20 March 2003 GST/HST Interpretation 44536 - Taxes Charged on Airline Tickets

Dear XXXXX:

This is in response to your e-mail XXXXX in respect of the taxes charged on airline tickets. As the Canada Customs and Revenue Agency (CCRA) administers both the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and the Air Travellers Security Charge (ATSC), your comments have been submitted to us for response.

You have inquired how the taxes charged on an airline ticket can be more than the actual cost of the ticket. The GST/HST is applied at the rate of 7% or 15%, depending on whether the supply is made in a participating or non-participating province, to most goods and services commercially supplied in Canada unless there are specific provisions allowing for relief. The 15% HST applies to supplies made in Nova Scotia, New Brunswick and Newfoundland and Labrador ("the participating provinces"). The GST at the rate of seven percent would be applied to the airfare in the example you cited, from Calgary to Las Vegas return, as it involved a trip from Canada to within the taxation area (Canada, the continental United States and the islands of St. Pierre and Miquelon).

The GST at the rate of seven percent would also be applied to the airfare in the example you cited, from Calgary to Nova Scotia return. This is the case as the supply of a passenger transportation service will be considered to be made in a particular province (in this example, Alberta) if a ticket issued for the first passenger transportation service that is part of a continuous journey specifies an origin of the journey (Calgary) that is a place in the province and the termination and all stopovers in respect of the continuous journey are in Canada.

The consideration for the ticket is subject to GST/HST as for any supply made in Canada that is not relieved of tax.

For air transportation originating in Canada and ending within the taxation area, the GST/HST is calculated on the full selling price of the ticket, including the ATSC. For purposes of determining the base upon which the GST/HST is to be calculated, the legislation stipulates that certain federal and provincial taxes are to be included in the base. Federal taxes or charges that form part of that base include custom duties imposed under the Customs Act, excise duties imposed under the Excise Act, the ATSC charged under the Air Travellers Security Charge Act (ATSCA) and excise taxes charged under the Excise Tax Act (ETA).

Let me begin by detailing how the GST/HST and the ATSC apply to a return trip within Canada. On February 18, 2003, the Minister of Finance announced in Budget 2003 that the ATSC for air travel within Canada would be reduced from $12 to $7 for one-way travel and from $24 to $14 for round-trip travel between listed airports. The reduced rate for air travel within Canada applies to tickets purchased on or after March 1, 2003, for air travel on or after that date. Specifically, for domestic air travel, where the GST/HST applies at the rate of 7% or 15% for the air transportation service, the ATSC is $6.54 for each chargeable emplanement, to a maximum of $13.08.

Where the GST/HST applies at the rate of 7% or 15% for transborder air travel, the ATSC is $11.22 for each chargeable emplanement, to a maximum of $22.43. In the case of a round-trip flight between Calgary and Las Vegas (ticket being purchased in Calgary), there is one chargeable emplanement at a listed airport (Calgary). The $12 consists of $11.22 ATSC, and the balance, $0.78, is the GST payable on the ATSC.

Prior to March 1, 2003, for domestic air travel, where the GST/HST applied at a rate of 7% or 15% for the air transportation service, the ATSC was $11.22 for each chargeable emplanement, to a maximum of $22.43. Where the GST/HST did not apply, the ATSC was $12.00 for each chargeable emplanement, to a maximum of $24.00. In your example of a round-trip flight between Calgary and Nova Scotia (ticket being purchased in Calgary), there are two chargeable emplanements. The $24 consists of $22.43 ATSC, and the balance, $1.57, is the GST payable on the ATSC.

You will find more detailed information outlining the application of the ATSC at the following links:<http://www.ccra-adrc.gc.ca/E/pub/et/etsl43eq/etsl43-e.pdf>, <http://www.ccra-adrc.gc.ca/E/pub/et/etsl46/etsl46-e.pdf>, and<http://www.fin.gc.ca/budget03/bp/bpa3e.htm>.

You may also call the CCRA at 1-877-432-5472 (toll free) should you have any questions concerning the ATSC.

Airport Improvement Fees (AIF) are not taxes charged by the government of Canada. They are fees charged by airports to the passengers embarking at a given airport. The air carrier often collects these fees on behalf of the airport. Since there is no specific provision that relieves these fees from tax, GST/HST applies.

You may want to consult your air carrier to determine the details regarding a specific ticket. For example, the airline may have separately identified as fees various charges for fuel and navigation services. However, even though these amounts are separately identified as fees, they form part of the full selling price of the ticket that is the basis on which GST/HST is calculated. These fees may be subject to tax, but are not tax themselves. We understand that the websites of some domestic carriers provide information on airport improvement fees and details on what is included in airfares.

Lastly, for your information, the following link will lead you to a document that explains in more detail the tax treatment of passenger transportation services for the purposes of the GST/HST:<http://www.ccra-adrc.gc.ca/E/pub/gm/28-3/28-3abre.htm>.

The CCRA is responsible for administering the ETA and the ATSCA. The Department of Finance is responsible for matters of tax policy, including any changes to the ETA or the ATSCA. I can assure you that Finance officials have been made aware of your concerns.

I hope this has responded to your concerns.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-2826.

Yours truly,

Connie Lush
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate