Shipping Reform (Tax Incentives) Regulations 2023

The central concepts in these regulations derive from the Act but are given operational content here. The term “entity” is defined in the Act and is not further elaborated in the regulations; it will capture companies, trusts, and possibly other structures. “Vessel” is also defined in the Act, as is “Australia” for these purposes. The regulations add a set of defined training categories.

“Deck officer training” is training to become a person employed to carry out duties relating to navigation and operation of a vessel and responsible for receiving, discharging, and caring for cargo or passengers during a voyage. “Engineer officer training” is training to become a person employed on a vessel responsible for propulsion and operating systems. “Integrated rating and steward training” is training to become a person employed to carry out duties supporting navigation and operation, including maintenance of equipment, standing lookout, steering under supervision, securing cargo, handling mooring lines, cleaning, assisting with engines and mechanical equipment, and steward duties such as ordering, preparing and serving food.

The concept of “prescribed qualification” is key. It means a qualification, competency, proficiency or standard prescribed by an instrument made for the purposes of subsection 29(2) of the Navigation Act 2012. This cross‑reference connects the training requirements to the national maritime safety regulator’s (Australian Maritime Safety Authority) certification framework. If a prescribed qualification exists for a category, the entity must ensure the trainee is seeking it.

The “training requirements” definition in the Act is satisfied when an entity complies with regulation 6. The “management requirements” definition in section 6 of the Act is satisfied when an entity complies with regulation 7. The split between crew management (always required to be conducted in Australia) and the elective requirement to perform one of strategic, commercial, or technical management in Australia creates a tiered obligation. An entity could, for example, outsource strategic and commercial management to an overseas parent but keep technical management in Australia, so long as it also keeps crew management onshore.

The “third party” concept appears in both the training and management requirements. The entity can organise training through a third party, and can perform management functions through a third party. The regulations do not prescribe any licence or accreditation for such third parties; they simply require that the functions are performed in Australia. This leaves the entity with flexibility to contract with external providers, but the entity remains responsible for compliance.

The transitional provision in regulation 8 ensures continuity for entities that had arrangements under the 2012 regulation. A thing done under the old regulation has effect for the purposes of the new regulation as if it had been done under the new regulation. This covers things like notices, applications, or instruments. It prevents a gap in eligibility for entities that were already in the system.

Finally, the concept of “operated by the entity (either directly or indirectly)” in regulation 6(2) indicates that bareboat charterers, operators, or other entities with de facto control over vessel operations may be caught even if they do not hold legal title. The drafters have cast a wide net to ensure the training obligation cannot be avoided by using intermediary structures.

The primary group affected is Australian resident shipping companies or foreign companies with Australian operations that seek to access the tax incentives under the Shipping Reform (Tax Incentives) Act 2012. These entities must now comply with the 2023 regulations to maintain eligibility. The regulations affect any entity that “operates” a vessel, defined broadly to include indirect operation. This will capture time charterers, space charterers, and possibly vessel managers if they have operational control.

Existing operators who were complying with the 2012 regulation are affected by the change, though the transitional provision will shield them from immediate disruption. They will need to check that their training and management arrangements still satisfy the updated definitions, particularly the new “integrated rating and steward training” category which may be broader than the previous “integrated ratings” category under the old regulation.

Seafarers and trainees are directly affected. The regulations create demand for training places, especially in the integrated rating and steward category, which encompasses a wider range of duties than traditional ratings. Training providers (public and private) may see increased demand. The prescribed qualifications link to the Navigation Act, so AMSA’s certification standards and any future instruments made under s 29(2) will directly affect the content of training.

Third-party management companies offering crew management, strategic management, commercial management, or technical management services are affected if their clients are claiming the tax incentive. The requirement that these functions be conducted in Australia may favour domestic third‑party providers over foreign ones. However, nothing prevents a foreign company from establishing an Australian subsidiary or branch to perform these functions, as long as the physical location of decision‑making and execution is in Australia.

The Australian Taxation Office will need to verify compliance when entities lodge returns claiming the incentive. Given the recordkeeping obligations, tax auditors may request those records as part of a tax audit. The regulations also affect the Australian Maritime Safety Authority which, through its powers under the Navigation Act, determines which qualifications are prescribed.

On the negative side, entities that could have accessed the tax incentive under the 2012 regulation but now find the 2023 regulation more onerous may decide the compliance cost exceeds the tax benefit. This is a risk for small operators with single vessels for which hiring three trainees (one per category) or engaging a third‑party management company could be disproportionately expensive. The regulations therefore affect the competitive dynamic between larger shipping groups and independent operators.

