Exercise 7

Pacific Equipment is a Panamanian company specializing in hiring vessels to fight oil spillage at sea.

A spillage occurs in Bass Straits and the Australian oil drilling company responsible, Blue Mountain Pty Ltd, enters into a charter agreement with Pacific Equipment under which Pacific Equipment supplies the ships and the Blue Mountain Pty Ltd supplies the crew and oil spillage experts.

The vessel is specially equipped for its task. The ship will operate in Bass Strait for 4 months, calling occasionally at Melbourne to collect food and workers etc.

The contract is entered into in Panama and the charter fees are paid into a Panamanian bank account.

Required

1.What is the source of income for the charter fees? Give reasons for your answers, supporting it with reference to case law?

2.Will the charter fees be subject to Australian tax?