Subject Aircraft Under the Select Luxury Items Tax Act
Luxury Tax Notice LTN4
July 2023
This version replaces the one dated January 2023. This notice has been updated to include proposed tax policy changes that would have the effect of expanding up-front relief for exports to cases in which no exemption certificate is provided.
The purpose of this notice is to provide information relating to the application of the luxury tax on certain aircraft. Aircraft that could be subject to the luxury tax include private jets, seaplanes, short takeoff and landing planes, gliders and helicopters priced above $100,000.
Except as otherwise noted, all statutory references in this publication are to the provisions of the Select Luxury Items Tax Act. The information in this publication does not replace the law found in the Act and its regulations.
If this information does not completely address your particular situation, call 1‑866‑330‑3304.
Table of Contents
- Overview
- Aircraft subject to the luxury tax
- Application of the luxury tax
- General calculation of the luxury tax (except for improvements)
- Taxable amount for sales of subject aircraft
- Taxable amount for importations of subject aircraft
- Taxable amount for leases of subject aircraft
- Taxable amount for uses of subject aircraft that cease to be qualifying subject aircraft
- Taxable amount for subject aircraft held by a person ceasing to be a qualifying aircraft user
- Taxable amount for subject aircraft held by a person ceasing to be a registered vendor
- Determining the retail value
- Calculation of the luxury tax on improvements
- Reporting the luxury tax and filing returns
- Applying for tax certificates
- Applying for special import certificates
- Penalties
Overview
The Government of Canada has introduced a luxury tax on the sale or importation of certain vehicles and aircraft priced above $100,000 and certain vessels priced above $250,000.
The Select Luxury Items Tax Act was included in Bill C-19, Budget Implementation Act, 2022, No. 1, which received royal assent on June 23, 2022, and came into effect on September 1, 2022.
Aircraft subject to the luxury tax
The luxury tax applies to aircraft that meet the definition of subject aircraft under the Act and are priced or valued above the $100,000 price threshold, unless an exemption applies.
Under subsection 2(1), subject aircraft means an aircraft that is an aeroplane, glider or helicopter as defined under subsection 101.01(1) of the Canadian Aviation Regulations with a date of manufacture after 2018 and which meets any of the following conditions:
- it is equipped only with one or more pilot seats and cannot have any other seating configuration (for example, a glider, a single-seat aeroplane, or a two-seater helicopter)
- it is equipped only with one or more pilot seats, or is not equipped with any seats, and cannot have a seating configuration of 40 or greater excluding pilot seats (for example, a seaplane with no seats equipped but which can accommodate a seating configuration of up to 7 passenger seats, or a short takeoff and landing plane equipped with only 2 pilot seats but which can accommodate a seating configuration of up to 20 passenger seats)
- it is equipped with one or more pilot seats and one or more passenger seats and has a seating configuration of 39 or fewer excluding pilot seats (for example, a 4-seater helicopter, a short takeoff and landing plane equipped with 2 pilot seats and 20 passenger seats, or a large private jet equipped with 2 pilot seats and 10 passenger seats)
Exclusions
Subsection 2(1) excludes certain aircraft from the definition of subject aircraft. The following are not considered subject aircraft and are not subject to the luxury tax:
- an aircraft that is designed and equipped for military activities
- an aircraft that is equipped for the carriage of goods only
- an aircraft registered with a government before September 2022,Footnote 1 provided that a user of the aircraft has possession before this date
- a subject vehicle
Application of the luxury tax
In general, the luxury tax on subject aircraft applies to sales or importations of subject aircraft priced or valued above the $100,000 price threshold. However, the luxury tax could also apply if a person leases out, uses or has an improvement made to a subject aircraft priced or valued above the price threshold. In addition, the luxury tax applies if a person ceases to be a qualifying aircraft user or ceases to be a registered vendor of subject aircraft and holds any tax-free inventory of subject aircraft valued above the price threshold.
The sections below detail the various circumstances that trigger the application of the luxury tax on subject aircraft, as well as any exemptions where the tax does not apply.
Selling subject aircraft
The luxury tax applies to the sale of subject aircraft priced above the $100,000 price threshold and is payable at the time the sale is completed, as set out in subsections 18(1) and (3), subject to certain exceptions. Generally, a sale is considered completed when possession of the subject aircraft is transferred to the purchaser or when ownership of the subject aircraft is transferred to the purchaser, whichever is earlier.
In most cases, the vendor of the subject aircraft is liable for the luxury tax on the sale of a subject aircraft priced above the price threshold. However, under subsection 18(2), the purchaser of the subject aircraft is liable for the luxury tax in sales transactions where the vendor is any of the following:
- Her Majesty in right of Canada or a province
- an agent of Her Majesty in right of Canada or a province
- an Indigenous governing body
- a foreign representative who is entitled to relief of the GST/HST in respect of the sale
The luxury tax does not apply to the sale of a subject aircraft priced above the price threshold where a purchaser and a vendor have entered into a written agreement for the sale of the subject aircraft before 2022 in the course of the vendor’s business of selling subject aircraft.
