Tax Status of Flying Time Pursuant to Section 8 of Part III of Schedule V to the ETA

From: Canada Revenue Agency

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-034R2

Date of Issue

November 9, 1992
Revised: September 29, 1999

Subject

Tax Status of Flying Time Pursuant to Section 8 of Part III of Schedule V to the ETA.

Legislative Reference(s)

Section 8 of Part III of Schedule V to the ETA, as amended by 1997, c.10, s.99(1)

National Coding System File Number(s)

11915-7-2

Effective Date

April 1, 1997 with respect to HST

January 1, 1991 for all other purposes related to GST

Issue and Decision

A vocational school, school authority, university or public college (collectively referred to as "educational institution") may provide instruction in courses exempt of the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") where the supply satisfies the criteria in section 8 of Part III of Schedule V to the Excise Tax Act ("ETA"). Specifically, the supply must be in respect of courses leading to certificates, diplomas, licences or similar documents, or classes or ratings in respect of licences, that attest to the competence of individuals to practise or perform a trade or vocation where (a) the document, class or rating is prescribed by federal or provincial regulation; (b) the supplier is governed by federal or provincial legislation respecting vocational schools; or (c) the supplier is a non-profit organization or a public institution.

The Department's general administrative position respecting the application of section 8 of Part III of Schedule V to the ETA is outlined in Policy Paper P-231 " Courses That Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act".

The Aeronautics Act, the Canadian Aviation Regulations (CARs) and the Canadian Aviation Regulations Standards (CARs Standards), which are collectively referred to herein as "federal legislation", set out the flight time requirements, and other requirements or qualifications, an individual must meet in order to obtain a Commercial Pilot Licence (Aeroplane) and the Airline Transport Pilot Licence. The federal legislation also sets out the flight time requirements, and other qualifications, an individual must meet in order to obtain classes or ratings in respect of these licences. A rating is an authorization associated with, and forming part of, a licence setting out special conditions, privileges or limitations attaching to the licence (e.g., night rating).

This paper addresses the GST/HST status of these supplies of flight time by educational institutions, pursuant to section 8 of Part III of Schedule V to the ETA.

Generally, the federal legislation outlines various amounts of flight time an individual must complete in order to obtain a pilot licence or a class or rating in respect of a pilot licence. The Department considers this federally required flight time to fall into 3 main classifications: (1) dual flight time, (2) solo flight time, and (3) build-up flight time.

For the purposes of the dual flight time and solo flight time, the student is considered by the Department to be under instruction and direct supervision. Therefore, both dual flight time and solo flight time are exempt supplies under section 8 of Part III of Schedule V to the ETA where all other requirements of that section are met.

Build-up flight time refers to additional flight time that must be completed by the student, over and above the dual and solo flight time, in order to obtain a pilot licence or a class or rating in respect of a pilot licence. For the purposes of the build-up flight time, the student is not considered by the Department to be under instruction and direct supervision. Therefore, build-up time is not exempt under section 8 of Part III of Schedule V.

Accordingly, the following tax treatment is afforded flight time required by the federal legislation:

(1) Commercial Pilot Licence (Aeroplane)

The following flight time must be completed, pursuant to the federal legislation, in order for an individual to obtain a Commercial Pilot Licence (Aeroplane):

Dual flight time 35 hours
Solo flight time 30 hours
Flight time from private licence instruction 45 hours
Build-up flight time 90 hours

The 35 hours of dual flight time and the 30 hours of solo flight time are considered by the Department to be exempt supplies where all other requirements of section 8 of Part III of Schedule V to the ETA are met.

The 45 hours flight time from the private licence instruction is not exempt under section 8 of Part III of Schedule V to the ETA, since it is does not otherwise meet the requirements of the section. Specifically, the Department considers the Private Pilot's Licence (Aeroplane) to be taken for personal interest, providing the individual with the right to fly a vehicle, and therefore not related to a trade or vocation.

The 90 hours build-up time is not exempt under section 8 of Part III of Schedule V to the ETA since the student is not under instruction and direct supervision while completing the 90 hours build-up time

(2) Airline Transport Pilot Licence

The following flight time must be completed, pursuant to the federal legislation, in order for an individual to obtain an Airline Transport Pilot Licence:

Solo flight time 625 hours
Build-up flight time 875 hours

The 625 hours of solo flight time is considered by the Department to be an exempt supply where all other requirements of section 8 of Part III of Schedule V to the ETA are met.

The 875 hours build-up time is not exempt under section 8 of Part III of Schedule V to the ETA since the student is not under instruction and direct supervision while completing this build-up time

(3) Ratings

The flight time required by the federal legislation for the following ratings in respect of the Commercial Pilot Licence (Aeroplane) and the Airline Transport Pilot Licence, is exempt under section 8 of Part III of Schedule V to the ETA, provided that all other requirements of section 8 of Schedule V to the ETA are met:

  • multi-engine rating
  • instrument flight rating
  • VFR Over-the-Top rating
  • night rating
  • sea plane rating
  • land plane rating

The federal legislation sets out 4 different Classes of flight instructor rating. Pursuant to the federal legislation, an individual must complete a minimum amount of dual flight time and a minimum amount of solo flight time, in order to obtain each Class of flight instructor rating. This dual flight time and solo flight time is exempt pursuant to section 8 of Part III of Schedule V to the ETA.

