The Luxury Tax and Canadian Ownership of Foreign-Registered Aircraft
- GFS LAW
- Nov 5
- 9 min read
Updated: Nov 25
The Luxury Tax has negatively affected general aviation in Canada. Can Canadian aircraft owners structure their ownership and operations using foreign-registrations?
The application of the Select Items Tax Act(1) in 2022 (often referred to as the “Luxury Tax”) has created a noticeable chilling effect in Canadian general aviation. Anecdotal evidence of billions of dollars in cancelled and declined aircraft transactions is just one of the negative consequences that Canadian general aviation has already felt – and will likely continue to experience into the future. As it is presently implemented, this tax is applicable to certain new aircraft purchases or leases. The transparent intent is for private ownership of aircraft to be perceived as a luxury in Canada, with such ownership becoming more expensive for Canadians. Tax calculations are based on the lower of either 10% of the value of the aircraft or 20% of the aircraft value over CAD $100,000. For example, a new Pilatus PC-12 NGX priced at USD $5.3M (CAD $7.4M) could attract luxury taxes for private owners/lessees to the tune of an additional CAD $740,000 (USD $530,000). Adding an extra half-million dollars to the purchase of a new aircraft in Canada has, predictably, resulted in a significant reduction in new private aircraft deliveries in Canada.
For example, estimates based on dealer reports, GAMA figures, and manufacturer announcements, show that since 2022 deliveries of new single turboprop aircraft (a common mid-range type for private owners) in Canada appear to have dropped 44% in terms of numbers of units sold annually in Canada – a 42% reduction in value that represents a CAD $30M loss to the Canadian economy since 2022 for aircraft in this group alone:(3)
Rather than increasing funds flowing into the treasury, the Luxury Tax appears to have suppressed the introduction of some categories of new general aviation aircraft into the Canadian fleet by nearly half. This is discouraging because a private Canadian owner of a small turboprop utility aircraft such as the PC-12 is using it to fill a specific transportation niche associated with Canada’s vast geography – describing such a PC-12 purchase or lease as “luxurious” is somewhat disingenuous. Nevertheless, many potential purchasers find the Luxury Tax to be applicable to their transactions. Accordingly, potential Canadian owners of such aircraft are forced to consider alternatives – older, secondary market aircraft; ownership structures permitting “commercial” exemptions; or alternative registration and licensing schemes. Anecdotal evidence suggests that since 2022, an increasing number of Canadian aircraft owners are basing and operating their aircraft out of the United States instead of Canada.
In this respect, the net effect of the Luxury Tax for Canadian general aviation has been negative. Rather than transitioning the Canadian general aviation fleet of approximately 32,000 aircraft to new, modern, energy-efficient types, we can instead expect to see private aircraft owners favouring “old” aircraft from the secondary market. Instead of Canadian-built Diamond DA40s, the mainstay of the Canadian general aviation fleet will remain 50-year-old, leaded-fuel-burning Cessnas and Pipers. Likewise, Canadian general aviation owners find themselves under considerable pressure to consider alternatives to basing “new” aircraft on the Canadian registry (“C-“ registrations) and instead will look to foreign registrations in the United States (“N-“), the Isle of Man (“M-“), Guernsey (“2-“) or the Cayman Islands (“VP-“), to give a few examples. An increasing number of these registration marks on new aircraft parked at Canadian aerodromes might become an increasingly common sight in the future.
Can Canadian Aircraft Owners Operate Foreign Aircraft?
Given these effects arising from the Luxury Tax, Canadian general aviation owners considering the purchase of a new aircraft will naturally turn to questions about how to accomplish a foreign registration for their aircraft – and how to structure their own affairs to make this possible. In general terms, where a foreign country permits the foreign ownership and operation of an aircraft under their aviation rules, then international law permitting open civil aviation access to countries (including Canada) may be seen as a viable alternative to registration in Canada.
The simplest option: Cross-Border Personal Registration
Many general aviation owners hold and register their personal aircraft in their own names – this is the most direct and straightforward ownership “structure” available. Indeed, the advantages of this approach relate to its simplicity – it’s easy to understand, easy to administer, and doesn’t involve complex corporate or trust structures that involve costs to establish and maintain. Disadvantages of this approach, on the other hand, relate to risk and liability arising from aircraft operations conducted in one’s own name. Liabilities can be unlimited and can threaten one’s personal or family assets in the event of accidents or mishaps. Personal holdings of valuable assets can also neglect tax efficiencies that may be possible within more complex structures under certain circumstances.
