Trudeau’s proposed luxury tax…

[photofly]

I don’t understand your question. What is unclear about what I wrote?

[North Shore]

Could I just buy an unairworthy collection of parts (assembled in the form of an aeroplane, of course - but minus the propellor). And then buy the prop separately?

[goldeneagle]

Could I just buy an unairworthy collection of parts (assembled in the form of an aeroplane, of course - but minus the propellor). And then buy the prop separately?

The tax doesn’t apply to old airplanes. Nobody will sell you a new one as a parts plane.

[photofly]

Could I just buy an unairworthy collection of parts (assembled in the form of an aeroplane, of course - but minus the propellor). And then buy the prop separately?

The essence of an aircraft is the data plate (aircraft identification plate). You can rebuild an entire airplane from spare parts, if you have the data plate. If you don't have the data plate, you can't create an airplane, no matter which parts you have., until you get permission to attach a replacement data plate. If you disassemble a new airplane to import it piece by piece, it's the data plate that will attract the tax.

[AirFrame]

I don’t understand your question. What is unclear about what I wrote?

Well, for starters, there are lots of aircraft owned by businesses consisting of one individual owner/operator. The only "income" is the money paid to the corporation to cover the costs of the corporation, those being the operation, maintenance, and storage of said aircraft... The business runs at net zero, or even net negative, due to depreciation on the aircraft. The same situation exists for many private GA hangar complexes, for that matter.

Your statement suggested that wasn't possible, so I was clarifying whether you meant that the Luxury Tax had some clause that referenced this situation.

[photofly]

Businesses buying an aircraft will have to pay the luxury tax just like everyone else, unless substantially all the use of the aircraft is for a qualifying exempt activity. The new proposal is that "qualifying flights that are conducted in the course of a business with a reasonable expectation of profit" become an exempt activity. Previously, they weren't.

The structure of who owns the plane - be it an individual, or a company owned by that individual, or a larger corporation - is irrelevant. It's the purpose of the travel that determines whether it's a qualifying exempt activity.

In your owner-operator no-income-other-than-to-cover-expenses company, the business has no reasonable expectation of profit. So travel would not be a qualifying exempt activity, either with or without this amendment.

Recall the CRA is experienced at deciding what's genuine business travel and what isn't, in order to decide if a taxable benefit was incurred when a business-owned aircraft is used. This isn't any different.

[TrilliumFlt]

I'm sure the accounts and lawyers will be able to find enough "loop holes" big enough to throw a airplane through of any size and shape, that's the political way.

[AirFrame]

Businesses buying an aircraft will have to pay the luxury tax just like everyone else, unless substantially all the use of the aircraft is for a qualifying exempt activity. The new proposal is that "qualifying flights that are conducted in the course of a business with a reasonable expectation of profit" become an exempt activity. Previously, they weren't.

Ah, that's the part I wasn't aware of. Thanks for clarifying! I agree, it doesn't sound like putting a plane in a business is a way to avoid the luxury tax. Still seems odd that a business would be targeted by that tax anyway. If the business is to own an aircraft, then owning an aircraft isn't a luxury, it's the business. Or maybe they're suggesting that all air travel should be done in aircraft costing less than $100K.

Regardless, selling an aircraft for $90K and in a separate sale sell an avionics package for $90K might be a solution.

[photofly]

Still seems odd that a business would be targeted by that tax anyway. If the business is to own an aircraft, then owning an aircraft isn't a luxury, it's the business. Or maybe they're suggesting that all air travel should be done in aircraft costing less than $100K.

Regardless, selling an aircraft for $90K and in a separate sale sell an avionics package for $90K might be a solution.

From what I understand, the new allowance for business travel will mean that if it's used for genuine business related travel, it's not a luxury good. If it's owned by a business, but flown for pleasure, or for activities that aren't part of the business, it is a luxury.

There may be a few planes just over the $100k limit where you can split the sale, but nobody is going to believe a $44M dollar business jet was sold for $90k but the avionics were worth $43M and change.

Then there are the rules for modifications:

Subject to the conditions and rules described below, any features or accessories that are installed on, or modifications that are made to, a select good (referred to as modifications in respect of a select good) would be subject to the Luxury Tax. These modifications would either be included in the total price of the select good or be subject to a self-assessment mechanism applied at a later date.

I haven't read the rules in detail but it may be that installing your $90k avionics back into the airplane means you have to self-assess the tax due to the increase in value.

Also - the tax is tapered. If a plane sells for $102k the tax is 20% of the excess over $100k - so only $400. It's only when the value of the aircraft reaches $200k that the tax reaches, and is capped at, 10% of the value.

[pelmet]

If you live near the US, just buy your aircraft and never have it in Canada.

[AirFrame]

From what I understand, the new allowance for business travel will mean that if it's used for genuine business related travel, it's not a luxury good. If it's owned by a business, but flown for pleasure, or for activities that aren't part of the business, it is a luxury.