In response to industry feedback, the Department of Finance Canada is prepared to recommend to the Minister of Finance regulatory amendments that would have the effect of expanding existing transitional rules for relief of subject aircraft sold under written agreements made prior to January 1, 2022.
Specifically, in addition to the current transitional rule, which states that luxury tax is not payable where an agreement in writing for the sale of a subject item (including a subject aircraft) is made prior to 2022, the Department is prepared to recommend that luxury tax would not be payable in respect of a subject aircraft if:
- a purchaser enters into either of the following, before 2022:
- a written agreement for the purchase of the subject aircraft
- a written agreement in respect of the aircraft containing all of the following:
- an obligation on the purchaser to enter into an agreement for the purchase of the subject aircraft at a future date
- an obligation on the purchaser to pay a deposit to the vendor before 2022
- a provision under which the deposit is forfeited if the purchaser does not fulfill their obligation to complete the purchase transaction as contemplated in the agreement
- the purchaser is not a registered vendor and is not entitled to be a registered vendor under the Act
If this proposed transitional rule applies to a particular subject aircraft, luxury tax would not be payable on the subject aircraft on any future transactions.
Note that this commentary should not be taken as a statement by the CRA that the proposed amendments will be made in their current form.
Exemption on sales to registered vendors of subject aircraft
Under subsection 19(4), the luxury tax generally does not apply to subject aircraft priced above the price threshold that are sold to registered vendors of subject aircraft. Effectively, registered vendors of subject aircraft are able to purchase and hold tax-free inventory of subject aircraft priced above the price threshold and defer the application of the luxury tax until the subject aircraft are sold to persons that are not registered, such as consumers.
For more information on applying to register as a registered vendor under the Act, refer to Luxury Tax Notice LTN1, Registration Under the Select Luxury Items Tax Act.
In order to purchase subject aircraft priced above the price threshold without the luxury tax applying at the time the sale is completed, a purchaser must provide an exemption certificate to the vendor in accordance with section 36. An exemption certificate is a document in which a purchaser attests to a vendor that the purchaser is eligible for an exemption from the luxury tax. To be eligible for an exemption from the luxury tax on the purchase of subject aircraft priced above the price threshold, the purchaser must be a registered vendor of subject aircraft at the time the sale is completed.
Purchasers of subject aircraft priced above the price threshold should use Form L100-3, Luxury Tax Exemption Certificate for Subject Aircraft, as an exemption certificate to certify that they are registered vendors of subject aircraft.
Example
A vendor is selling subject aircraft priced above $100,000 to an aircraft dealer that is a registered vendor of subject aircraft.
The vendor could sell the subject aircraft to the dealer without the luxury tax applying at the time the sale is completed if the dealer provides an exemption certificate for this sale to the vendor.
By providing an exemption certificate certifying that it is a registered vendor of subject aircraft, the dealer would be able to defer the application of the luxury tax by purchasing and holding its inventory of subject aircraft priced above the price threshold on a tax-free basis.
Exemption on sales of qualifying subject aircraft
The luxury tax generally does not apply to the sale of a subject aircraft priced above the price threshold that is determined to be a qualifying subject aircraft of the purchaser at the time ownership of the subject aircraft is transferred to the purchaser. Where there are multiple purchasers, to be eligible for an exemption from the luxury tax, the subject aircraft must be a qualifying subject aircraft of each of the purchasers at the time ownership is transferred to the purchasers.
Qualifying subject aircraft
A qualifying subject aircraft of a person at a particular time is a subject aircraft that:
- is owned by the person at the particular time
- is for use at least 90% of the time in Canada for qualifying flights as determined under subsection 10(4)
Qualifying flights
Under subsection 10(3), a flight is considered a qualifying flight if any of the following conditions apply:
- it provides a scheduled service, as defined in subsection 3(1) of the Transportation Information Regulations
- it provides an aerial fire fighting service, an aerial forest fire management service, or an aerial search and rescue operation service
- it provides an air ambulance service, or an aerial transportation service for retrieving and transporting organs for human transplant
- it provides an aerial weather altering service, an aerial survey service, an aerial construction service, or an aerial spraying or spreading service
- it provides an air flight training service
- it is for the carriage of goods only
- all or substantially all of the passenger seats on the flight are offered for sale on a seat-by-seat basis to the general public and all or substantially all of the passengers deal at arm’s length with the operator of the flight, with each person that is an owner of the subject aircraft and with any other person that is offering any of the seats for sale
- it originates or terminates in a remote community listed in the Schedule to the Act
- it is conducted in the course of a business of an owner of the subject aircraft with a reasonable expectation of profit and it is not conducted for the leisure, recreation, sport or other enjoyment of an owner, a lessee under an agreement that is a lease, licence or similar arrangement (for example, a lease, a rental, a time-share or a charter), or a guest of an owner or the lessee as defined under subsection 2(1)
As set out in subsection 19(4), in order to purchase a qualifying subject aircraft without the luxury tax applying at the time the sale is completed, a purchaser must provide an exemption certificate to the vendor in accordance with section 36.
