Leaving Australia to join the crew of a super-yacht or cruise ship somewhere overseas may sound exciting, but it’s actually increasingly popular.
More and more Aussie expats are saying ‘no’ to that traditional gig in an English pub, and ‘yes’ to cruising the Mediterranean on a boat worth millions, working as a Captain, a Chef, a steward, deckhand or some other role.
Aside from the adventure and excitement of such a role, more often than not expat Aussies are attracted by the chance of earning tax-free dollars overseas?
But hang on! Is that really right?
That’s a question that we’re asked regularly from super-yacht crew working all over the globe- is my income tax free?
In fact we’re asked this also by a lot of Australian digital nomads too, and although the focus of this article is how Australian super-yacht crew-members are taxed, the concepts outlined below apply equally for Australian’s who seek to travel the world as digital nomads (with no fixed residence or abode). So if you’re an Australian digital nomad, read on, as this article will be very relevant to you too!
Let’s dig in
Just because your new role might be tax-free overseas, does this mean that you don’t have to pay tax anywhere, including Australia?
Sadly, for many Australian’s working on super-yachts and cruise liners all over the world, this is simply not the case. Many super-yacht workers remain Australian tax residents and as such are required to pay tax on their worldwide income, notwithstanding that their super-yacht income may be tax-free overseas.
Now if you were a non-resident for Australian taxation purposes, the story would be vastly different because non-residents only pay tax on their Australian sourced income. So the key to earning tax-free income as crew on a super-yacht is to become non-resident for Australian taxation purposes.
The unfortunate thing about most super-yachting crew is that it is very, very rare that they are non-residents. Unfortunately, Australia’s tough residency tests generally treat crew as residents, with 100% of their worldwide income caught for Australian tax purposes at Australia’s high tax rates.
The problem stems from Australia’s Domicile Test of residency.
Under the ‘Domicile Test’ if your domicile is Australia (broadly, if you were born in Australia, if you have an Australian passport or if Australia is broadly considered to be your permanent home), then you WILL remain a tax resident of Australia unless you have a ‘permanent place of abode outside of Australia’.
Unfortunately crew quarters on cruise ships and super-yachts are generally regarded by the ATO as being temporary and/or transitory in nature and therefore are not considered to be your permanent home.
Thus, most crew-members fail to meet the criteria of having a ‘permanent place of abode outside Australia’ and thus remain tax residents of Australia by default. Sadly, this typically applies no matter how long you’ve stayed on-board and how long you’ve worked overseas in that role.
So unless you’ve established a permanent home in another country, more than likely you’ll be treated as an Australian resident subject to tax in Australia. Take a look at some recent private binding rulings issued to various Australian super-yacht and cruise ship crew (below). These rulings lay out some of the issues that crew face as far as the ATO are concerned:
- Private Ruling 61598 – Residency – Leaving Australia
- Private Ruling 1051660706319 – Residency – Residing Overseas Editors Note – 19/11/2023: More current ruling inserted
- Private Ruling 1051563301169 – ResidencyEditors Note – 19/11/2023: More current ruling inserted
UPDATE – 7th June 2023 – Between the five years from 2017 when I originally wrote this article through to late 2022, there were no real developments on the topic of residency for super-yacht crew, cruise-ship workers or digital nomads.
However recently, in November 2022, a decision was handed down in a tax case that dealt with residency status of an Australian cruise-ship crew-member, confirming our approach above – you can read more about this decision here in our article Tax Residency for Australian’s working on cruise ships or yachts.
Following on from decision, the Australian Taxation Office have also released a new tax ruling clarifying how they will apply Australia’s tax residency rules. The updated ruling Taxation Ruling 2023/1 Income tax: residency tests for individuals, released on 7th June 2023 was written to update and replace two much older rulings, TR 98/17 and IT 2650, issued 25 years ago and 32 years ago respectively.
Ultimately though the new ruling, and the case decision doesn’t change the way Australian super-yacht crew-members, cruise ship workers or digital nomads are taxed by Australia. Instead the new ruling simply clarifies the approach of how the ATO has always taxed these workers.
Need some advice?
As you can see from the release of the new tax ruling TR 2023/1, the recent case decision involving a cruise-ship worker and the private rulings above, Australia’s complex residency rules cause significant problems for Australian super-yacht crew-members, cruise ship workers and digital nomads.
Lured overseas by the potential to earn tax free salaries, most Australian crew-members have been disappointed to learn that their “tax-free” wages and salaries are dragged back into the Australian tax system and taxed at high Australian tax rates unexpectedly.
Unfortunately these problems are exacerbated by Australia’s incredibly complex residency rules and the lack of information available to super-yacht and cruise ship workers. This article is my small attempt to remedy that but if you’re still unsure about how these rules apply to you or what you can do about it, get in touch with us as we’ll be able to help.
At Expat Taxes we’re experienced in acting with super-yacht crew and cruise-ship workers all over the world. we’ll be able to help you understand how these rules will apply to you and even where your super-yacht and cruise ship earnings are caught by the Australian tax system, all may not be lost as there may be some strategies that you can implement to solve the problem going forward.
If you want to learn more, book a tax consultation with our Expat Taxes team today.
Editors Note – Updated 22nd April 2020: As you have learned, most Australian yachties generally remain as tax residents of Australia notwithstanding the length of time that they may have worked overseas.
Regardless of your circumstances, it is absolutely critical that you seek advice about your residency status because, If you cannot meet the criteria required to be a non-resident, as most won’t, then you will need to prepare and lodge your Australian tax returns as a tax resident and as a result, pay tax in Australia on your on your worldwide income (including your overseas salary and wages). I cannot stress this enough.
- you work in the super-yacht industry as yacht crew, or
- if you are a cruise-ship worker, or
- you are a digital nomad,
- you have not lodged your Australian tax returns, or
- you have lodged your returns, but you did so as a non-resident,
then you are at great risk of receiving significant fines and penalties from the ATO for non-lodgement or for incorrectly preparing your tax returns, especially since the ATO already know about your overseas bank account, it’s balance and salary you received into that account – yes that’s right, in the vast majority of cases, the ATO already knows how much money you earned as a yachtie, or as a digital nomad for the last few years!!
To illustrate the seriousness of this issue for Australian yacht crew, cruise-ship workers and digital nomads, we highly, highly recommend that you also read our latest article on this topic titled The ATO already knows about your overseas bank accounts!.
We also highly recommend that you book an ‘Expat Already Overseas’ appointment with us as soon as possible (before the ATO begins to chase you) so that we can run through all the issues and so that we can formulate an appropriate tax strategy (suitable to your individual circumstances) to comply with your obligations in such a way that minimises your risks, and minimises the tax outcomes.
If you wish to do book that appointment please do so by clicking here: ‘Expat Already Overseas’.