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Finally, where a corporate plane is used by its shareholders or employees primarily for personal purposes relative to the aircraft’s total use during the calendar year, the value of the taxable benefit is equal to the personal use portion of the aircraft’s actual operating costs plus some type of imputed “available-for-use” or standby charge. The available-for-use amount is equivalent to an imputed lease amount or equity rate of return on the original cost of the aircraft that is made available to the shareholder or employee during the year.

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The recent Quebec tax case involved a taxpayer who was the director of various companies of a corporate group. In late 2012, the group acquired an $8 million Hawker 4000 aircraft that was used primarily for business purposes. For the 2013 and 2014 taxation years, the taxpayer reported personal use of the aircraft for himself and his associates as 20.78 per cent and 23.46 per cent, respectively, of the total use.

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While both the taxpayer and Revenu Québec acknowledged that a taxable benefit was received for personal use of the aircraft, the issue under dispute was how that benefit should be calculated. Revenu Québec assessed the taxpayer to include amounts of $179,786 and $517,829 in income for the years 2013 and 2014, respectively, as a benefit for the personal use of the aircraft. The agency’s calculations were based on a percentage of total operating costs and capital cost allowance (i.e. tax depreciation) claimed by the corporation, prorated by the number of personal versus total hours flown in each year.

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The taxpayer, on the other hand, had only reimbursed the corporate group for use of the jet for $28,532 in 2013, and for $19,722 in 2014. The taxpayer argued that the determination of fair market value should be the price of business class tickets for equivalent flights when the taxpayer was accompanied by a relative on a business trip.

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The judge disagreed with the taxpayer’s analysis, concluding that the only correct measure of the fair market value of the taxable benefit is to determine how much it would have cost to charter a private plane for routes identical to those flown by the taxpayer and his guests.

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The taxpayer’s logic of using business class ticket pricing “does not correspond in any way to the benefit received by (the taxpayer),” the judge said. Citing a report from an aircraft management company, the judge noted that “a private flight is much faster, boarding is almost instantaneous, there are no queues at the airport for boarding, and customs officers often travel to the private terminal to greet passengers, which is in no way comparable to a commercial flight. In addition, the (taxpayer) is on board the aircraft in complete privacy with his guests when he travels. Thus, the value of an air ticket, even in first class, cannot be used as a comparison in such a context.”

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The judge, however, also disagreed with Revenu Québec’s argument that the costs method, including capital cost allowance, approximates the fair market value of the benefit.

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Instead, the judge used a rate of US$6,500/hour, which was based on the corporation’s accounting records, to calculate the taxable benefit, based on the personal hours of use of the taxpayer and his family and friends. After converting to Canadian dollars, and deducting the amounts already reimbursed by the taxpayer to the corporation for personal use, the taxable benefit was determined to be $102,191 for 2013 and $263,060 for 2014.

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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.

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