia once with Scott and likewise, he has only visited her home in Samoa on one occasion. The couple began to spend most of their free time together in Malaysia and Indonesia. They have not purchased or contracted a home in either location and appear to treat their visits to Malaysia and Indonesia as holidays.
In this situation Scott ceased residency back in 2000 when he moved to Singapore. However, at some point, since starting to work on the yachts, he appears to have severed ties with Singapore. He no longer appears to consider that his home, he has no assets there, does not return there in between work trips, and ultimately applied for residency in France.
Although he has been given residency in France, Scott has not purchased a home there, and does not regularly spend time there. Scott and his partner choose to spend most of their non-work time in Malaysia and Indonesia, however they show no indication that these places provide a permanent place of abode either, preferring to treat their trips as vacations in between working at sea.
Where is Scott a tax resident?
Luke is an Australian citizen who moved to the UK in 2000 with his wife, who is also an Australian citizen. Luke and his wife purchased a home in the UK and started a family there. In 2017 Luke was employed on a cruise ship. In between work shifts Luke always returns to the UK to be with his family.
Luke and his wife visit their families back in Australia most years. They usually travel together, with their children, for these visits, except where the visit is based on an opportunity that has arisen due to the cruise ship docking on Australian shores.
Luke has a bank account, investments, and social ties in the UK. He maintains an Australian bank account, which he and his family use on their visits to Australia.
In March 2020 Luke’s ship docked on Australian shores, and the Australian government advised Australians to return to Australia for the duration of the pandemic. Due to the pandemic and the Australian government’s travel announcements, Luke’s wife and children decided to fly over to join Luke in Australia. The family planned to return to the UK once travel restrictions were lifted. However they decided to remain in Australia while the pandemic worsened in the UK and things were still up in the air with Luke’s employment.
At this point in time Luke is not an Australian resident. He has established a permanent home in the UK with his family. They are staying in Australia with other family members or may be in temporary accommodation, not having established a home of their own here. They currently plan to return to the UK when it becomes practical to do so.
However, if Luke and his family decide to make Australia a permanent home their situation would change. This could happen if they decided to rent out a house for themselves, instead of continuing to stay with family, if they enrolled their children in Australian schools, and if they resigned from their employment to take up permanent positions in an Australian job. They could also face a deemed change of residency for the duration of their stay in Australia if the family continues to live in Australia after Luke returns to work on the yachts and he starts coming back to Australia instead of their home in the UK.
Australian Residency While Working on a Super-Yacht or Cruise Ship
In general an Australian resident continues to be an Australian resident after taking up employment on a superyacht. This is because the ATO considers that their residence on the yacht is of a transitory nature.
An Australian citizen who was living overseas may also become an Australian resident for tax purposes again, if they commence working on a superyacht and do not maintain ties with an alternative permanent place of residence. On the other hand, an Australian citizen who has clearly established themselves as a non-resident by setting up a permanent home overseas, will not automatically resume Australian tax residency if required to stay in Australia due to the coronavirus pandemic.
Since the issue of residency for people working and essentially living on cruise ships and superyachts can be quite complex, it is important to discuss your unique situation with a tax agent who is experienced in residency issues.