The federal legislation also mandates that a student complete an additional 100 hours of build-up flight time for the Class 1 flight instructor rating and 150 hours of build-up flight time for the Class 2 flight instructor rating. Neither of these blocks of build-up time are exempt under section 8 of Part III of Schedule V to the ETA.

In order to obtain a Class 3 or Class 4 flight instructor rating a student must complete a certain amount of dual flight time and solo flight time. These blocks of time are exempt pursuant to section 8, since the Department considers a student to be under instruction and direct supervision for the purposes of dual flight time and solo flight time. The federal legislation does not require the completion of build-up time in order to obtain a Class 3 or Class 4 flight instructor rating.

 

Sample Rulings:

Facts

1. A school qualifies as a vocational school pursuant to section 1 of Part III of Schedule V to the ETA, and is registered under and governed by provincial legislation respecting vocational schools.

2. The Aeronautics Act, Canadian Aviation Regulations and Canadian Aviation Regulations Standards ("federal legislation") set out certain written examination and flight test requirements that must be met in order for individuals to obtain various aeroplane pilots' licences. The examinations are administered by Transport Canada.

3. A vocational school operates as a flight school and offers a full-time program designed to prepare students to write their examination and take their flight test for the Commercial Pilot Licence (Aeroplane).

4. There are several elements to the Commercial Pilot Licence (Aeroplane) program, including ground school preparatory courses and flight test preparatory courses. Pursuant to the federal legislation, the vocational school's flight test preparatory course consists of 35 hours of dual flight time, 30 hours of solo flight time and, in some instances, 90 hours of build-up time.

5. The curriculum and promotional materials of the vocational school indicate that the Commercial Pilot's Licence (Aeroplane) program provides skills related to the ability to gain or retain employment in the transportation industry. Therefore it relates to a trade or vocation.

6. The promotional materials of the vocational school indicate that students wishing to obtain their Commercial Pilot Licence (Aeroplane) may choose one of the following three study packages:

 

Scenario No. 1:

The vocational school provides each student with an aeroplane for the purpose of completing the dual and solo flight time. The aeroplane, 35 hours of dual flight time and 30 hours of solo flight time are provided by the vocational school for a single consideration.

The vocational school does not provide the additional 90 hours of build-up time required by the federal legislation.

Ruling Given

The supply of a service of instructing in courses is made by a vocational school, and the documents and ratings to which the courses lead are prescribed by federal regulation. Therefore, based on the facts set out above, and as outlined in Policy P-*, Courses That Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act, the supplies by the vocational school of an aeroplane, dual flight time and solo flight time, and ground school instruction constitute a single supply of instruction that is an exempt supply pursuant to section 8, assuming that section 18 of Part V of Schedule VI to the ETA does not apply.

 

Scenario No.2:

The vocational school provides the 35 hours of dual flight time, 30 hours of solo flight time, 90 hours of build-up time, ground school instruction and the use of an aeroplane for the purposes of completing the flight time, for a single consideration.

Ruling Given

The supply of a service of instructing in courses is made by a vocational school, and the documents and ratings to which the courses lead are prescribed by federal regulation. Therefore, based on the facts set out above, and as outlined in Policy P-231 "Courses That Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act", we rule as follows:

There are two separate supplies made by the vocational school.

The first supply is a single exempt supply of instruction consisting of solo flight time, dual flight time, the aeroplane for the purposes of the instruction, and ground school instruction.

The supply by the vocational school of build-up time constitutes a separate taxable supply of an aeroplane by way of lease, license or similar arrangement that is not incidental to the supply of instruction. Since there is no element of instruction involved in build-up time, the supply is not exempt under section 8.

The value of this separate supply of build-up time must be determined on a reasonable basis.

 

Scenario No. 3:

The vocational school provides the solo flight time, dual flight time and ground school instruction for a single consideration.

Students rent aeroplanes from a third party, since the vocational school requires that they provide their own aeroplane for the purposes of the solo flight time and dual flight time.

The vocational school does not provide supplies of build-up time required by federal legislation.

Ruling Given

The supply of a service of instructing in courses is made by a vocational school, and the documents and ratings to which the courses lead are prescribed by federal regulation. Therefore, based on the facts set out above, and as outlined in Policy P-231 "Courses That Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act", we rule as follows:

The supplies by the vocational school of solo flight time, dual flight time, and ground school instruction constitute a single supply of instruction that is exempt pursuant to section 8, assuming that the supply is not a zero-rated supply pursuant to section 18 of Part V of Schedule VI to the ETA.

The supply by a third party of the aeroplane is not exempt pursuant to section 8.

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