Joint venture structures are also affected. If an entity operates a vessel through a joint venture, it must ensure the training and management requirements are met somewhere in the structure. The entity itself remains liable, so contractual protections such as indemnities from the joint venture operator may be needed.

The regulations impose duties on an entity that operates a vessel and wishes to satisfy the conditions for the tax incentive. The duties are not optional; they are the price of entry to the concessional tax regime. The regulations do not themselves grant any rights; rights to the tax incentive arise from the Act.

The primary duty under regulation 6 is to ensure that for each vessel the entity operates, at least one person is undertaking training in each of the three categories: engineer officer, deck officer, and integrated rating and steward. The entity must also ensure that if a prescribed qualification exists for a category, the trainee is seeking that qualification. Where no prescribed qualification exists, the requirement is merely to train; the entity need not aim for a particular certificate. This is a notable flexibility, though in practice prescribed qualifications exist for engineer officers and deck officers under the Navigation Act. It is less clear whether a prescribed qualification exists for integrated rating and steward training. If none exists, the entity only needs to provide training, not necessarily leading to a formal qualification.

The entity must keep a record for each trainee containing: if training is organised by a third party, the third party’s name and details; the trainee’s name, age, and gender; the category of training; any prescribed qualifications already held that are relevant; the prescribed qualification the trainee is seeking (if applicable); the training provider details; the expected date of attainment; and details of how the training will be monitored by the entity.

The duty under regulation 7 is to conduct crew management in Australia and at least one other management function from the list of strategic, commercial, or technical management in Australia. The entity can outsource these functions to a third party, but the functions must be performed in Australia. “Conduct in Australia” is not defined, but it likely means the location where the function is actually performed, not just where the entity is incorporated. This duty effectively requires a physical operational presence in Australia for crew management and for at least one other management stream.

The entity has a right to rely on the transitional provision in regulation 8. If a thing was done under the 2012 regulation (such as an approved training arrangement or a management structure) and it could be done under the 2023 regulation, it is treated as valid. This reduces the compliance burden of restarting approval processes. The entity does not need to apply for recognition; it operates automatically.

There is also a right to choose which of the three non‑crew management functions to conduct in Australia. The entity can select the function that is cheapest or simplest to relocate onshore, minimising compliance cost. However, the entity cannot opt out of crew management being in Australia; that is mandatory.

The duties fall on the entity, not on individual trainees or third‑party managers. The entity bears the cost of oversight and recordkeeping. If a third party fails to perform the functions properly, the entity remains liable for non‑compliance. The regulations do not provide any defence of reliance on a third party.

No specific rights to review or appeal exist in the regulations. If the ATO determines that the entity has not satisfied the training or management requirements and therefore disallows the tax incentive, the entity would need to rely on general tax objection and review procedures.

The regulations themselves do not set out penalties for non‑compliance. That is consistent with their character as delegated legislation specifying conditions for a tax concession. Enforcement occurs through the operation of the Shipping Reform (Tax Incentives) Act 2012 and the general tax law. If an entity fails to satisfy the training or management requirements, it will not be considered to have met the conditions for the tax incentive. The consequence is that the entity loses access to the concessional tax treatment. This could result in additional tax payable, interest, and penalty tax under Part 4-25 of the Taxation Administration Act 1953 if the entity had claimed the incentive and is found to be ineligible.

The ATO would enforce compliance through standard compliance activities: review of tax returns, audits, and requests for records under taxation law. The regulations require the entity to keep records (regulation 6(5)). Failure to keep those records would itself create a compliance problem, as the entity could not demonstrate that it satisfied the training requirements. The recordkeeping obligation is a duty, but the regulations do not specify a penalty for recordkeeping failure; the practical penalty would be the difficulty of proving eligibility.

There is also the possibility of civil penalties under the Act if an entity makes false statements in relation to the tax incentive. The Act itself may contain offence provisions, but the regulations do not refer to them. A person who gives false or misleading information to the ATO about their compliance with the training or management requirements could face penalties under the Criminal Code (Cth) or under taxation legislation.

The regulations also do not create any private right of action. A competitor cannot sue for breach of the regulations; the only enforcement avenue is through the ATO’s administration of the tax law.

The absence of explicit penalties in the regulations does not reduce the risk. For a shipping entity that relies on the tax incentive, failure to comply with regulations 6 or 7 could have material financial consequences. The tax incentive likely involves a significant reduction in taxable income or a concessional rate. Losing that benefit could be extremely costly, exceeding any penalties for late payment of tax. The entity would also face interest on underpaid tax.