Purchasers of subject aircraft priced above the price threshold should use Form L100-3 as an exemption certificate to certify that they are eligible for an exemption from the luxury tax on qualifying subject aircraft.
Example
A vendor is selling a subject aircraft priced above $100,000 to a purchaser that is not a registered vendor of subject aircraft. The purchaser is purchasing the subject aircraft to be used solely to provide an air ambulance service in Canada.
The vendor could sell the subject aircraft to the purchaser without the luxury tax applying at the time the sale is completed if the purchaser provides an exemption certificate for this sale to the vendor certifying that it is a purchaser of a qualifying subject aircraft.
Exemption on sales of subject aircraft to qualifying aircraft users
The luxury tax generally does not apply to a subject aircraft priced above the price threshold sold to a purchaser that is a qualifying aircraft user at the time at which the sale is completed. Where there are multiple purchasers, each purchaser must be a qualifying aircraft user at the time the sale is completed.
Qualifying aircraft user
Under subsection 2(1), a qualifying aircraft user is any of the following persons:
- Her Majesty in right of Canada or a province
- an agent of Her Majesty in right of Canada or a province
- a municipality
- an Indigenous governing body
- a police authority
- a government entity that has as its primary responsibility the conduct of emergency medical response activities or emergency fire response activities
- a government entity that has as its primary responsibility the operation, management and maintenance of a hospital
- a person that has as its primary responsibility the operation, management and maintenance of a listed airport, as defined in section 2 of the Air Travellers Security Charge Act
- NAV CANADA
As set out in subsection 19(4), in order for a purchaser that is a qualifying aircraft user to purchase a subject aircraft without the luxury tax applying at the time the sale is completed, the purchaser must provide an exemption certificate to the vendor in accordance with section 36.
Purchasers of subject aircraft priced above the price threshold should use Form L100-3 as an exemption certificate to certify that they are eligible for an exemption from the luxury tax on subject aircraft.
Example
A vendor is selling subject aircraft priced above $100,000 to the Ontario Provincial Police. The purchaser is a qualifying aircraft user under subsection 2(1).
The vendor could sell the subject aircraft to the purchaser without the luxury tax applying at the time the sale is completed if the purchaser provides an exemption certificate for this sale to the vendor certifying that it is a qualifying aircraft user.
Exemption on sales of subject aircraft for export
The luxury tax generally does not apply to subject aircraft for export that are sold by a registered vendor of subject aircraft to a person that is not a registered vendor of subject aircraft.
To be eligible for an exemption from the luxury tax on the sale of a subject aircraft for export, the following conditions must be met:
- it is to be exported as soon as is reasonable after the particular time at which the sale is completed, having regard to the circumstances surrounding the exportation, the sale and, if applicable, the normal business practice of the vendor and the purchaser
- it is not to be used in Canada at any time before the exportation except to the extent reasonably necessary or incidental to its manufacture, offering for sale, transportation or exportation
- it is not to be registered with the Government of Canada or a province before the exportation except if the registration is done solely for a purpose incidental to its manufacture, offering for sale, transportation or exportation
- the vendor is a registered vendor of subject aircraft and the purchaser is not a registered vendor of subject aircraft at the particular time at which the sale is completed
As set out in subsection 19(4), in order to purchase a subject aircraft without the luxury tax applying at the time the sale is completed, the purchaser must provide an exemption certificate to the vendor in accordance with section 36.
Purchasers of subject aircraft priced above the price threshold should use Form L100-3 as an exemption certificate to certify that they are eligible for an exemption from the luxury tax on subject aircraft.
Example
A registered vendor of subject aircraft is selling subject aircraft priced above $100,000 to a purchaser that is not a registered vendor of subject aircraft. The subject aircraft is to be exported as soon as reasonable. The subject aircraft will not be used in Canada at any time before the exportation except to the extent reasonably necessary or incidental to its manufacture, offering for sale, transportation or exportation. The subject aircraft will not be registered with the Government of Canada or a province before the exportation except to the extent necessary or incidental to its manufacture, offering for sale, transportation or exportation.
The registered vendor could sell the subject aircraft to the purchaser without the luxury tax applying at the time the sale is completed if the purchaser provides an exemption certificate for this sale to the vendor certifying that it is not a registered vendor of subject aircraft and that it is purchasing the subject aircraft for export.
