This strategy involves using the entertainment facility leasing provisions of the FBT Act to make owning and operating a boat or yacht as tax effective as possible. To achieve this, it should be structured as follows:
- Individual owns the boat or yacht.
- Individual leases the boat to the business entity on an exclusive basis for an annual lease fee.
- The annual lease fee is equal to the boat operating costs (including maintenance, pen hire fees, memberships, and boat depreciation). This allows the individual to break-even for tax purposes from their 'boat hire business'.
- Business entity uses the boat for entertaining clients, entertaining suppliers, business meetings, staff recreation and rewards.
- Business uses the 50-50 split method for entertainment facility leasing costs incurred by the employer. This means that 50% of the costs are non-deductible. The other 50% are deductible but subject to FBT.
Under this option the after-tax cost of incurring $30,000 on boat or yacht expenses is $35,971. In contrast, for an individual taxpayer in the 47% tax bracket it would be $56,604.