3 January 2007 Excise Interpretation 57422 - Federal Excise Tax on Aviation Fuel XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

I refer to your memo XXXXX wherein you requested our assistance in addressing a submission from XXXXX legal counsel XXXXX. The issue at hand involves the application of the Air Travellers Security Charge (ATSC) to air transportation services where there has been personal/private use of an aircraft. As another air carrier had appealed its assessment over this issue, I was unable to provide an earlier response.

BACKGROUND

I understand that the ATSC XXXXX has been finalized, and that the Canada Revenue Agency (CRA) XXXXX the ATSC for the personal/private use of aircraft. XXXXX is a designated air carrier, which has registered for purposes of the Air Travellers Security Charge Act (ATSCA). From our conversations, I understand that it has provided an air transportation service to its employees and to employees of fractional aircraft owners, but not in the course of an individual's employment.

You have advised us that XXXXX provided the crew and pilots for these personal/private flights. This information was substantiated in its Web site — XXXXX. It states that XXXXX is a fractional jet ownership company. Generally, its operation involves fractional ownership, whereby persons can purchase fractional interest in one of its executive jets. XXXXX acts as a management company, provides pilots and personnel, performs maintenance, and provides administrative services. A person pays a guaranteed monthly management fee (which covers hangar and office rental, salaries, insurance, etc.) and an hourly rate.

In his submission, XXXXX contends that private aircraft operated under Canadian Aviation Regulation 604 ("CAR 604"), using a private operator certificate would not give rise to a chargeable emplanement for purposes of the ATSCA, since the aircraft was not being used in the course of a commercial air service.

While CARs are administered by Transport Canada, the Canadian Transportation Agency is responsible for licensing air carriers pursuant to Part II of the Canada Transportation Act (CTA). The definition of "designated air carrier" is directly referenced to Part II of the CTA, and this term is used throughout the ATSCA (e.g., sections 2, 11, 14 and 17).

OUR COMMENTS:

On page 2 of his written submission, XXXXX acknowledges that XXXXX is a designated air carrier.

Subsection 14(1) of the ATSCA provides that every designated air carrier from whom all or part of an air transportation service is acquired by a person who is required by the ATSCA to pay a charge in respect of that service is required to collect the charge not later than the time the charge becomes payable by the person. Subsection 11(1) of the ATSCA states that "every person who acquires all or part of an air transportation service from a designated air carrier that includes a chargeable emplanement is required to pay a charge as determined under the ATSCA in respect of the service."

We have reviewed the definition of the term "chargeable emplanement", found under section 2 of the ATSCA. With a few exceptions, a "chargeable emplanement" means an embarkation by an individual at a listed airport on an aircraft operated by a particular air carrier. One exception is for air transportation by employees (identified in this definition) in the course of their employment. As the air transportation in question has been characterized as personal/private rather than business, this particular exception does not apply to this case.

XXXXX makes reference to the Canadian Aviation Regulations (CARs) in his submission. He contends that private aircraft operated under CAR 604, using a private operator certificate would not give rise to a chargeable emplanement, for purposes of the ATSCA. His reasoning is that the aircraft is not being used in the course of a commercial air service.

If Parliament had expressly intended for the personal/private use of aircraft to be excluded from the imposition of the ATSC, Finance Canada would have included these flights under the exceptions listed in the section 2 definition of "chargeable emplanement" in the ATSCA. Based on numerous discussions I have had with Alex Lessard, Tax Policy Officer, Finance Canada, I am unaware of any communication (written or verbal) by Finance to any stakeholders to exempt personal/private flights from the ATSC.

In summary, there is no exemption in the ATSCA where a designated air carrier operates an aircraft pursuant to CAR 604. A designated air carrier is not relieved of its liability to collect and remit the ATSC for these personal/private flights. My manager, Duncan Jones, and I maintained this position during a recent meeting with representatives of the Canadian Business Aviation Association.

The foregoing comments represent our general views with respect to the subject matter of your memo. Proposed amendments to the ATSCA, if enacted, could have an effect on the interpretation provided herein.

Should you have any questions, feel free to call me anytime at (613) 957-9877.