Cross-Borders Registration via Corporations or Trusts
The alternative to personal registration of an aircraft is to design and implement an ownership structure that is separate in some ways from the personal interests and assets of an individual. Doing so can have risk, liability, tax, and operational advantages (as well as disadvantages) depending on the particulars of the situation.
Corporations and related types such as Limited Partnerships are types of entities that can be used to limit personal liability and otherwise separate ownership of aircraft assets from one’s personal interests. These entity types exist across Canadian provinces in various forms and are often used as the basis to hold and operate aircraft assets. Trusts, on the other hand, are historically different from corporate entities in that they define a relationship between three people: the Settlor, the Trustee, and the Beneficiary. The Settlor provides property (such as an aircraft) to the Trustee, who holds that property subject to the instructions of the Settlor for the benefit of the Beneficiary. Sometimes the Settlor and Beneficiary are the same person, and sometimes the Trustee is a corporation. Trusts have useful characteristics that can sometimes be useful in asset-holding structures.
The use of corporate entities and trusts as vehicles within cross-border ownership structures is a complex area of law, and meticulous design and rigorous vetting is recommended for owners looking to use such structures to effectively and efficiently make use of their aviation assets. Suffice to say, however, that corporate entities and trusts are often used when structuring the ownership of aircraft. Indeed, such structures often involve the use different types of corporate entities and trusts on either side of an international boundary in order to achieve particular risk, liability, tax, and operational objectives. These objectives will be unique to each individual person and situation and therefore a planning and structuring effort is required in order to achieve the desired outcomes.
United States: Is it possible?
While there are some exceptions, the general rule is that only Canadians can register aircraft on the Canadian aircraft registry. The United States has a similar rule, meaning that Canadians generally cannot directly register an aircraft in their own name in the US. However, a longstanding practice has been tolerated in the US where US-based corporate or trust entities may be used to allow non-US persons to indirectly register their aircraft there. As such, it is generally possible to develop ownership structures that allow Canadians to own aircraft that are registered in the United States.
Offshore Islands: Is it possible?
The Isle of Man, the Bailiwick of Guernsey, and the Cayman Islands are all island nations with varying historical and current relationships to the British Crown; each has developed financial service industries catering to citizens of the Commonwealth (and others) abroad. These financial services can sometimes be beneficial to Canadians for risk, liability, tax, and operational reasons. In particular, these jurisdictions all have rules permitting citizens of Commonwealth countries to own aviation assets registered under their flags.
In recent years, a particular focus on aviation assets has been included with the service offerings of these jurisdictions, with each respective Civil Aviation Authority (CAA) seeking increased use of their services by non-residents. Guernsey, for example, touts their “2-REG” authority as being “pragmatic, swift, flexible and friendly.” While the rules vary with each jurisdiction, in general, Canadians are listed as those who are “qualified” to own aircraft on the registries of the Isle of Man (IOMAR), Guernsey (2-REG), and the Cayman Islands (CAACI). As such, it is generally possible for Canadians to register their aircraft in these jurisdictions either under their own names, or using ownership entities that are situated in Canada.
The Critical Question: Can a Canadian Owner use a Foreign-Registered aircraft in Canada?
The key provision in the Canadian Aviation Regulations (CARs) is 202.42(3) – “no person shall operate in Canada an aircraft that is registered in a foreign state that has been present in Canada for a total of 90 days or more in the immediately preceding twelve-month period”. The general intent is to ensure that aircraft owned by Canadians, and which stay in Canada throughout the year, are operated on the Canadian registry. Exemptions to these requirements may be possible in certain instances – typically for temporary or seasonal use or specific operational requirements – which must be based on adequate proof of safety, public interest, often with specific flight restrictions and conditions imposed. Such exemptions have historically rarely been granted for private operations except in truly exceptional cases.