The transitional provision may give some comfort for things done under the 2012 regulation, but only if those things can be done under the 2023 regulation. If a training programme or management structure does not satisfy the new definitions, the transitional provision does not save it. The entity would need to remedy the deficiency.

From an enforcement perspective, the ATO may cross‑check records with AMSA data on prescribed qualifications. If an entity claims trainees are seeking a prescribed qualification, but no such qualification exists, that could be a red flag. The ATO may also check with the Department of Infrastructure, Transport, Regional Development and Local Government for information on vessel operators.

The regulations do not impose reporting obligations to the ATO beyond the records that must be kept. The entity must self‑assess compliance and keep records to support that assessment. The ATO may not routinely scrutinise training and management records, but the risk of audit remains.

The regulations are expressly made under the Shipping Reform (Tax Incentives) Act 2012, and their interaction with that Act is primary. The Act defines “training requirements” and “management requirements” and authorises the regulations to fill in the detail. The regulations therefore complete the legislative scheme for accessing the tax incentive.

A significant interaction is with the Navigation Act 2012. The definition of “prescribed qualification” in regulation 5 expressly refers to an instrument made for the purposes of subsection 29(2) of the Navigation Act. That provision relates to marine qualification standards. This means the training requirements are tied to the national maritime safety certification system. If AMSA amends the prescribed qualifications under the Navigation Act, the training obligations under these regulations shift automatically. The entity must keep abreast of changes to the Navigation Act instruments.

The regulations also interact with the Immigration and Border Protection portfolio. Crew management conducted in Australia will likely require compliance with visa requirements for foreign crew, including Maritime Crew Visas or Temporary Work Visas. The regulations do not impose immigration obligations, but an entity must ensure its crew management functions, including recruitment of foreign crew, comply with the Migration Act 1958.

The Corporations Act 2001 may be relevant for the management requirements. Strategic management decisions about general policies, strategy, contracts, and financial matters are board‑level functions. If the entity is a company, those decisions must be made by directors and officers, and the requirement that they be conducted in Australia may require the physical presence of directors or their delegates in Australia. This could affect how boards meet and where they hold meetings.

For tax purposes, the regulations interact with the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953. The tax incentive itself is presumably contained in the Income Tax Assessment Act or the Shipping Reform (Tax Incentives) Act. The regulations are part of the broader tax compliance framework. Entities will need to align their tax return positions with the records kept under regulation 6.

The Competition and Consumer Act 2010 may also touch on the third‑party management provisions. If an entity outsources crew management to a third party, it must be mindful of the independent contractor vs employee distinction for liability purposes, though no specific requirement is imposed by these regulations.

International maritime conventions, such as the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW), are indirectly relevant because Australia’s prescribed qualifications under the Navigation Act implement STCW. The training categories in the regulations reflect STCW competence areas. An entity that trains to STCW standards will likely satisfy the prescribed qualification requirement.

The regulations also interact with state and territory laws regarding training providers and apprenticeships, particularly for the integrated rating and steward category which includes culinary and hospitality training. If training is provided by a registered training organisation, the National Vocational Education and Training Regulator Act 2011 (or state equivalents) may apply.

No express interaction is noted with workplace health and safety laws, but the management functions include managing safety on board (technical management). The entity must comply with the Work Health and Safety Act 2011 (Cth) for offshore vessels. The training and management requirements may overlap but do not conflict.

The transitional provision interacts with the Acts Interpretation Act 1901, preserving the effect of things done under the repealed regulation. The Interpretation Act’s provisions on repeal and saving are supplemented by this specific transitional rule.

The Shipping Reform (Tax Incentives) Regulations 2023 is a new instrument made on 14 September 2023 and registered on 15 September 2023. It commenced on 16 September 2023. It replaced the Shipping Reform (Tax Incentives) Regulation 2012, which was repealed in full by Schedule 1. The 2023 regulations are the second iteration of the subordinate legislation for the 2012 Act.

The 2012 regulation was made shortly after the Act received assent and had been in force for over a decade. The new regulations appear to be an update rather than a revolution. The primary structural change evident from the text is the introduction of the broader “integrated rating and steward training” category, replacing or expanding what was likely the “integrated ratings training” category in the 2012 regulation. The definition in regulation 5 now includes steward duties such as ordering, preparing and serving food, menu preparation, and similar duties. This broadens the training requirement to include hotel services aspects, potentially extending the obligation beyond traditional deck and engine ratings.

The example in regulation 6(3) is newly included, clarifying the scaling of trainee numbers across multiple vessels. The 2012 regulation may not have contained such an example, reducing ambiguity. The management requirements are restated in slightly different language, with more specific lists of functions, but the substance appears similar.