In response to industry feedback, the Department of Finance Canada is prepared to recommend to the Minister of Finance that additional regulatory measures be proposed that would have the effect of expanding up-front relief for exports to cases in which no exemption certificate is provided.
Specifically, in addition to the proposed export relief rules included in the Draft Select Luxury Items Tax Regulations, the Department is prepared to recommend to the Minister of Finance that luxury tax would not be payable in respect of a subject aircraft sold by a vendor to a purchaser if all of the following conditions apply:
- the vendor is a registered vendor in respect of subject aircraft at the time the sale is completed
- the purchaser is neither registered, nor required to be registered, as a vendor in respect of subject aircraft
- an exemption certificate does not apply in respect of the sale
- the aircraft:
- is exported as soon as is reasonable, having regard to the circumstances surrounding the exportation, the sale, and the normal business practice of the purchaser and vendor
- is not used in Canada at any time before the exportation except to the extent reasonably necessary or incidental to its manufacture, offering for sale, transportation or exportation
- is not registered with the Government of Canada or a province before the exportation except if the registration is done solely for a purpose incidental to its manufacture, offering for sale, transportation or exportation
- the vendor maintains evidence satisfactory to the Minister of National Revenue of the exportation of the aircraft
In the event that an aircraft is not exported by the purchaser in accordance with the conditions above, the luxury tax would remain payable and the registered vendor would be liable for the tax.
Note that this commentary should not be taken as a statement by the CRA that the proposed regulatory measures will be enacted in their current form.
Exemption on sales of subject aircraft with tax certificates in effect
As set out in subsection 19(5), the luxury tax does not apply to the sale of a subject aircraft priced above the price threshold if there is a tax certificate in effect for the subject aircraft in accordance with section 37 at the time the sale is completed. A tax certificate is a certificate issued by the Canada Revenue Agency (CRA) for a subject aircraft that indicates that the luxury tax has already been paid or reported for that subject aircraft.
Under subsection 37(1), a person must apply to the CRA for a tax certificate in respect of a subject aircraft if the following conditions are met:
- tax in respect of the subject aircraft became payable by the person on a particular day
- tax was paid on account of the importation of the subject aircraft or, in any other case, the person has reported the tax with the CRA on the return for the reporting period that includes the particular day
- any amount of rebate available under the Act in respect of the subject aircraft is less than the amount of the tax
Once the CRA approves an application for a tax certificate, the CRA will issue a tax certificate for the subject aircraft identified in the application, indicating the serial number of the subject aircraft and the effective date of the tax certificate.
Tax certificates will be available online through a searchable registry that will allow purchasers of subject aircraft to verify whether a tax certificate is in effect for a particular subject aircraft. Effectively, a tax certificate allows a purchaser to be able to purchase a subject aircraft without the luxury tax applying at the time the sale is completed.
Importing subject aircraft
Subsection 20(1) provides that, subject to certain exceptions, the luxury tax applies to the importation of subject aircraft valued above the $100,000 price threshold in accordance with the Customs Act.
The luxury tax does not apply to the importation of a subject aircraft valued above the price threshold where an importer has entered into a written agreement with a vendor for the sale of the subject aircraft before 2022 in the course of the vendor’s business of selling subject aircraft.
In response to industry feedback, the Department of Finance Canada is prepared to recommend to the Minister of Finance regulatory amendments that would have the effect of expanding existing transitional rules for relief of subject aircraft sold under written agreements made prior to January 1, 2022.
Specifically, in addition to the current transitional rule, which states that luxury tax is not payable where an agreement in writing for the sale of a subject item (including a subject aircraft) is made prior to 2022, the Department is prepared to recommend that luxury tax would not be payable in respect of a subject aircraft if:
- an importer that is a purchaser enters into either of the following, before 2022:
- a written agreement for the purchase of the subject aircraft
- a written agreement in respect of the aircraft containing all of the following:
- an obligation on the importer to enter into an agreement for the purchase of the subject aircraft at a future date
- an obligation on the importer to pay a deposit to the vendor before 2022
- a provision under which the deposit is forfeited if the importer does not fulfill their obligation to complete the purchase transaction as contemplated in the agreement
- the importer is not a registered vendor and is not entitled to be a registered vendor under the Act
If this proposed transitional rule applies to a particular subject aircraft, luxury tax would not be payable on the subject aircraft on any future transactions.
Note that this commentary should not be taken as a statement by the CRA that the proposed amendments will be made in their current form.
For more information on the application of the luxury tax on the importation of subject aircraft, refer to Canada Border Services Agency (CBSA) Memorandum D18-4-1, Select luxury items tax on importation.