CAR 202.42(3) is also generally drafted to discourage local and foreign corporate or trust structures circumventing the spirit and intent of these rules. The Canadian CAA, Transport Canada Civil Aviation (TCCA), interprets CAR 202.42(3) in light of its AC 202-001 (Registration of Foreign-Owned Aircraft in Canada) and internal TCCA policy memos. These apply a custody and control test that seek to pierce corporate and trust structures – aircraft that are under “effective” Canadian custody and control are deemed to be Canadian-owned, effectively requiring import and registration on the Canadian Civil Aviation Registry (CCAR). For example, pre-2020 “nominee trust” schemes involving a foreign (usually US) trustee for a Canadian beneficiary are now generally deemed to be “pierced” based on the effective custody and control tests.
Strategies to avoid the “90 day” rule in Canada
In practice, anecdotal evidence suggests that CAR 202.42(3) is not routinely enforced. This means that some Canadian owners of foreign-registered aircraft do base and operate their aircraft within Canada for more than 90 days per year without much thought. While not a recommended practice, some Canadian owners may well risk breaching CAR 202.42(3) on this assumed basis of limited enforcement.
More risk-averse Canadian owners might alternatively seek to structure their operations with the effect of divesting themselves of aircraft custody and control while maintaining indirect beneficial ownership of the underlying aircraft asset. Such structures sometimes involve the use of an independent operator of the aircraft for commercial purposes based on an asset-finance security structure. Any structure of this nature must be carefully designed and vetted in order to assure compliance with CAR 202.42(3) and other rules and regulations applicable to Canadian aircraft registration.
Less beneficially for Canadian general aviation, other Canadian owners are simply moving their aircraft base out of Canada altogether. As many flight operations for Canadian private aircraft owners involve flying to and from the United States, several such owners have decided to base their aircraft on the US side of the border, bringing the aircraft into Canada only for pick-ups and drop-offs a handful of days per year. In some cases Canadian owners of aircraft who are located adjacent to the US border will base their aircraft at a US airfield and use ground transportation to reach their aircraft just inside of the US – the inconvenience of driving from Vancouver to Bellingham, for example, may well outweigh the additional costs of ownership of the same aircraft inside of Canada.
In the Result…
Canada's Luxury Tax, effective since September 2022, has exerted a pronounced chilling effect on new private aircraft purchases with, for example, some categories of single-turboprop aircraft deliveries dropping 44% in units and 42% in value over the subsequent three fiscal years. This has resulted in an estimated $30 million shortfall against pre-Luxury Tax trends.
In response, Canadian aircraft owners are increasingly pursuing alternative ownership and operational structures, including foreign registrations to mitigate the Luxury Tax burden. However, to ensure compliance and avoid severe regulatory or legal repercussions, such strategies must be meticulously designed and rigorously vetted against CAR 202.42(3) and other constraints.
For tailored guidance on compliant foreign ownership and operational structures to help safeguard your aircraft assets, please contact the Aviation team at Goodfellow & Schuettlaw.
Questions? Contact our Aviation Team:
Christopher Knight | Barrister & Solicitor | 403-209-5648 | |
Robert M. Schuett | Barrister & Solicitor | 780-628-3532 | |
Ishpreet Golhar | Barrister & Solicitor | 403-209-5643 | |
Ryan Morstad | Barrister & Solicitor | 403-209-5646 | |
Brandon Kohlman | Barrister & Solicitor | 403-209-5647 | |
Deanna LaCaprara | Paralegal | 403- 209-4085 | |
Olene Andrew-Taylor | Paralegal | 403-668-4746 |
1 SC 2022, c.10, s.135
2 Table data is based on select transactions and estimated values of single turboprop deliveries in Canada across all uses (private and commercial). Years indicated are based on Q4 of the proceeding year through Q3 of current year. Dollar figures are adjusted to reflect 2025 CAD values.
3 Please note that the information provided here is a general overview of issues not related to any particular situation, and does not, nor is intended to, constitute legal advice; instead, this information is for general informational purposes only. You should contact your lawyer to obtain advice with respect to any particular legal matter. You should not act, or refrain from acting, on the basis of the information here without first seeking legal advice from counsel in the relevant jurisdictions. Only your individual lawyer can provide assurances that the information contained here (and your interpretation of it) is applicable or appropriate to your particular situation.