Lavery Lawyers
  August 16, 2023 - Montreal, Quebec

Aircraft exports: Don’t let the luxury tax ground you! — Department of Finance Canada prepared to recommend relief
  by Charles-Hugo Gagné, Luc Pariseau

Since it came into force on September 1, 2022, the Select Luxury Items Tax Act1 has caused quite a stir in the aviation industry. Many of those operating in the industry have voiced their discontent, claiming that the tax affects their competitiveness on the international stage.

In general, the luxury tax applies to the sale, lease or import of certain aircraft costing more than $100,000. Not only has the new law introduced a new tax, it has also established very demanding tax compliance rules, thereby increasing the administrative burden on taxpayers through various obligations to file tax and information returns and obtain certificates.

It appears that criticism from the industry has been heard, as Finance Canada recently announced2 that in response to industry feedback, it was prepared to recommend additional regulatory measures to expand the relief for aircraft exports to cases in which no exemption certificate is provided.

Currently, when an aircraft is purchased for export, it can be exempt from the luxury tax if the following conditions are met:

  1. The aircraft is to be exported as soon as is reasonable after the sale is completed. The Canada Revenue Agency specifies that the expression ?as soon as is reasonable? must be interpreted on a case-by-case basis, taking the normal business practices of both the vendor and purchaser into account.
  2. The aircraft is not to be used in Canada unless its use or registration is reasonably necessary or incidental to its manufacture, offering for sale, transportation or exportation. This could be the case for a test flight, for example.
  3. The aircraft is not to be registered in Canada, except if its registration is done solely for a purpose incidental to its manufacture, offering for sale, transportation or exportation.
  4. The vendor of the aircraft is a registered vendor and the purchaser is not a registered vendor under the Act at the time at which the sale is completed.

Once all these conditions are met, the purchaser still has to provide the vendor with an exemption certificate to certify that it is eligible for the exemption to avoid the application of the luxury tax at the time of the sale.

The proposed amendments would make this exemption apply to cases in which the latter condition is not met, that is, where the purchaser cannot provide the vendor with an exemption certificate.

The vendor will nonetheless have to keep evidence of the aircraft?s exportation that is satisfactory to the Minister of National Revenue. These amendments are designed in particular to alleviate certain cash flow concerns raised by Canadian aircraft manufacturers and exporters. However, under the proposed amendments, should the aircraft not be exported by the purchaser, the tax will become payable and the vendor will be required to remit it to the Canada Revenue Agency.

As such, it may be prudent for vendors to include representations in their export sales contracts establishing that any tax liability resulting from failure to comply with the export conditions described above will be transferred to the purchaser. Conversely, it may also be prudent for purchasers to check whether there are such representations in their purchase contracts and to assess their possible liability.

The luxury tax scheme is complex, but our team of tax and aviation professionals is available to support you and answer any questions you may have about this new tax.


  1. S.C. 2022, c. 10, s. 135 (hereinafter the ?Act?)
  2. CANADA REVENUE AGENCY, Luxury Tax Notice LTN4 ?Subject Aircraft Under the Select Luxury Items Tax Act,? July 2023, p. 9



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