Exemption on importations by registered vendors of subject aircraft
Subsection 21(1) provides that the luxury tax does not apply to subject aircraft valued above the price threshold that are imported by a registered vendor of subject aircraft. Effectively, registered vendors of subject aircraft are able to import and hold tax-free inventory of subject aircraft valued above the price threshold and defer the application of the luxury tax until the subject aircraft are sold to persons that are not registered, such as consumers.
For more information on applying to register as a registered vendor for the purposes of the Act, refer to Luxury Tax Notice LTN1.
Exemption on importations of subject aircraft with tax certificates in effect
Subsection 21(4) provides that the luxury tax does not apply to the importation of a subject aircraft valued above the price threshold if there is a tax certificate in effect, indicating that the luxury tax has already been paid or reported for that subject aircraft.
Tax certificates will be available online through a searchable registry that will allow importers of subject aircraft to verify whether a tax certificate is in effect for a particular subject aircraft. Effectively, the tax certificate allows a person to be able to import a subject aircraft without the luxury tax applying at the time of importation. The tax certificate must be presented to the CBSA.
Exemption on importations of subject aircraft with special import certificates in effect
Under subsection 21(5), the luxury tax does not apply to the importation of a subject aircraft valued above the price threshold if there is a special import certificate in effect for the subject aircraft in accordance with section 38.
A special import certificate is a certificate issued by the CRA to an importer for a subject aircraft that indicates that the CRA is satisfied that the importer meets the conditions to import a subject aircraft without the luxury tax applying at the time of importation.
An importer qualifies for a special import certificate for a subject aircraft if the importer is an owner of the subject aircraft at the time at which the subject aircraft is accounted for in accordance with section 32 of the Customs Act and either:
- the subject aircraft is a qualifying subject aircraft of the importer
- each owner is a qualifying aircraft user and the subject aircraft is accounted for solely by the importer
An importer must present the special import certificate to the CBSA to be exempt from the luxury tax on the importation of the subject aircraft.
Leasing out subject aircraft
Under subsection 25(1), subject to certain exceptions, the luxury tax applies if a person is an owner of a subject aircraft valued above the price threshold and provides the right to use the subject aircraft to a lessee under an agreement that is a lease, licence or similar arrangement. The luxury tax is payable by the person at the time at which the lessee first has the right to use the subject aircraft under the agreement, as set out in subsection 25(2).
Exemption on leases of qualifying subject aircraft
Under paragraph 25(3)(b), the luxury tax does not apply to a subject aircraft owned by a particular person that is leased out to a lessee if the subject aircraft is a qualifying subject aircraft of the particular person as determined under subsection 10(4).
For information on qualifying subject aircraft, refer to the “Exemption on sales of qualifying subject aircraft” section of this notice.
Exemption on subject aircraft owned by or leased out to a qualifying aircraft user
Paragraph 25(3)(b) provides that the luxury tax does not apply to a subject aircraft valued above the price threshold that is leased out if each owner of the subject aircraft is a qualifying aircraft user. Paragraph 25(3)(b) also provides that the luxury tax does not apply to a subject aircraft that is leased out to a qualifying aircraft user.
For the definition of qualifying aircraft user, refer to the “Exemption on sales of subject aircraft to qualifying aircraft users” section of this notice.
Exemption on leases of subject aircraft with tax certificates in effect
Under paragraph 25(3)(c), the luxury tax does not apply to a subject aircraft valued above the price threshold that is leased out to a lessee where a tax certificate is in effect for the subject aircraft. If a tax certificate indicates that the luxury tax has already been paid or reported for that subject aircraft, the luxury tax on the lease of the subject aircraft does not apply.
Using subject aircraft that cease to be qualifying subject aircraft
Under section 26, the luxury tax generally applies to a subject aircraft valued above the price threshold that is owned by a person at a particular time and is used in Canada at the particular time when it ceases to be a qualifying subject aircraft. The luxury tax is payable by the person at the particular time.
A subject aircraft ceases to be a qualifying subject aircraft if it ceases to be used or reasonably expected to be used, as determined under subsection 10(4), at least 90% of the time in Canada for qualifying flights. For information on qualifying flights, refer to the “Exemption on sales of qualifying subject aircraft” section of this notice.
However, the luxury tax does not apply to a subject aircraft that ceases to be a qualifying subject aircraft if a tax certificate is in effect, indicating that the luxury tax has already been paid or reported for that subject aircraft.
Example
An individual owns a subject aircraft valued above the price threshold for use solely to fly to and from a remote community in Canada. At a particular time, the individual uses the subject aircraft half of the time to fly to and from non-remote communities in Canada. Consequently, the subject aircraft ceases to meet the 90% threshold described in subsection 10(4).
The luxury tax is payable by the individual at the particular time that the subject aircraft ceases to be a qualifying subject aircraft.
