In the Federal government’s first budget delivered in two years, due to the COVID-19 pandemic, the Liberal government has proposed a new luxury tax on new cars and personal aircraft priced over $100,000, and for personal use boats priced over $250,000. The tax would come into effect January 1, 2022.
The Canadian Press notes the Liberals promised a luxury tax in its 2019 campaign platform. On Monday April 19, Federal Finance Minister Chrystia Freeland followed through with that earlier proposal, which in the newly tabled budget would be calculated as the lesser of 20 per cent of the value above the threshold (again $100,000 for aircraft) or 10 per cent of the full value of the luxury item. The GST/HST would apply to the final sale price, inclusive of the proposed tax.
The Financial Post explains: “Upon purchase or lease of the car, boat or plane, the seller or lessor will be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time.”
As noted by Maclean’s, and other news outlets reporting on the April 19 budget introduction, Freeland’s foreword in the budget document includes a notable description of the government’s rationale for the proposed luxury tax: “If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat – congratulations! And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity.”
The Canadian Business Aviation Association (CBAA) on April 20 released a statement expressing concern over the proposed luxury tax, noting that the government’s assumption that a small plane is an unessential high-end toy totally misrepresents how these aircraft are generally used.
“Given Canada’s vast size, complex geography and small population, small aircraft have been a niche tool to deliver personnel, food and supplies, equipment and other essential services to communities of all sizes, many of which have only the most basic airstrip for landing and take-off,” said Anthony Norejko, President and CEO, CBAA.
“This action is unfair and unsupportable as Canadian taxes such as GST and applicable PST are already applied to the purchase of these aircraft and the personal use of an aircraft is already recognized as a non-deductible taxable benefit to the individual,” he continued. “Moreover, the Income Tax Act does not specify or limit the type or size of aircraft: an airplane of any size can be used for business purposes.”
In it statement, CBAA notes the fact that the Income Tax Act makes no distinction on the type of aircraft that can be used for business purposes directly contradicts the budget’s definition of “personal” which would only exclude large aircraft typically used in commercial activities, and smaller aircraft used in certain commercial (such as public transportation) and public sector (police, military and rescue aircraft, air ambulances) activities.
“The government has shown a lack of understanding regarding the needs of communities and businesses served by small, fixed wing and rotary aircraft,” said Norejko. “These are no more luxuries than heavy duty trucks used to transport goods and personnel; something that the Income Tax Act already acknowledged.”
CBAA points out that the government claims that this new luxury tax would generate $604 million over five years, but the association describes this a miniscule and irrelevant amount in the face of a $342 billion federal deficit in 2021 alone. In contrast, business aviation generates $33 million in GDP every day.
“There is no other way to interpret this proposed tax but to see it as a gesture without real benefit to Canadians,” said Mr. Norejko. “The reality is that the only people who will be affected by the tax are the communities and businesses that rely on air service, and they are anything but wealthy. This tax is just a distraction from the real work that has to be done to get our economy moving.”
CBAA since the onset of the pandemic has put forward a number of recommendations that it says would not only strengthen the sector but would contribute to national recovery efforts. These recommendations, explains CBAA, include a restart strategy to reopen aviation safely, build confidence and remove quarantine and a request for financial relief for air system partners, including airports and air navigation to ensure that Canadian aviation remains competitive compared with other jurisdictions.