A commercial aircraft, which was owned by a non-registered, non-resident of Canada (the “Owner”) to a registered Canadian-resident corporation (the “Lessee”) for use in international passenger or freight transportation, was originally delivered to Lessee outside of Canada, with Lessee paying GST on its importation. Ownership of the aircraft is then transferred outside Canada to a non-registered non-resident purchaser (the “Purchaser”) while the aircraft is situate outside Canada, whereupon the lease is novated. The aircraft is delivered or made available to Lessee under the novated lease when it is physically situated outside of Canada, following which the Lessee brings the aircraft into Canada in connection with its international transportation business.
Is GST payable on the aircraft under Division III when it is first imported following the novation of the lease?
In this regard, the questioner noted that, per s. 3(n) of the Non-Taxable Imported Goods (GST/HST) Regulations, goods that are classified under tariff item number 9814.00.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff are GST-free. This tariff item includes: “Goods, including containers or coverings filled or empty, which have once been released and accounted for under section 32 of the Customs Act and have been exported, if the goods are returned without having been advanced in value or improved in condition by any process of manufacture or other means, or combined with any other article abroad.”
However, the questioner noted that s. 3(n) appears to exclude goods that are supplied outside of Canada, prior to importation, by way of lease, license or similar arrangement. In particular, it appeared per s. 3(n)(i)(A) that the aircraft would be taxable because the last supply (i.e., the novated lease) was a “tax relieved supply”, because it was delivered outside of Canada and not subsequently imported (until now).
Accordingly, it appeared that GST applies on the post-novation importation.
CRA stated:
Based on the information provided, we agree that the conditions for the importation of the aircraft to be non-taxable for GST/HST purposes under section 213 of the ETA, section 8 of Schedule VII to the ETA and, in particular, paragraph 3(n) of the Non-Taxable Imported Goods (GST/HST) Regulations do not appear to be met. …
[T]he tax is to be reported and paid to the CBSA using CBSA Form B3. The GST may not be included on the Lessee’s GST return as an adjustment. We have raised the CBA’s comment that the CBSA has refused to accept B3 forms with our counterparts at the CBSA, and they have advised us that they will ensure that their officers are aware of the proper reporting requirements.