Ceasing to be a qualifying aircraft user
As set out in section 28, the luxury tax generally applies to subject aircraft valued above the price threshold that are owned by a person that ceases to be a qualifying aircraft user. The luxury tax is payable by the person at the particular time it ceases to be a qualifying aircraft user. For the definition of qualifying aircraft user, refer to the “Exemption on sales of subject aircraft to qualifying aircraft users” section of this notice.
However, if at the particular time, the subject aircraft are qualifying subject aircraft of the person as determined under subsection 10(4), the luxury tax does not apply. For information on qualifying subject aircraft, refer to the “Exemption on sales of qualifying subject aircraft” section of this notice.
The luxury tax also does not apply to subject aircraft that have tax certificates in effect, indicating that the luxury tax has been already paid or reported for those subject aircraft.
Ceasing to be a registered vendor of subject aircraft
As set out in section 27, the luxury tax generally applies to tax-free inventory of subject aircraft valued above the price threshold that is owned by a person that ceases to be a registered vendor of subject aircraft. The luxury tax is payable by the person at the particular time it ceases to be a registered vendor of subject aircraft.
However, if at the particular time, the person is a qualifying aircraft user or owns subject aircraft that are qualifying subject aircraft of the person, the luxury tax does not apply to the subject aircraft. For the definition of qualifying aircraft user and information on qualifying subject aircraft, refer to the “Exemption on sales of subject aircraft to qualifying aircraft users” and “Exemption on sales of qualifying subject aircraft” sections of this notice.
The luxury tax also does not apply to subject aircraft that have tax certificates in effect, indicating that the luxury tax has already been paid or reported for those subject aircraft.
Having improvements made to subject aircraft
The luxury tax could apply when improvements are made to subject aircraft, as set out in sections 29 to 32. According to subsection 8(1), an improvement to a subject aircraft is the provision of either:
- tangible personal property that is installed in or on, or is affixed to the subject aircraft
- a service that modifies the subject aircraft and is physically performed on the subject aircraft
Examples of improvements made to a subject aircraft include engine upgrades, exterior painting, custom cabin interiors, avionics system upgrades and entertainment system installations.
The luxury tax on improvements typically only applies to improvements made to subject aircraft that were already subject to the luxury tax. However, in the event that improvements are made in connection with the sale of a subject aircraft, the calculation of the luxury tax payable on the sale of the subject aircraft would take into account the cost of the improvements.
The luxury tax on improvements applies to improvements that total at least $5,000 made during the improvement period of the subject aircraft as determined under paragraphs 29(1)(a) and 30(1)(a). The luxury tax on improvements is payable on the day following the improvement period.
If a sale triggered the luxury tax on a subject aircraft, the purchaser would be liable for any luxury tax payable on after-sales improvements made to that subject aircraft. Otherwise, the person that was liable for the luxury tax on a subject aircraft would be liable for any luxury tax payable on improvements made to that subject aircraft.
Example
On January 1, 2023, a registered vendor of subject aircraft sells a subject aircraft priced over $100,000 to a purchaser. The luxury tax applies to the subject aircraft at the time the sale is completed.
During the improvement period between January 1, 2023, and January 1, 2024, the purchaser hires two service providers to install the following improvements on the subject aircraft: cabin lighting, light-weight interior trim and a satellite communication system. The total price of the improvements is $30,000.
The purchaser is liable for the luxury tax on improvements made to the subject aircraft. The luxury tax will be payable on January 2, 2024.
Excluded improvements
Under subsection 8(2), the following improvements are not subject to the luxury tax:
- any repair, cleaning or maintenance service performed on a subject aircraft
- the provision of tangible personal property to a subject aircraft to replace other tangible personal property that is damaged, defective or non-functioning
General calculation of the luxury tax (except for improvements)
Generally, the luxury tax is calculated using the taxable amount of the subject aircraft, in accordance with section 34. The luxury tax is equal to the lesser of 10% of the taxable amount of the subject aircraft and 20% of the amount above the price threshold.
The luxury tax on the sale, importation, lease or use of a subject aircraft priced or valued above the price threshold, or on subject aircraft valued above the price threshold held by a person ceasing to be a qualifying aircraft user or ceasing to be a registered vendor of subject aircraft is calculated as the lesser of:
- the taxable amount multiplied by 10%
- the amount that results from subtracting $100,000 from the taxable amount and multiplying the difference by 20%
Determining the taxable amount of a subject aircraft for calculating the luxury tax payable depends on the circumstance that triggered the luxury tax on the subject aircraft.
Taxable amount for sales of subject aircraft
Generally, the taxable amount in respect of the sale of a subject aircraft is the sum of the following, as set out in subsection 18(4):
- the value of the consideration for the sale of the subject aircraft
- the value of the consideration for any improvements made by the vendor to the subject aircraft in connection with the sale that is not included in the above
Taxable amount for importations of subject aircraft
Under subsection 20(2), the taxable amount in respect of the importation of a subject aircraft is the sum of the following:
- the value of the subject aircraft as determined under the Customs Act
- the total amount of any duties and taxes (other than the GST/HST) that is payable on the subject aircraft under the Customs Tariff, the Excise Tax Act, the Special Import Measures Act and any other law relating to customs
For more information on calculating the taxable amount in respect of importations of subject aircraft, refer to CBSA Memorandum D18-4-1.
