30 November 1999 GST/HST Interpretation 8307/HQR0001913 - Application of the GST/HST to Flight Training

TO:	XXXXX XXXXX XXXXX
FROM:	Tim Krawchuk Manager, Educational Services and Indians GST/HST Rulings and Interpretations
	Case: 8307/HQR0001913November 30, 1999

Subject:

Application of the GST/HST to Flight Training

Thank you for your letter of August 4, 1999 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to flight training. I apologize for the delay in responding to your inquiry.

You have requested an opinion on the following issues:

1. Can revenue obtained from Private Pilot Licence instruction be included in the "operated primarily" revenue calculation used in determining if an organization is a vocational school under section 1 of Part III of Schedule V to the Excise Tax Act ("section 1")?

2. Can revenue obtained from build-up time associated with Commercial Pilot Licence instruction be included in the "operated primarily" revenue calculation under section 1?

3. Is the revenue calculation under the "operated primarily" component of section 1 completed on an annual or a quarterly basis?

4. If a flight school fails the "operated primarily" test in a particular year, what are the GST affects for that year and the subsequent year?

[5]. How will GST be applied to the new Integrated Commercial Course program being introduced by Transport Canada in the year 2000?

My response is as follows:

1. To qualify as a vocational school, an organization must meet three criteria as set out in section 1:

•   it must be established primarily to provide instruction in courses that enhance students' occupational skills;

•   it must be operated primarily to provide instruction in courses that enhance students' occupational skills; and

•   the courses offered by the organization must enhance students' occupational skills.

We will consider an organization to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from, or are related to, instruction in courses that develop or enhance students' occupational skills.

We do not consider as developing or enhancing students' occupational skills courses in respect of sports, games, hobbies or other courses that are designed to be taken for recreational purposes, or for personal interest. The purpose or the intent of the course may be obtained from a review of the curriculum and the organization's promotional materials.

Courses leading to the Private Pilot Licence and the Recreational Pilot Permit are considered to simply allow the holder to operate a particular mode of transportation for personal use (similar to a private passenger vehicle licence). The holder of a Private Pilot Licence or a Recreational Pilot Permit does not normally derive an occupational benefit from having that license. It is only where the person acquires a commercial pilot licence that an occupational benefit may be realized. Thus, private and recreational pilot lessons are not considered to develop or enhance students' occupational skills and revenues derived therefrom will not be included in the revenue calculation as revenues derived from, or related to, instruction in courses that develop or enhance students' occupational skills.

Where a flight school derives most of its revenue from the provision of private and/or recreational pilots' lessons, the school will not be considered to be operated primarily to provide instruction in courses that develop or enhance students' occupational skills.

The intention of the individual taking the Private Pilot Licence or the Recreational Pilot Permit plays no factor in this calculation. Regardless of the students' intentions to pursue further commercial pilot training, revenues generated from Private Pilot Licence and Recreational Pilot Permit instruction are not included in the section 1 revenue calculation.

2. It is our position that the Commercial Pilot Licence (Aeroplane), the Airline Transport Pilot Licence, and all Classes and Ratings, develop or enhance students' occupational skills. Federal legislation (Aeronautics Act, Canadian Aviation Regulations (CARs) and Canadian Aviation Regulations[.]

Standards (CARs Standards)) sets out minimum requirements or elements that must be completed by a student in order to obtain each of these licences and the classes or ratings.

As per the legislation, students seeking to obtain a Commercial Pilot Licence (Aeroplane) must complete a minimum amount of ground school instruction (40 hours), solo flight time instruction (30 hours), dual flight time instruction (35 hours) and build-up flight time (90 hours). Revenues derived from the minimum requirements set by the federal legislation may be included in the revenue calculation as revenues that relate to the provision of instruction in courses that develop or enhance students' occupational skills. Therefore, revenues derived from 40 hours of ground school, 30 hours of solo flight time instruction, 35 hours of dual flight time instruction and 90 hours of build-up flight time related to the Commercial Pilot Licence (Aeroplane) will be included in the revenue calculation as revenues that relate to the provision of instruction in courses that develop or enhance students' occupational skills.

Similarly, revenues derived from the 625 hours of solo flight time and the 875 hours of build-up associated with obtaining an Airline transport Pilot Licence, along with the revenues derived from the flight requirements for Classes or Ratings, will also be included in the revenue calculation as revenues that relate to the provision of instruction in courses that develop or enhance students' occupational skills.

Hours of instruction provided to a student over and above the minimums set by federal legislation will not be included in the revenue calculation, as revenues derived from courses that develop or enhance students' occupational skills. Where revenues derived from such supplies exceed 50% of an organization's total annual revenues, the organization will qualify as a vocational school within the meaning of section 1.

3. The 50% revenue calculation should be completed on an annual basis not on a quarterly basis.

4. An organization should review its operations on a yearly basis to ascertain whether it qualifies as a vocational school. If an organization meets the requirements of a vocational school in its previous fiscal year, it will continue to be a vocational school for the following fiscal year. However, if in that following year, the organization fails to meet the requirements in the definition (i.e., it is not operated primarily) it will cease to be a vocational school for supplies made after that year.