Okay, how about someone who already has the plane registered to a business, for personal use only. When that plane is now sold, it won't really be sold at all... The shares in the business will be transferred and that's it. So loopholes still exist, if you can get the plane into a business in the first place.

[/quote]There may be a few planes just over the $100k limit where you can split the sale, but nobody is going to believe a $44M dollar business jet was sold for $90k but the avionics were worth $43M and change.[/quote]
Yeah, but does anyone thing someone who can afford a $44M bizjet for personal use can't afford the tax on it?

Subject to the conditions and rules described below, any features or accessories that are installed on, or modifications that are made to, a select good (referred to as modifications in respect of a select good) would be subject to the Luxury Tax. These modifications would either be included in the total price of the select good or be subject to a self-assessment mechanism applied at a later date.

I haven't read the rules in detail but it may be that installing your $90k avionics back into the airplane means you have to self-assess the tax due to the increase in value.

That's an interesting clause. What if you own an airplane now that's worth $95K, and you do a $40K avionics upgrade to it? Do you need to pay a luxury tax on $37K?

Also - the tax is tapered. If a plane sells for $102k the tax is 20% of the excess over $100k - so only $400. It's only when the value of the aircraft reaches $200k that the tax reaches, and is capped at, 10% of the value.

That is much better than a straight tax, I agree. Still, the break point of $100K needs to be $250K just like boats. There's no reason they should be different.

[digits_]

Yeah, but does anyone thing someone who can afford a $44M bizjet for personal use can't afford the tax on it?

That same argument can be made for someone buying a 100k airplane.

Even rich guys have a budget. If not, they would all be flying 737s around. 10% is significant. Enough to explore loopholes or to look abroad. Or buy a smaller plane, which means less revenue for Canadian companies.

One thing is certain though, those tax limits were not set by a pilot...

[goldeneagle]

That's an interesting clause. What if you own an airplane now that's worth $95K, and you do a $40K avionics upgrade to it? Do you need to pay a luxury tax on $37K?

I guess you didn't read the part about how the tax applies to NEW airplanes.

Everybody here all up in the air about this tax, but I wonder, just how many of you are in the market for an aircraft to which this tax would apply. It wont apply to your average Cessna or Piper in the GA market. It wont apply to any airplane being purchased for use in a scheduled, charter, or exec travel role. It wont apply to something manufactured prior to 2019. So in essence, the only place it'll apply is for someone buying brand new for use as a toy. The most common in that regard would be something like a Kodiak or an SR-22.

I've got two friends who could fall into the category of folks this may affect. Both have a pilot license, one is just a ppl, one has the atpl, picked it up in the same timeframe I did. Both have the means to make such a purchase having operated successful business in other fields for the last 30 years. Both have off and on talked about getting a Kodiak on amphibs for a fun toy. In both cases, a 10% bump on the purchase price would not be a deal breaker if they want that kind of toy. Yes, they will grumble, but at the end of the day, they will likely spend as much or more on bling anyways.

[goldeneagle]

Yeah, but does anyone thing someone who can afford a $44M bizjet for personal use can't afford the tax on it?

That same argument can be made for someone buying a 100k airplane.

Where can you buy an airplane for 100K to which the tax would even apply ? Is anybody making new airplanes that can be bought for 100K ?

[photofly]

From what I understand, the new allowance for business travel will mean that if it's used for genuine business related travel, it's not a luxury good. If it's owned by a business, but flown for pleasure, or for activities that aren't part of the business, it is a luxury.

Okay, how about someone who already has the plane registered to a business, for personal use only. When that plane is now sold, it won't really be sold at all... The shares in the business will be transferred and that's it. So loopholes still exist, if you can get the plane into a business in the first place.

The tax is paid, no more than once, for any plane newer than 2018, when it’s imported or sold by a Canadian manufacturer into Canada, for luxury purposes. If it’s in a business, and for personal use, then the tax will already have been paid. It doesn’t matter after that how many times the plane changes owner, or how, the tax never ever has to be paid again that plane. It’s not a sales tax, it’s a luxury good tax.

If the tax is deferred because the plane is used for qualifying exempt activities at import or first sale then the tax becomes due when it’s first used for non-qualifying purposes, based on its residual value at that date.

[AirFrame]

That same argument can be made for someone buying a 100k airplane.

No. There are lots of options cheaper than a multimillion dollar bizjet... Even a 100K plane, when it comes right down to it.

But there are very few options for a GA pilot right now under 100K.

[AirFrame]

I guess you didn't read the part about how the tax applies to NEW airplanes.

I believe it also applies to USED airplanes, that are imported from the US. Which is a significant market, given the larger selection and lower prices.

[photofly]

No plane older than 2018.

[AirFrame]

The tax is paid, no more than once, for any plane newer than 2018, when it’s imported or sold by a Canadian manufacturer into Canada, for luxury purposes.

Newer than 2018 is new to me. Thanks for highlighting that. So most of the used aircraft from the US that someone would want to import will likely be exempt anyway.

[photofly]

The question is, does that 2018 date get rolled forward year after year?