14 October 2005 Excise Interpretation 62044 - Exemption for Diesel Fuel Used in the Generation of Electricity

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.

This memorandum is in response to your memorandum XXXXX where you requested our opinion in regards to the application of the Air Travellers Security Charge Act (the "ATSC" Act) in circumstances where aircraft are used for private and/or personal purposes.

Background

You presented the view that the ATSC Act is relatively clear in defining when a "chargeable emplanement" is payable, and by whom, but were of the view that the ATSC Act is vague in its definition respecting "air carriers". You presented the view that some persons operate a plane as an air carrier at certain times, and for personal flights at other times.

You suggested that a possible approach that could be adopted would be to charge the ATSC in those circumstances where services are provided for a fee, and not charge the ATSC in those cases where the aircraft are being used for pleasure or hobby purposes.

Our Comments

You expressed the opinion that the ATSC Act is unclear in its definition of the term "air carrier". A person who carries on a business of transporting individuals by air is considered to be an air carrier for ATSC purposes.

Section 2 of the ATSC Act defines the term "designated air carrier" to mean an air carrier that is authorized by the Canadian Transportation Agency under Part II of the Canada Transportation Act to operate a domestic service or an international service, but does not include an air carrier that provides services that include only emplanements that are described in paragraph (c) or (d) of the definition "chargeable emplanement".

Paragraphs (c) & (d) of the exceptions to the definition of "chargeable emplanement" found in section 2 of the ATSC Act read as follows:

(c) the embarkation is:

(i) on an aircraft whose maximum certified take-off weight does not exceed 2,730 kg,

(ii) on an aircraft referred to in subsection 56(1) of the Canada Transportation Act^[i]footnote 1,

(iii) in the course of a service listed in, or prescribed under, subsection 56(2) of the Canada Transportation Act^[ii]footnote 2, or

(iv) in the course of an air ambulance service; or

(d) the embarkation is made in "prescribed circumstances" (footnote 3: There are no regulations prescribing such circumstances).

With respect to the situation we are examining, the circumstances you describe involving the personal/private use of aircraft is not specifically addressed in paragraphs (c) or (d) of the exceptions to the definition of "chargeable emplanement" under the ATSC Act.

For purposes of the administration of the ATSC, you suggested that we should consider other factors and rules for purposes of developing a measured approach with respect to the application of the charge. One of the factors you recommended that we consider is whether or not there was consideration paid for a particular flight.

On that particular point, paragraph 11(2)(c) of the ATSC Act addresses the scenario, where no consideration is paid or payable for the service, and no ticket is issued for the service. This situation might occur in those circumstances where there has been personal use of an aircraft. In such circumstances, the ATSC in respect of the air transportation service is payable at the time of emplanement.

You suggested that we should consider the intent of Parliament when considering whether or not to impose the ATSC. An argument could be made that if Parliament had expressly intended for the personal/private use of aircraft to be excluded from the application of the ATSC, then the legislators would have reflected such exclusions within the ATSC Act. We are not aware of any evidence that would suggest that Parliament did not intend for the charge to be applied with respect to personal/private use of commercial aircraft in the custody and control of a designated air carrier.

With some exceptions, subsection 14(1) of the ATSC Act 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 ATSC Act 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 ATSC Act provides 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 ATSC Act in respect of the service.

We have reviewed the definition of the term "chargeable emplanement" found under section 2 of the ATSC Act. With a few exceptions, the term "chargeable emplanement" means an embarkation by an individual at a listed airport on an aircraft operated by a particular air carrier. However, the situation described in your submission, where an aircraft is used for private/personal purposes does not fall within the exceptions provided for under the definition of "chargeable emplanement" found under section 2 of the ATSC Act.

It is interesting to note that pursuant to subsection 202.17(1) (footnote 4: http://www.tc.gc.ca/CivilAviation/Regserv/Affairs/cars/Part2/202.htm#202_17) of the Canadian Aviation Regulations (the "CARs"), subject to subsections 202.17(3) & (4) of the CARs, the Minister of Transport shall register an aircraft as:

(a) a state aircraft;

(b) a commercial aircraft; or

(c) a private aircraft.

Initially, we thought that the registration status of a particular aircraft might hold weight for purposes of determining whether or not an aircraft was used for commercial purposes. However, we understand that an air carrier may not go through the administrative process of changing the registration status of a particular aircraft in those circumstances where the aircraft is used for personal purposes. As such, it was our sense that the registration status of a particular aircraft may not necessarily be a determining factor in establishing whether or not the ATSC should be levied in a particular circumstance.

We have not identified any specific exclusion(s) under the ATSC Act that would relieve a designated air carrier from collecting the charge in those circumstances where a commercially registered aircraft in the custody and control of a designated air carrier is used for private and/or personal purposes.

An argument that we can envisage in those circumstances where a designated air carrier has been assessed for the ATSC with respect to personal flights would be to contend that at the time at which the aircraft was used, it was not the designated air carrier that operated the aircraft, but rather, it was a person who was not a designated air carrier (e.g., an owner/lessor of the aircraft, operating pursuant to the private operator rules found under CAR 604 (footnote 5: http://www.tc.gc.ca/CivilAviation/Regserv/Affairs/cars/PART6/604.htm).

We understand that in those circumstances where an aircraft were to be used in a private/personal capacity, it would be operated pursuant to Canadian Aviation Regulation ("CAR") 604, rather than CAR 704. We gather that a private operator would be required to follow the rules set out in subpart I of Part VI of the Canadian Aviation Regulations whereas, for purposes of operating a commercial air services, persons would be required to comply with the rules found under subpart IV of Part VII of the Canadian Aviation Regulations (footnote 6: http://www.tc.gc.ca/CivilAviation/Regserv/Affairs/cars/Part7/704.htm).

We do recognize that persons may endeavour to challenge ATSC assessments if they have evidence that supports the view that the designated air carrier was not in fact the person that operated the aircraft at the time of a particular embarkation. In those circumstances where the evidence supports the position that an aircraft was operated pursuant to the private operator rules, rather than under the commercial air services rules, this may lend support to the idea that the aircraft was indeed operated, at the time of the embarkation, by a person other than a designated air carrier in a commercial capacity.

In conclusion, we are aware that in some circumstances, commercially registered aircraft are being used for personal purposes. That being said, this particular fact does not affect a person's status as an "air carrier" or "designated air carrier" for purposes of the ATSC Act. We are of the view that the definition of "air carrier" is clear for purposes of the ATSC Act. We do not see any relief for ATSC purposes for designated air carriers with respect to their obligation to collect and remit the ATSC in those circumstances where they themselves operate aircraft for personal purposes.

Should you have any further questions, please feel free to contact me at (613) 941-2348.

Yours truly,

Douglas Wood, CGA
Rulings Officer
Other Levies Unit
Excise Duties & Taxes Division
Excise & GST/HST Rulings Directorate

2005/10/28 — RITS 62435 — Application of Subsection 4(4) of the Excise Tax Act