28 July 2011 Headquarters Letter Case No. 109863
Although when goods were supplied outside Canada by way of lease or licence, Division III tax generally would apply to their first importation into Canada, as described in Customs Notice N-118, generally Division III tax is not applicable if the goods (e.g., aircraft) originated in Canada and are then imported into Canada so as to be returned to the owner or lessor without having increased invalue. CRA went on to note:
[I]f a Canadian lessor leases an aircraft to a non-resident lessee to whom possession is given outside of Canada and the aircraft is registered in the foreign country for use outside of Canada, the supply of the leased aircraft would be considered to be made outside Canada. ...
[I]f at the end of the lease, the Canadian lessor imports the aircraft into Canada, the conditions for relief described in the Press Release and N-118 would be met and Division III tax would not apply with respect to the importation if it is classified under tariff headings 9813.00.00 or 9814.00.00 ... .
However, where a person other than the owner or lessor imports goods at the end of a lease, solely for return to the owner or lessor or on behalf of the owner or lessor, the importer would be considered to be the owner or lessor of the goods, such that the relief described by the [10 December 1990 Department of Finance] Press Release and Customs Notice N-118 would not be denied in this case. In addition, neither the Press Release nor Customs Notice N-118 requires that the importer of the goods be the same person that exported them.
Finally, it does not matter whether an aircraft was new or used at the time it was exported for purposes of determining whether Division III tax applies in respect of the importation of that aircraft. Further...on the importation of an aircraft classified under tariff heading 9813.00.00 or 9814.00.00...the circumstances for relieving tax on the importation..is not generally based on the identity of the importer/exporter.
A commercial aircraft, which was owned by a non-registered, non-resident of Canada (the “Owner”) to a registered Canadian-resident corporation (the “Lessee”) for use in international passenger or freight transportation, was originally delivered to Lessee outside of Canada, with Lessee paying GST on its importation. Ownership of the aircraft is then transferred outside Canada to a non-registered non-resident purchaser (the “Purchaser”) while the aircraft is situate outside Canada, whereupon the lease is novated. The aircraft is delivered or made available to Lessee under the novated lease when it is physically situated outside of Canada, following which the Lessee brings the aircraft into Canada in connection with its international transportation business.
Is GST payable on the aircraft under Division III when it is first imported following the novation of the lease?
In this regard, the questioner noted that, per s. 3(n) of the Non-Taxable Imported Goods (GST/HST) Regulations, goods that are classified under tariff item number 9814.00.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff are GST-free. This tariff item includes: “Goods, including containers or coverings filled or empty, which have once been released and accounted for under section 32 of the Customs Act and have been exported, if the goods are returned without having been advanced in value or improved in condition by any process of manufacture or other means, or combined with any other article abroad.”
However, the questioner noted that s. 3(n) appears to exclude goods that are supplied outside of Canada, prior to importation, by way of lease, license or similar arrangement. In particular, it appeared per s. 3(n)(i)(A) that the aircraft would be taxable because the last supply (i.e., the novated lease) was a “tax relieved supply”, because it was delivered outside of Canada and not subsequently imported (until now).
Accordingly, it appeared that GST applies on the post-novation importation.
Based on the information provided, we agree that the conditions for the importation of the aircraft to be non-taxable for GST/HST purposes under section 213 of the ETA, section 8 of Schedule VII to the ETA and, in particular, paragraph 3(n) of the Non-Taxable Imported Goods (GST/HST) Regulations do not appear to be met. …
[T]he tax is to be reported and paid to the CBSA using CBSA Form B3. The GST may not be included on the Lessee’s GST return as an adjustment. We have raised the CBA’s comment that the CBSA has refused to accept B3 forms with our counterparts at the CBSA, and they have advised us that they will ensure that their officers are aware of the proper reporting requirements.
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|Tax Topics - Excise Tax Act - Section 213||the transfer of non-resident ownership of an aircraft subjected the Canadian lessee to further GST the next time it imported the aircraft||148|