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The Canadian Business Aviation Association (CBAA) appears to have resolved some of its concerns about a new administrative tax policy covering the personal use of business aircraft in Canada.
At the 2018 CBAA Convention and Exhibit in Waterloo, Ont., members heard the Canada Revenue Agency (CRA) has agreed to apply the provisions of the Income Tax Act in what the CBAA said is a “fair and predictable manner.”
“The retroactive portion of going back many years in taxation has been favourably addressed,” said CBAA interim president and CEO Rudy Toering in an interview with Skies.
“I would say it was a win-win for both the CRA and ourselves.”
The CBAA had been concerned about audits that would have included the 2013 and 2014 taxation years, when CRA auditors had no guidance about how to tax the personal use of business aircraft.
“We don’t want retroactive application of the policy, because people wouldn’t have known what that policy was when they filed their tax returns,” said Jamieson Collins, the tax lawyer who represented the CBAA in front of the federal government.
“We wanted something reasonable.”
He said the government has since indicated it will apply a “one-plus-one” audit policy, meaning auditors will only review the first taxation year available for audit, plus the prior year.
Since 2017 tax returns for corporations with a Dec. 31 taxation year-end are not due until June 30, 2018, the 2017 taxation year is not presently under audit.
The first year available for audit is 2016, and the only eligible prior year is 2015, “to the extent that taxpayers filed in good faith on the basis of the prior policy that was cancelled by the CRA on Sept. 30, 2012,” said Collins.
“We held the government’s feet to the fire, and they dropped many of the reassessments where the taxpayer had filed on a good faith basis under the prior CRA administrative policy,” he said.
“They found in favour of taxpayers for appeals related to the 2013 and 2014 taxation years if there were waivers in place … so in many of our files the 2013 to 2014 taxation years are off the table.”
Some CBAA members were so concerned about being hit with punitive tax assessments they considered selling their aircraft, according to Steven Sitcoff, a tax lawyer with Spiegel Sohmer also provided feedback on this matter to the CBAA and its members.
“I’m here today to tell you that these concerns are somewhat overblown, and that this is largely manageable, as long as you’re smart about how you structure the ownership of the aircraft and how you use it,” said Sitcoff.
He advised CBAA members to document all uses of an aircraft, whether for business purposes or personal travel.
“Assume that you will be audited and get your files ready in advance,” he said.
“Get [your documents] prepared on an ongoing basis so that you are not caught off guard when you get an information request [years later] once you’re under audit.”
The takeaway is simple, he said: “Be proactive, not reactive.
“Do a review with your advisors now to identify the potential risks from recent years past and prospectively.
“Also, take the necessary remedial steps to ensure that you’re compliant going forward.”
As for Toering, he noted there is more work to be done on the issue.
“We are monitoring very closely with our members to see how the CRA is interacting with our members, how they’re being assessed, and are they assessing to the spirit of the new communiqué that was issued,” he said.