5. Transport Canada proposes to introduce, in the year 2000, an Integrated Commercial Course. The Integrated Commercial Course is intended to provide an alternative means for individuals to obtain a commercial licence. The traditional means of obtaining a commercial licence (i.e., by completing the requirements for the Private Pilot Licence (Aeroplane) and then the Commercial Pilot Licence (Aeroplane) will continue to be available.

There will be two licences that can be obtained through the Integrated Commercial Course: the Basic Commercial Pilot Licence (Aeroplane) and the Advanced Commercial Pilot Licence (Aeroplane). Both licencing programs will consist of large amounts of ground school instruction, solo flight time and dual flight time. There will not be a requisite element of build-up flight time in either program.

The supplies of solo flight time and dual flight time will be exempt pursuant to section 8 where all other requirements of that section are met. Supplies of the ground school instruction will also be similarly exempt.

Please note that although revenues derived from certain build-up time is included in determining whether an organization is a vocational school, the supply of the build-up time is subject to the GST/HST. The following summarizes the application of the GST to supplies of flight time supplied by a vocational school:

(a) Private Pilot Licence (Aeroplane) & Recreational Pilot Permit

The CCRA does not consider flight time leading to a Private Pilot Licence (Aeroplane) or a Recreational Pilot Permit to be exempt under section 8, since they do not have a direct link to skills that are recognized as relating to the ability to gain or retain employment. Specifically, we consider these licences to be obtained for personal interest, providing the individual with the right to fly a vehicle, and therefore not related to a trade or vocation. Supplies of flight time leading to a Private Pilot Licence (Aeroplane) or a Recreational Pilot Permit are subject to the GST at a rate of 7%.

(b) Commercial Pilot's Licence (Aeroplane)

The federal legislation stipulates that an individual must complete the following flight time, in order to obtain a Commercial Pilot Licence (Aeroplane):

Dual flight time	35 hours
Solo flight time	30 hours
Total hours from private licence instruction	45 hours
Build-up flight time	90 hours

The supply of the 35 hours of dual flight time and the 30 hours of solo flight time are exempt supplies pursuant to section 8.

The 45 hours flight time from the private licence instruction is not exempt under section 8, since it does not otherwise meet the requirements of the section.

The 90 hours build-up time is not exempt under section 8, since the student is not under instruction and direct supervision while completing the 90 hours of build-up time. The supply of the 90 hours of build-up time is subject to the GST at a rate of 7%.

(c) Airline Transport Pilot Licence

The following flight time must be completed, pursuant to the federal legislation, in order for an individual to obtain an Airline Transport Pilot Licence:

Solo flight time	625 hours
Build-up flight time	875 hours

The supply of the 625 hours of solo flight time is an exempt supply pursuant to section 8.

The 875 hours build-up time is not exempt under section 8, since the student is not under instruction and direct supervision while completing the 875 hours of build-up time. The supply of the 875 hours of build-up time is subject to the GST at a rate of 7%.

(d) Classes or Ratings in Respect of Pilots' Licences

The solo and dual flight time required by federal legislation for the following ratings is exempt under section 8:

•   multi-engine rating

•   instrument flight rating

•   VFR Over-the-Top rating

•   night rating

•   sea plane rating

•   land plane rating

The federal legislation sets out 4 different classes of flight instructor rating. Pursuant to the federal legislation, an individual must complete a minimum amount of dual flight time and a minimum amount of solo flight time, in order to obtain each class of flight instructor rating. This dual flight time and solo flight time is exempt pursuant to section 8.

The federal legislation also mandates that a student complete an additional 100 hours of build-up flight time for the Class 1 flight instructor rating and 150 hours of build-up flight time for the Class 2 flight instructor rating. Neither of these blocks of build-up time are exempt under section 8. These supplies are subject to the GST at a rate of 7%.

In order to obtain a Class 3 or Class 4 flight instructor rating, a student must complete a certain amount of dual flight time and solo flight time. These blocks of time are exempt pursuant to section 8 since we consider a student to be under instruction and direct supervision for the purposes of dual and solo flight time.

(e) Integrated Commercial Course

As noted earlier, in the year 2000, Transport Canada proposes to introduce, an Integrated Commercial Course. There will be two licences that can be obtained through the Integrated Commercial Course: the Basic Commercial Pilot Licence (Aeroplane) and the Advanced Commercial Pilot Licence (Aeroplane). Both licencing programs will be comprised of large amounts of ground school instruction, solo flight time and dual flight time. There will not be a requisite element of build-up flight time in either program.

The supplies of solo flight time and dual flight time will be exempt pursuant to section 8 where all other requirements of that section are met. Supplies of the ground school instruction will also be similarly exempt.

Please find enclosed copies of the following policy statements which, in combination, explain the application of the GST/HST to supplies of flight training instruction:

•   P-229 Definition of "Vocational School" in Section 1 of Part III of Schedule V to the ETA

•   P-231 Courses That Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the ETA

•   P-034R Tax Status of Flying Time Pursuant to Section 8 of Part III of Schedule V to the ETA

Should you have any further questions, or require clarification with respect to the matters discussed herein, please do not hesitate to contact me at (613) 954-7957.

Tim Krawchuk,
Manager, Educational Services and Indians

Legislative References:	Section 1 of Part III of Schedule V to the ETA Section 8 of Part III of Schedule V to the ETA
NCS Subject Code(s):	R-11915-7-2