Canadian luxury tax will have ‘negative consequences’ on domestic industry


The Canadian luxury tax to be introduced this year will have negative consequences for the country’s business aviation industry, according to the Canadian Business Aviation Association (CBAA).

In its submission to the government financial department, Finance Canada, the CBAA stated: “This tax will not only dampen demand for Canadian-made aircraft, it will discourage operators from renewing their fleet and continue to fly older, less efficient aircraft that have a larger carbon footprint and older technology which may impact the high degree of safety our operators are able to provide.”

The luxury tax was expected to come into force in January 2022, however the Canadian government’s December 2021 economic and fiscal update revealed delays in its introduction. Finance Canada is still integrating the results of its earlier consultation into the proposed tax framework. Draft legislation is due for release early this year.

The tax would apply to all new aircraft, manufactured from 2019 onwards with fewer than 40 seats, and cars with retail prices exceeding $100,000. It would also apply to marine vessels priced above $250,000. It would be calculated at whichever is lesser: 20% of the value above these thresholds or 10% of the full value of the asset.

Canadian business aviation employs over 47,000 Canadians while contributing $12.1bn to the nation’s economy every year, according to the CBAA. Canada-based industry players include Bombardier, Viking Aircraft, CAE, Pratt & Whitney Canada, Bell Textron, Diamond Aircraft, IMP Aerospace and Dassault Canada.

Originally the tax had been proposed only on ‘private’ aircraft in the federal budget of April 2021. That would mean aircraft only used for “discretionary, non-business purposes”.

According to CBAA’s submission: “This tax, which would be applied to virtually all aircraft with fewer than 40 seats, would have a punitive and disproportionate impact on the business aviation and aerospace industry and by extension the people employed directly and indirectly by business aviation and aerospace in Canada.”

Both the CBAA and the Canadian Operators and Pilots Association continue to push for changes to the proposed tax, including increasing the price threshold to $5m and delaying enforcement until January, 2023.