Taxable amount for leases of subject aircraft
Under subsection 25(4), the taxable amount in respect of the leasing out of a subject aircraft is the greater of the following:
- the retail value of the subject aircraft at the time at which possession of the subject aircraft is first transferred to the lessee under an agreement that is a lease, licence or similar arrangement
- the retail value of the subject aircraft at the time at which the lessee first has the right to use the subject aircraft under the agreement
Refer to the “Determining the retail value” section of this notice for more information on retail value.
Taxable amount for uses of subject aircraft that cease to be qualifying subject aircraft
As set out in subsection 26(4), the taxable amount in respect of the use of a subject aircraft that ceases to be a qualifying subject aircraft at a particular time is the retail value of the subject aircraft at the particular time.
Refer to the “Determining the retail value” section of this notice for more information on retail value.
Taxable amount for subject aircraft held by a person ceasing to be a qualifying aircraft user
Under subsection 28(4), the taxable amount in respect of a subject aircraft held by a person is the retail value of the subject aircraft at the time at which the person ceases to be a qualifying aircraft user.
Refer to the “Determining the retail value” section of this notice for more information on retail value.
Taxable amount for subject aircraft held by a person ceasing to be a registered vendor
Under subsection 27(4), the taxable amount in respect of a subject aircraft held by a person is the retail value of the subject aircraft at the time at which the person ceases to be a registered vendor of subject aircraft.
Refer to the “Determining the retail value” section of this notice for more information on retail value.
Determining the retail value
As set out in section 16, the retail value of a subject aircraft at any time is the sum of the following:
- the fair market value (FMV) of the subject aircraft at that time
- the total amount of any transportation or freight fees for the transportation of the subject aircraft that is not already included in the FMV
- the total amount of any duties, taxes and fees (other than the GST/HST) imposed under an Act of Parliament that is payable on the subject aircraft and that is not already included in the FMV
- the total amount of any provincial levy and other amounts imposed under an Act of the legislature of a province that is payable on the subject aircraft and that is not already included in the FMV
Example – Luxury tax on the sale of a subject aircraft
A registered vendor of subject aircraft sells a subject aircraft to a purchaser. The selling price for the subject aircraft is $270,000 but the registered vendor applies a discount of $20,000 to the price. The subject aircraft is sold to the purchaser for a total consideration of $250,000, which consists of a trade-in valued at $150,000 and a cash payment of $100,000. Therefore, the taxable amount of the subject aircraft for calculating the luxury tax is $250,000.
The luxury tax is equal to the lesser of:
- $25,000 ($250,000 × 10%)
- $30,000 [($250,000 − $100,000) × 20%]
The luxury tax payable is $25,000.
Example – Luxury tax on the use of a subject aircraft that ceases to be a qualifying subject aircraft
An owner-operator owns a subject aircraft for use solely to offer flying lessons in Canada to paying customers. The subject aircraft is determined to be a qualifying subject aircraft of the owner operator in accordance with subsection 10(4).
At a particular time, the owner-operator uses the subject aircraft half of the time to take friends to travel in Canada. Consequently, the subject aircraft is considered to be used in Canada at the particular time that it ceases to be a qualifying subject aircraft, as it ceases to meet the 90% threshold described in subsection 10(4). At the particular time, the retail value of the subject aircraft is $400,000, as determined under section 16. Therefore, the taxable amount of the subject aircraft is $400,000.
The luxury tax is equal to the lesser of:
- $40,000 ($400,000 × 10%)
- $60,000 [($400,000 − $100,000) × 20%]
The luxury tax payable is $40,000.
Calculation of the luxury tax on improvements
The luxury tax on improvements made to subject aircraft is calculated in accordance with section 35. For improvements, the luxury tax is the difference between the following:
- the amount determined under section 34 using the total taxable amount, which is the taxable amount that would have been used to calculate the luxury tax on the subject aircraft if the value of consideration for the improvements had been initially included at the time the luxury tax on the subject aircraft was triggered
- the amount determined under section 34 using the unimproved taxable amount, which is equal to the taxable amount of the subject aircraft
Therefore, the luxury tax on improvements made to subject aircraft is calculated using the following formula:
| Where | |
|---|---|
| A | is the lesser of:
|
| B | is the lesser of:
|
Example – Luxury tax on improvements made to a subject aircraft
A registered vendor of subject aircraft sells a subject aircraft to a purchaser for a consideration of $500,000. No improvements are made at that time. The taxable amount of the subject aircraft is $500,000, and luxury tax of $50,000 is paid on the sale of the subject aircraft. The unimproved taxable amount is $500,000.
