Luxury Tax
Canada has now formalized its intent to impose a “Luxury Tax” on new “personal aircraft” for new aircraft sold in the country. The tax proposal was in Justin Trudeau’s Liberal government budget and could add tens of thousands of dollars in price to even the most basic general aviation aircraft.
Of course, Canada is home to Bombardier, one of the leading manufacturers of private jets, and its business could be quite negatively impacted, at least in terms of Canadian sales, by such a move. Quebec represents one of the larger aviation manufacturing hubs in the world, and it appears that the Liberal government has forgotten that fact. Diamond Aircraft, in London, manufactures light aircraft, about 5% of which are sold in Canada. The jobs created by the aviation sector in Quebec, Ontario, Manitoba, and British Columbia are quite significant.
The proposal is to tax aircraft over $100,000 CAD, which is about $80,000 US. The tax would be calculated at the lesser of 10% of the full value of an aircraft or 20% of the amount over $100,000 CAD. This would be in addition to the already existing federal and provincial value-added and sales taxes.
So for one of the smallest new aircraft, like a Cessna 172 that goes for about $485,000 US or $600,000 Canadian, the tax would be $60,000 CDN in addition to the existing $7,800 in sales and VAT taxes. It is unclear whether a bush plane providing essential service to indigenous communities or a crop duster serving local farmers would be exempt, as the proposal is not currently very clear.
Most Canadian aviation groups have lined up against the tax. With a potential exemption in the proposal for aircraft used commercially being discussed, we would expect to see a lot of aircraft owners setting up special purpose companies and leasing their aircraft to a flight school or charter operator to avoid excessive taxation.
Canada has a rich aviation heritage, and aviation is a vital lifeline across the northern sections of the country, from Newfoundland to the Yukon. For the most part, it certainly isn’t a luxury, but a necessity. Excessive taxation always produces unintended consequences, often backfiring on politicians. In this case, Oh Canada may become Oy Canada.
