ET/SL 35

August 20, 1997

By means of the Civil Air Navigation Services Commercialization Act, the federal government transferred responsibility for the provision of air navigation services to Nav Canada, a private Canadian corporation, on November 1, 1996. This Act provides for transition period payments to Nav Canada, equivalent to anticipated revenues from the ATT, during the first two years. Following this two-year transition period, the ATT is to be repealed.

Nav Canada has exercised its option to introduce user fees, to be paid by air carriers, to fund its services. Consequently, as indicated in the press release issued by the Department of Finance on August 13, 1997, ATT rates will be reduced on purchases of air transportation made on or after January 1, 1998, for air travel on or after March 1, 1998.

Travel Within the Taxation Area:

In most circumstances, for air transportation within the taxation area, the current rate of ATT is 7% of the amount paid or payable, plus $6, to a maximum of $55. This rate will be reduced to 4% of the amount paid or payable, plus $3, to a maximum of $30.

One exception to this general rate occurs where air transportation is purchased outside Canada and is subject to the U.S. ad valorem ATT. Presently, section 9 of the Air Transportation Tax Regulations stipulates a rate of tax of 5% of the amount paid or payable, plus $4, to a maximum of $27.50, determined in accordance with subsection 11(1) of the Excise Tax Act (ETA). This rate will be reduced to 3% of the amount paid or payable, plus $2, to a maximum of $15.

Another exception applies to self-written tickets, where a person completes his or her own ticket and that ticket is restricted by the ticketing system of the air carrier to one segment of air travel without intermediate stops or return to the point of departure. For such tickets, section 3 of the Air Transportation Tax Order presently states that ATT is 7% of the amount paid or payable, plus $3, to a maximum of $27.50. This rate will be reduced to 4% of the amount paid or payable, plus $1.50, to a maximum of $15.

For charter flights, paid or payable in Canada (or deemed paid or payable in Canada), ATT is currently calculated as 7% of the amount paid or payable, plus $3 in respect of each emplanement, to a maximum of $27.50 per emplanement. This rate will be reduced to 4% of the amount paid or payable, plus $1.50 in respect of each emplanement, to a maximum of $15 per emplanement.

Travel Outside the Taxation Area:

Subject to subsection 13(2), subsection 13(1) of the ETA stipulates the rate of ATT for amounts paid or payable in Canada for air transportation that begins at a point in the taxation area and ends at a point outside the taxation area. This rate is currently $55 and will be reduced to $30.

Subsection 13(2) of the ETA stipulates the rate of ATT for charter flights, paid or payable in Canada, which begin at a point in the taxation area and end at a point outside the taxation area. This rate is currently $55 per emplanement; for purposes of this subsection, "emplanement" means an emplanement by a person at an airport in Canada on a specific flight that has as a destination a point outside Canada and from which the person deplanes at an airport outside Canada. This rate will be reduced to $30 per emplanement.

Subsection 13(2.2) of the ETA stipulates the rate of ATT for air transportation, paid or payable outside Canada, which begins at a point in the taxation area and ends at a point outside the taxation area. For such air transportation with a first emplanement in Canada, ATT is currently $55. In any other case, ATT is $27.50. These rates will be reduced to $30 and $15, respectively.

For air transportation outside the taxation area, rates of ATT will continue to be reduced by 50 percent where the passenger is a child under 12 years and is being transported at a fare reduced 50 percent or more below the applicable fare.

Should you have any questions, please do not hesitate to contact the local Revenue Canada tax services office.