The Canada Revenue Agency is cracking down on personal use of corporate jets, and a recent Quebec tax case illustrates how costly such perks can be. Jamie Golombek reports on the ruling, where a judge disagreed with the tax agency's valuation method and assessed a Quebec executive $365,251 for personal use of the corporate jet.
Background of the Case
The case involved a Quebec executive who used a company-owned aircraft for personal trips. The CRA argued that the value of the taxable benefit should be based on the charter cost of an equivalent aircraft. However, the taxpayer claimed that the benefit should be valued at the price of a first-class commercial airline ticket, which is significantly lower.
The judge sided with the CRA's general approach but adjusted the valuation, ultimately setting the benefit at $365,251. This decision underscores the importance of understanding how the CRA values such benefits.
CRA's Policy on Aircraft Benefits
In 2018, the CRA published its administrative policy, Taxable benefit for the personal use of an aircraft, outlining three scenarios for valuing the benefit:
- Business-only flights: No taxable benefit for the shareholder or employee.
- Business flights with family or friends: The benefit is valued at the highest priced commercial ticket (e.g., first class) for each accompanying person.
- Purely personal flights: The benefit equals the charter cost of an equivalent aircraft for the same trip, including deadhead flights and layover fees.
The CRA emphasizes that the valuation must be reasonable based on the circumstances. The Federal Court of Appeal previously ruled that the benefit value is what a shareholder would have paid in similar circumstances if not a shareholder.
Key Takeaways for Taxpayers
If you use a corporate jet for personal reasons, expect to pay tax on the benefit. The CRA will use the charter cost method for purely personal flights, which can be substantial. To avoid surprises, ensure you reimburse the company at fair market value or report the benefit correctly on your tax return.
This case serves as a warning: the CRA will scrutinize personal use of corporate aircraft, and the tax bill can be hefty.