There have been no amendments to the 2023 regulations since their commencement. The instrument is still young, and no amending instruments are noted. However, the regulations are subject to ongoing review. As a legislative instrument, they are subject to disallowance by either House of Parliament within 15 sitting days of tabling. No disallowance motion has been reported.

The transitional provision in regulation 8 addresses the gap between the two instruments. It does not amend the Act and does not change the substantive conditions for the tax incentive. It ensures that entities that had structured their operations around the 2012 regulation do not lose eligibility simply because of the repeal. But that safety net only works if the old arrangement fits within the new definitions. If an entity’s training category under the 2012 regulation no longer matches the 2023 categories (for example, if it trained integrated ratings but not steward duties), the transitional provision may not save it and the entity would need to adjust.

Future amendments could include changes to align prescribed qualifications with updated STCW standards, or clarification of what constitutes “conduct in Australia” for management functions. The regulations may also be amended to adjust the ratio of trainees to vessels if the scheme proves too costly or too generous.

The regulations themselves are too recent to have generated litigation. The source provides no reference to any court or tribunal decisions concerning the 2023 or 2012 regulations. However, the underlying Act has been the subject of some administrative review and possibly judicial consideration, though not discussed in the source.

Potential areas of dispute could include the meaning of “conduct in Australia” for management functions. An entity could argue that online meetings or remote decision‑making by a person located in Australia (even if the entity’s headquarters are overseas) satisfies the requirement. The regulations do not define “conduct in Australia”, and a court would likely apply ordinary territorial principles. The ATO may take a stricter view, requiring day‑to‑day operational presence.

Another fertile area is the allocation of trainees across vessels. The example in regulation 6(3) suggests that the requirement is per vessel (at least one trainee per category per vessel), but the total number can be spread. If an entity has three vessels, does it need nine trainees (three per category) or can it have six? The example for two vessels says six trainees are needed (2 per category), but does that mean two per category across the whole fleet, or two per category per vessel? The example says “2 trainees in each of the categories” in relation to two vessels, implying 2 per category total, not 4 per category. That suggests the requirement is global: for each category, a number of trainees equal to the number of vessels. So if an entity has three vessels, it needs three trainees in each category, total nine. This could be challenged as ambiguous.

The definition of “integrated rating and steward training” may be litigated if an entity trains a person only in deck duties and not in the food service element. The definition is broad and inclusive but does not require training in every listed duty. The phrase “including but not limited to” gives flexibility. An entity could argue that training in just one of the listed duties suffices. The ATO might argue the entity must cover all core duties. Without case law, the scope remains uncertain.

The transitional provision may also generate disputes. For example, if a training arrangement under the 2012 regulation covered “integrated ratings” but not steward duties, does the arrangement have effect as “integrated rating and steward training” for the 2023 regulation? The regulation says “the thing could be done for that purpose under this instrument” - if the 2023 regulation requires steward training, and the old arrangement did not cover it, then it likely fails.

No reported litigation is known. The 2012 regulation likely faced occasional administrative challenges, but none are cited.

The most significant trap is the scope of the “integrated rating and steward training” category. The definition is long and includes steward duties which involve “ordering, preparing and serving food, preparing menus and similar duties.” An entity that previously trained only deck and engine ratings under the 2012 regulation now faces an additional requirement to train at least one person in the expanded category. This could force a shipping company to recruit or designate a cook or steward as a trainee, even if its operations do not require such a role. The entity must have a trainee in this category for each vessel, regardless of whether the vessel carries passengers or has a galley. For a small cargo vessel with no meal service, this creates a training obligation that may have no operational justification.

Another trap is that the training requirement applies per vessel operated, not per entity. The example makes this clear: two vessels require six trainees. An entity with ten vessels would need thirty trainees (ten per category). This is a linear scaling and imposes significant cost. Entities with many small vessels may find the compliance burden outweighs the tax benefit. The entity cannot aggregate trainees across vessels; each vessel must have at least one trainee in each category, though those trainees can be shared across vessels? The example suggests the total number equals the number of vessels times the number of categories. But an entity could argue that a single trainee can be counted for multiple vessels if the trainee rotates between vessels? The phrase “training is being undertaken by at least one person … for each vessel” suggests a separate trainee per vessel per category. The example uses two trainees per category for two vessels, implying one trainee per vessel per category. So each vessel needs its own dedicated trainee, not just a pool. That is a heavy requirement.

The prescribed qualification link creates another trap. If AMSA has prescribed a qualification for deck officer training (e.g. a Certificate of Competency), the entity must ensure the trainee is seeking that specific qualification. But the entity cannot control whether the trainee actually attains it; it must only ensure the trainee is seeking it. However, if the training programme is not designed to lead to that qualification, the entity fails. The entity must use a training provider that aligns with AMSA standards.

