After months of the Canadian Business Aviation Association sending letters to the federal government expressing its opposition to a proposed luxury tax on private and charter aircraft, the association recently followed up with a brief titled “The Unintended Consequences of a Luxury Tax on Aircraft.”
The proposed 10 percent tax on the sales of certain vehicles, yachts, and “personal” aircraft was included in both the 2019 Liberal election platform and again in the 2021 federal budget. Last August, the Department of Finance extended the scope to include virtually any private or air taxi aircraft with fewer than 40 seats.
“While the government’s luxury tax on aircraft may lead to a minor increase in tax revenues, the potential for negative implications and unintended consequences is significant,” notes the brief. “For example, the tax creates incentives to use older, less fuel-efficient and sustainable aircraft, making it harder for business aviation to fulfill carbon reduction plans. Additionally, the tax will reduce demand for Canadian-made aircraft, negatively impacting jobs, businesses, and Canada’s overall economic growth potential.”
The CBAA made the following recommendations: raise the sales price threshold from $100,000 to $5 million; avoid tax inconsistencies by using the existing tax code; add business use and air taxis to the list of qualifying exempt activities; do not impose the luxury tax on exported aircraft; and defer implementation to Jan. 1, 2023.