During the improvement period, the purchaser hires a service provider to install the following improvements for the following consideration: custom seat upholstery for $5,000, an entertainment system for $10,000 and avionics system upgrade for $15,000. The total consideration for the improvements is $30,000. The total taxable amount is $530,000.
The luxury tax on the improvements is calculated using the formula A − B where:
A is the lesser of:
- $53,000 ($530,000 × 10%)
- $86,000 [($530,000 − $100,000) × 20%]
B is the lesser of:
- $50,000 ($500,000 × 10%)
- $80,000 [($500,000 − $100,000) × 20%]
The luxury tax payable on the improvements is $3,000 ($53,000 − $50,000).
Reporting the luxury tax and filing returns
Registered vendors and persons that are required to be registered under the Act must report their luxury tax payable for each reporting period on Form B500, Luxury Tax and Information Return for Registrants. Registered vendors and persons that are required to be registered under the Act must file Form B500 with the CRA for every reporting period even if they do not have luxury tax payable.
Persons that are not registered and not required to be registered under the Act must report their luxury tax payable for each reporting period on Form B501, Luxury Tax and Information Return for Non-Registrants. Persons that are not registered and not required to be registered are only required to file Form B501 with the CRA for each reporting period where they have luxury tax payable.
However, every person that is not registered, that is not required to be registered and that does not have luxury tax payable must file Form B502, Luxury Tax – Information Return for Non-Registrants, for each reporting period where the person sells a subject aircraft to a purchaser and either of the following applies:
- the luxury tax on the subject aircraft is payable by the purchaser under subsection 18(2)
- the purchaser provides the person with an exemption certificate for the subject aircraft
In most cases, returns may be filed by mail or electronically; however, the CRA could require certain persons to file electronically.
Every person that is required to file returns must keep all records necessary to determine their tax liabilities and obligations for a period of six years from the end of the year to which the records relate.
Reporting periods and filing/payment deadlines
In general, the reporting period of a person is a calendar quarter. The return must be filed by the end of the month that follows the end of a reporting period, and any amount owing for the reporting period is also due at that time.
For 2022, there is only one reporting period: September 1, 2022 to December 31, 2022. The filing/payment deadline is January 31, 2023.
| Reporting period | Filing/payment deadline |
|---|---|
| January 1 to March 31 | April 30 |
| April 1 to June 30 | July 31 |
| July 1 to September 30 | October 31 |
| October 1 to December 31 | January 31 |
Applying for tax certificates
A person that is liable for the luxury tax on a subject aircraft must apply to the CRA for a tax certificate for that subject aircraft as set out in subsection 37(1). The person must apply to the CRA within one year after the tax became payable. Persons that are required to apply for tax certificates may do so using Form B500 or Form B501, where appropriate, at the time that they file their returns.
Alternatively, a person may apply for tax certificates by completing Form L501, Tax Certificate Application, and submitting it to the CRA.
Applying for special import certificates
An importer that is a qualifying aircraft user or that meets the conditions to import a qualifying subject aircraft must apply to the CRA for a special import certificate in order to be exempt from the luxury tax at the time of importation. The special import certificate should be presented to the CBSA.
To obtain a special import certificate, an importer must complete Form L502, Special Import Certificate Application, and submit it to the CRA.
Penalties
If a person is required to file a return for a reporting period and fails to do so, the person is liable to a penalty under section 107. The penalty is the sum of 1% of the amount that was required to be paid for the reporting period and 25% of the amount multiplied by the number of months, not exceeding 12 months, from the day on which the return was required to be filed.
Under section 112, every person that is required to apply for a tax certificate and fails to do so as and when required is liable to a penalty of $1,000. If a tax certificate is in effect and the person that applied for the tax certificate becomes aware that the conditions for the tax certificate are no longer being met, that person is required to provide written notice without delay to the CRA indicating that the conditions are not being met. Under section 113, every person that is required to provide written notice to the CRA and fails to do so as and when required is liable to a penalty of $1,000.
If an importer of a subject aircraft makes a false declaration in its application for a special import certificate and uses the special import certificate to import the subject aircraft without the luxury tax applying at the time of importation, the importer is liable to a penalty under section 111, in addition to any other penalty. The penalty is the greater of $1,000 and 150% of the luxury tax that would have been payable.
Further information
For all technical publications related to the Select Luxury Items Tax Act, go to Luxury tax technical information.
For all enquiries on the application of the luxury tax, call 1‑866‑330‑3304.
To request a ruling or interpretation related to the application of the luxury tax, write to:
Excise and Specialty Tax Directorate
Canada Revenue Agency
Place de Ville Tower A 11th floor
320 Queen St
Ottawa ON K1A 0L5
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