Over two million Australians hold a boating licence. Each year brings 14,500 new boat registrations, according to July 2018 data compiled by the Boating Industry Association.

"Usually we see people who have been financially successful or when they have just sold a business, decide to buy a boat to achieve another life goal," says Roger Perrett, an executive adviser at Viridian Advisory and former competitive sailor. "They want to have an on-water experience for a period of time or even for the rest of their life."

His clients' purchases can range from small sailboats, to powerboats which don't have sails but an engine, to yachts to go racing. The prices for such boats can be anywhere from $15,000 to $5 million.

Boats are fun but they are depreciating assets. And they can rack up significant maintenance costs each year. Therefore, buying one is not a decision that should be taken lightly.

"What I generally think of, as a rule of thumb, is that you should not spend over 10% of your overall net worth on [it]," says Perrett. However, this 10% is a very general rule, he warns.

"If someone really wants to create wealth and not have that lossmaking experience, they wouldn't go anywhere near that 10% range," he says. "On the other hand, there are people who go above that. For example, they might say, 'I've just had someone in my family die and I don't know how much longer I have, I want to enjoy life and my money'."

Boat ownership

There are many ways to own a boat: you can buy outright, join others in buying shares in a boat, buy a charter for a longer period of time like a year, or just the usual hourly charter.

Getting into a shared arrangement brings down the cost and takes off some burden of the maintenance, Perrett says. However,
it's limited in that you have to go through a booking arrangement, and you may not be able to take it outside a certain area or personalise the decor.

"Some people might think if I am going to spend that much on a boat, I want to be able to take it out to Hamilton Island or the Barrier Reef and the other owners may not want that," he says. He adds that usually at the end of such an arrangement (which can be with friends or a random group) people go their own ways, the boat gets sold, and they get some money back.

More to some people's taste might be a rental with a boating company, where they can hop on and off for an agreed period of time through the year. "Usually they have a lot of boats and you might be able to say I want to take out a 40 footer this weekend but next month I have a special occasion like a birthday so I'll take the 60 footer," he says.

Maintenance costs

Congratulations, you've bought a boat. The real expense starts now.

"This is often the case with lifestyle assets. They buy an expensive asset, and it looks like it's cheap, much cheaper than they expected," says Ian Gillies, who is a partner and adviser at Melbourne-based high-net-worth advice firm Hamilton Wealth.

"But often the actual annual cost of ownership, which can be significant particularly if it's not a new boat, is [overlooked]." Boating is a booming business in Australia.

The industry reported an annual turnover of $8.47 billion in the 2018 financial year, according to data from AMIAG State of the Industry Survey. It has grown steadily over the past three years - recovering from a slump in 2015 - and 70% of the industry's participants expected it to continue over the 12 months to June 2019.

There are more than 2250 businesses in the marine industry, including new and used boat sales, boat builders, charter operators, marinas, engine sales, and other professionals.

And you will need their services once you own a boat.

Gillies, who has worked as a sailing instructor and coach, has an exhaustive list of the actual purchase cost and the subsequent ongoing expenses of owning a boat.

It starts with a survey to determine the state of the general boat (about $30 per foot) and engine inspections (up to $180 an hour). There's an initial boat registration fee, which is usually calculated by the length of the boat. In New South Wales, for example, this is capped at $676. Then you will have to buy berth lines, ropes to tie the boat to a wharf or a mooring. And a tender, a smaller inflatable boat to put on the side.

There is currently no stamp duty on boat sales, unlike cars. In last year's state elections, NSW Labor proposed to extend stamp duty starting at $7600 to all boat sales valued at $200,000 or more with the view of raising $96 million over four years. However, it did not win the election.

Then there are the ongoing annual costs. This includes things like annual registration renewals that don't cost much and biggerticket spends like insurance, berthing fees, yacht club membership and labour for maintenance.

"Insurance can be a bit pricey, depending on where you store the boat. Usually about 1-2% of the purchase price is the ballpark to start," Gillies says.

Maintenance costs include pulling the boat out of water at least once a year, scrubbing the areas in contact with the water and servicing the engine. And the ongoing fuel costs for motorboats.

There's costs for the covers, sails, carpet, freshwater pumps, sanitation system, propellers, refrigeration systems and batteries that may need replacing in part or full every couple of years.

Gillies says all of this may add up to a package of $16,000 to $25,000 for just a small tinny. Fortunately most of his clients don't want to buy big boats, they are happy with something they can entertain their family and friends on.

Still, as a rule, Gillies doesn't make recommendations around how much a client should spend.

"It's very much a discretionary purchase, not one I would suggest to people as it's very rarely that they would realise their purchase price on upon resale," he says.

"You've got to think, where am I going to berth it, how much do I have to spend on it, who am I going to use the boat with, do I know how to operate the boat and who's going to maintain it."

And for those who can't be bothered with the research, Gillies has a tale narrated to him by an accountant a few years ago. The accountant had a tradie client who had done exceptionally well in business.

He turned up on his quarterly uptake of his business and said, "I've just bought a [second-hand] helicopter!"

The accountant said, "Oh, I didn't know you could fly."

He said, "I can't. I am going to get lessons."

When the tradie met with the accountant nine months later, the accountant asked him how he was going with the lessons.

He said, "Oh no, I didn't take the lessons. I sold the helicopter. I found that you had to maintain the engine on an hourly basis."

When he bought it, he didn't think to check the maintenance program or when next services on various components were scheduled. And with only 15 hours to go on the engine before a major overhaul, he realised the continued cost of ownership was way higher than the purchase price.

Generating a return

If the ongoing costs of keeping your boat are too much, you can charter it out in through a company when you are not using it, much like an Airbnb. Such companies have their own requirements about the kind of boats they are willing to take.

"If you are thinking about putting your boat into charter, it makes sense to talk to them first about what types of boats they are looking for and whether they are actually looking for anything," Gillies says.

The first option is to operate it as a small business model, as laid out in ATO taxation ruling 2003/4 on income tax and boat hire arrangements.

"It basically means if you meet a certain criteria in operating your charter boat, you may be able to make tax deductions," Gillies says. "The boat owner has to have a commercial plan for the rental, which sets out the expectation of profits over the life of the agreement or the life of the boat. They have to demonstrate that they are involved in the actual running of the business.

"You can't just say I am renting it out and do nothing."

If these conditions are met, the boat owner may be able eligible for a GST rebate if it's a new boat, and claim depreciation or losses.

"They can use the boat privately, provided they make the appropriate adjustments on the tax returns - much like a holiday house," Gillies says.

The other option is the passive business model.