The recordkeeping requirements under regulation 6(5) are detailed and must be maintained for each trainee. The ATO could request these records years later. The entity must record the trainee’s gender, age, and name - privacy considerations arise. If the trainee refuses to provide age or gender, the entity may be unable to comply.

The management requirements demand that crew management be conducted in Australia. This includes “recruiting and employing persons as crew”. If an entity hires crew through an overseas agency, it cannot satisfy this requirement unless the agency operates from Australia. The entity may need to establish an Australian crew management office, even if only for compliance purposes. Similarly, choosing to conduct technical management in Australia means supervising maintenance, organizing repairs, and managing safety from Australia. That may require a local technical superintendent.

The transitional provision is not a catch‑all. It only applies if the thing done under the 2012 regulation “could be done for that purpose under this instrument.” If the 2023 regulation changed the categories or management functions, the old arrangement may not be preserved. For example, a management structure that had strategic management in Australia but crew management overseas would have satisfied the 2012 regulation? It is unknown. Under the 2023 regulation, crew management must be in Australia. If the old structure had crew management abroad, the transitional provision would not save it because the thing (crew management abroad) cannot be done under the 2023 regulation. The entity would need to restructure.

The definition of “entity” operated indirectly could catch parent companies that control vessel operations through subsidiaries. If a parent entity claims the tax incentive, it must ensure the training and management requirements are met across its group. The parent may need to cause its subsidiaries to hire trainees and perform management in Australia.

Finally, the regulations do not allow for exemptions or waivers. The requirements are hard‑edged. An entity that cannot meet them simply cannot access the tax incentive. There is no mechanism to apply for an alternative compliance arrangement.

Compliance is a multi‑step process that must be embedded in the entity’s corporate and operational structures. The first step is to identify each vessel the entity operates directly or indirectly. This includes owned vessels, bareboat chartered vessels, and time‑chartered vessels if the entity has operational control. For each vessel, the entity must ensure that there is at least one person currently undertaking training in each of the three categories: engineer officer, deck officer, and integrated rating and steward.

The entity should determine whether a prescribed qualification exists for each category. For engineer officer and deck officer, prescribed qualifications exist under AMSA’s Marine Orders. The entity must ensure the trainee is enrolled in an approved programme that leads to that qualification. For integrated rating and steward, the entity should check AMSA’s instruments; if none is prescribed, the requirement is simply to provide training. The entity should document the absence of a prescribed qualification.

Recruiting trainees is a key challenge. The entity can hire new employees for the purpose of training or designate existing crew members as trainees. The trainee must be employed or engaged in a way that allows them to undertake training. The entity must ensure the training is genuine and monitored, not merely a paper arrangement.

The entity must keep records for each trainee meeting the requirements of regulation 6(5). This includes the training provider’s details, the trainee’s personal information, the qualification being sought, expected completion date, and monitoring arrangements. These records should be stored centrally and retained for at least five years after the trainee completes (or ceases) training, consistent with tax recordkeeping obligations.

For management compliance, the entity must first ensure that crew management is conducted in Australia. This means that decisions about recruitment, employment, pay, and crew management are made from an office located in Australia. If the entity is small, it may need to set up a small HR function or contract with a third‑party crew management company that operates in Australia. The entity should have a written agreement with that third party, but the entity remains responsible.

The entity must then choose at least one of strategic, commercial, or technical management to conduct in Australia. The choice should be based on minimising disruption and cost. For example, if the entity already has a commercial office in Australia handling bookings and insurance, it can rely on that. If not, technical management might be easier to establish because it can be performed by a nautical superintendent located in Australia. Once the choice is made, the entity must ensure the chosen functions are actually performed in Australia. Evidence of physical presence, such as lease agreements, employment records of managers, and board meeting minutes, should be maintained.

The entity should conduct a gap analysis comparing its current training and management structures against the regulations. Any deficiencies identified must be remedied before the next income year in which the tax incentive is claimed. The transitional provision may give some relief, but it should not be relied upon without a careful comparison.

The entity should also monitor changes to the prescribed qualifications under the Navigation Act. If AMSA adds or modifies a qualification for integrated rating and steward training, the entity must adjust its training programme to ensure trainees are seeking that qualification.

Finally, the entity should include compliance with these regulations in its tax governance framework. The CFO or tax manager should annually certify that the training and management requirements are met. Records should be available for ATO audit. The entity should also consider the cost‑benefit: if the compliance cost exceeds the tax incentive, it may be rational to forego the incentive and operate under ordinary tax rules.