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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.

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