Personal Use of Business Aircraft: How Big of a Taxable Benefit Is It?

A CRA communication dated March 7, 2018 provided updated commentary on taxable benefits arising from the personal use of a business aircraft.

CRA categorized the types of flights into three groups, as follows:

  • Mixed-use flights – If a shareholder or employee takes a flight which has a clear business purpose, they would not generally be subject to a taxable benefit. An individual’s purpose is a question of fact. If others take the same flight (such as a non-employee spouse or child) for purely personal purposes, the taxable benefit would be equal to the highest priced ticket available for an equivalent commercial flight available in the open market for the accompanying individual(s).
  • Full personal use flights – Where there is no business purpose to the flight, the shareholders or employees will be considered to have received a taxable benefit equal to the price of a charter on an equivalent aircraft for an equivalent flight in the open market (split amongst relevant individuals on the flight). Limited exceptions may apply where an open market charter is not a viable option.
  • Full personal use by non-arm’s length persons – For shareholders or employees who do not act at arm’s length with the business (such as an owner who controls the business), where the aircraft is used primarily for personal purposes relative to the aircraft’s total use, the taxable benefit will equal their portion of the aircraft’s operating costs plus an available-for-use amount. The available-for-use amount is computed as the original cost multiplied by the prescribed interest rate for the percentage of personal usage. The available-for-use amount on leased aircrafts is based on the monthly leasing costs of the actual usage multiplied by the proportion of personal usage.

Taxable benefits in respect of passengers that are non-employee family members or friends would be assessed on the shareholder or employee.

If employees are using a business aircraft for personal use, attention should be paid to whether employment benefits are being properly calculated and reported.

GST/HST and Taxable Benefits: Impact on Employee and Employer

The provision of some benefits to employees may be subject to GST/HST. Essentially, the CRA wants to ensure that the same amount of GST/HST is paid whether an employee purchases a good or service on his/her own, or whether he/she receives it from his/her employer.

When providing the benefit, the employer must first determine if it is subject to GST/HST. If so, the tax must be calculated and remitted on the GST/HST tax return that covers the last day of February in the following year.

The GST/HST is then included in the value of the benefit on the T4 for the employee.

Taxpayers can usually claim an input tax credit for the GST/HST paid or payable on goods and services supplied to employees or their relatives as a benefit if it is related to the business’ commercial activities.

Guide T4130 (Chapter 5) – Employers Guide, Taxable Benefits and Allowances is a resource which discusses the GST/HST requirements for employment benefits.