The Canada Revenue Agency (CRA) has released long-awaited guidance covering the taxation of personal use of business aircraft. It effectively increases the tax values and complexity of reporting, the Canadian Business Aviation Association (CBAA) said. But CBAA said the document, "The Internal Communiqué AD-18-01—Taxable Benefit for the Personal Use of an Aircraft," represents a compromise compared with a previous proposal.
The association advises that the communication, although available to the business aviation community, is not legal advice and is only a basic summary of the policy. However, the communication helps settle some questions that have resulted from a number of audits in recent years.
In 2012, the CRA cancelled its 1992 policy on personal use of aircraft, along with 138 associated interpretation bulletins, but did not replace it with new published guidance. In the absence of new guidance, the CRA began undertaking an audit program to review the valuation and reporting of personal use of aircraft, CBAA noted, adding that this resulted in “negative reassessments” for operators.
A subsequent internal ruling in 2015 signaled a shift in the CRA approach to valuation from the 1992 policy on personal use of aircraft, CBAA said. The ruling was not made publicly available, so aircraft owners and operators largely were not informed of the shift. As a result, CBAA said, its members began to report that “they were being targeted by the CRA in respect of the personal use of their business aircraft” and overall there was a lack of consistency. “By the summer of 2016, the CBAA had enough data to demonstrate that there was an identifiable CRA audit trend that was harming its members,” the association said, prompting a dialog with government over the audits.
CRA in 2017 proposed a policy that laid out various categories for quantifying personal use valuation, but drew fire from industry for measures that introduced the concept of command and control over access to the aircraft, as well as a valuation category that essentially would be double that of associated charter, CBAA feared. Further, the CRA proposed making the policy retroactive to all open audits. The previous 1992 policy had essentially required taxpayers to report an amount equal to the cost of a business class ticket. The recently received guidance still results in higher tax values than required under the 1992 policy and introduces “compliance challenges,” CBAA said.
But the guidance appears to provide some relief from the earlier proposal. It requires companies to measure flight time attributable to business use and to personal use. The valuation is then derived based on time used and the circumstances of the flight, but in certain instances may be measured against the price of an equivalent charter flight. The formulas become more complex for more than 50 percent personal use of the aircraft with operating costs being evaluated. Another factor playing into the valuations includes whether the flights were necessary for security of the individual.
CBAA noted that the CRA is indicating that the new policy would apply only to current-year audits, along with those in the previous year. CBAA encouraged members to contact local tax representatives to resolve questions surrounding the new guidance.
