Taxable Benefits For The Personal Use of Company Aircraft

tax

A corporate aircraft that is owned or leased primarily for business purposes, but is used for personal purposes (i.e. flight to transport employees or shareholders to a vacation destination) will be considered a taxable benefit to that employee or shareholder.

The value of the benefit is the cost of a regular first class airfare for a regularly scheduled flight to the same destination. However, if the flight is made on a small, inexpensive aircraft with few amenities, the value of the benefit may be based on the equivalent economy class ticket.

If an employee or shareholder is accompanied by relatives or friends on a flight the total value of the transportation provided to each relative and friend is regarded as a taxable benefit to the employee or shareholder. Note that if the relative or friend is required to accompany the employee or shareholder for business reasons there is no taxable benefit. Also, if the employee or shareholder reimburses the company for the use of the aircraft the benefit is reduced by the amount of the reimbursement.

If the aircraft is used more than 33% (i.e. based on total flying time) for personal use, CRA may consider the benefit to be the lesser of:

1)     the amount that would be the cost to you if you had chartered a comparable aircraft at the current commercial rate for the time of personal use, or

2)    the costs of operation of the aircraft in proportion to the amount of personal use by the individual.

The value of the personal benefit must be reported on the T4 slip.

CRA released a new Technical Interpretation (i.e. 2014-0527841I7) on March 3, 2015, which replaces IT-160R3.

IT-160R3 is applicable for taxation years preceding its cancellation (i.e. September 30, 2012) and for taxation years after (i.e. October 1, 2012) the value of the taxable benefit must be based on the total of the following:

1)    the annual fixed and variable operating costs in proportion to the personal use based on the relative number of flying hours in the year, plus GST; and

2)    the portion of capital cost allowance claimed by the corporation in the year attributable to the personal use.

 

If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.

Thanks to Johnny Kwong of KWB Chartered Accountants for providing this content.

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