Best practices for owning aircraft via corporation

[highupabove]

Looking to start a corporation to co-own an aircraft. Have discussed with a few potential shareholders on doing this, instead of a co-ownership/partnership agreement. What are the best practices for owning via corporation? Essentially I'm looking for the missing manual.

Here is how I think it would work.

Starting up:

- Corporation is formed with each of the partners as equal shareholders.
- Equity is put into the corporation to cover the purchase of the aircraft and other acquisition costs.
- Corporation is the owner and holder of the insurance (with all shareholders as named pilots)

After start-up:

- Corporation invoices pilots (=shareholders) every quarter for fixed costs like maintenance, insurance, hangar rent.
- Corporation invoices pilots (=shareholders) monthly for variable costs like consumables and engine maintenance fund.

It is unlikely that the corporation would invoice more than $30k/year, so I don't think that sales tax would need to be collected. We'd always operate just above cost (not looking to make any huge profits), and not make any losses. I do believe this would keep the CRA happy from a reporting perspective. We'd have a professional look at the accounting every year and help out with the tax filings.

Happy to receive any feedback here. Don't want to make any avoidable mistake.

[photofly]

Sales tax wouldn't be an issue either way, since all your costs include sales tax which, if you're collecting sales tax on your "fees", you would be able to offset.

Something you might not have considered is that if you're assessed a monetary penalty from any enforcement actions, then you have to pay at the higher (x5) corporate rate.

[highupabove]

Sales tax wouldn't be an issue either way, since all your costs include sales tax which, if you're collecting sales tax on your "fees", you would be able to offset.

True, tax credits should be available for everything but the engine maintenance fund.

Oh, but that is just a deferred expense, so that would be subject to the potential tax credit too.

[highupabove]

Would the aircraft need to be registered as a commercial aircraft? I don't think so -- the corporation would not need an operator certificate (not doing sightseeing or anything like that). I believe the CARs permits flight training if you are affiliated with the corporation.

[photofly]

Would the aircraft need to be registered as a commercial aircraft?

No, nor would you be able to even if you so wished.

I believe the CARs permits flight training if you are affiliated with the corporation.

Diirectors (only) can be trained by an instructor in the aircraft, if the director already hold a PPL, but their family members cannot. If the aircraft is owned by individuals then PPL (and PP-R) training is permitted to owners and their families, so those are privileges you would be giving up by using a corporation to own the aircraft.

Someone will be along soon to point out that what is regulated is “operating a flight training service”, which involves payment, so in theory an instructor could out the goodness of their heart teach anyone at all for zero payment or reimbursement, and not fall foul of the rules, but that’s a bit of a corner case.

[Bede]

May I ask why you want to do this all under a corporation? By the time you add the accountants, tax return, lawyer, etc. I can't see it being worth it. My dad was involved in a corporate aircraft ownership arrangement, and I seem to recall it didn't end too well. Something about taxes and having to spend $$ on lawyers/accountants. If I recall they didn't owe anything in the end, but the fight with the CRA cost some money.

[digits_]

Something you might not have considered is that if you're assessed a monetary penalty from any enforcement actions, then you have to pay at the higher (x5) corporate rate.

I'm aware the maximum amount can be 5x higher, but is there a reference somewher that says the minimum fine is also 5 times as high for a corporation?


I might be naive here, but I'd expect TC to be using the 5 times higher maximum for intentional infractions made by an AOC holder endangering the public, not so much for 2 guys running a small private piston airplane in a corporation without an AOC?

[photofly]

There is no minimum sanction, but there are guidelines for first, second and subsequent offences with adjustments for mitigating and aggravating factors. I’ll look in my archived copy of the Aviation Enforcement Policy Manual (which TC doesn’t want you to see any more) but my understanding comes from reading various tribunal reports.

To the OP: budget on $2k annually for accountancy fees.

[AirFrame]

There is no minimum sanction, but there are guidelines for first, second and subsequent offences with adjustments for mitigating and aggravating factors. I’ll look in my archived copy of the Aviation Enforcement Policy Manual (which TC doesn’t want you to see any more) but my understanding comes from reading various tribunal reports.

I don't suppose you'd care to share a link to that enforcement policy manual... ?

[digits_]

Why would you need to spend thousands on lawyers and accountants?

Your set up would be fairly simple. I see no reason why you couldn't do all the paperwork yourselves.

And sure, if you end up fighting with each other things can turn messy. But wouldn't you be in the same mess then without a corporation?

[photofly]

Why would you need to spend thousands on lawyers and accountants?

It's going to be hard to find a competent accountant to prepare annual accounts for less than $1000. If you want to calculate and file a company tax return yourself, and your co-owners trust you to do so without screwing up, there's nothing stopping you.

Here's the enforcement manual; nothing in it to help with the question of corporate vs. individual sanctions:

tp13794e.pdf

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[AirFrame]

It's going to be hard to find a competent accountant to prepare annual accounts for less than $1000. If you want to calculate and file a company tax return yourself, and your co-owners trust you to do so without screwing up, there's nothing stopping you.

As someone who has been calculating and filing the company tax return for our hangar complex (16 hangars) for the last 5 years, I can say with certainty that it's really not that hard. It would be a lot easier if there were only one asset and one owner to deal with too.

That said, it's not a *fast* process. I wouldn't doubt that I spend more than $1K of my time doing it. But like everyone else I tend to undervalue my time when it comes to managing my own assets.