In its interpretation letter 205405 dated February 3, 2023, the CRA confirmed that to qualify as a passenger transportation service and for the application of section 3 Part VII of Schedule VI of the ETA, the transportation method must be made available to the public. The CRA referred to its long-standing interpretation included in section 11 of Memorandum 28-3 Passenger Transportation service, which reads as follows:
11. The term passenger transportation service is not defined in the Act but it is understood to include all modes of transportation available to the general public such as transportation by bus, train, aircraft or boat. The Canada Revenue Agency (CRA) requires that the following three criteria be met in order for a service to be a passenger transportation service:
- a mode of conveyance
- an operator of the conveyance independent of the traveler
- an itinerary
The facts provided in the interpretation letter are that a corporation, whose commercial activity is not to offer passenger transportation services, made its aircraft available to its management and shareholders to travel on board for personal use outside of Canada. Taxable benefits are being conferred to these employees and shareholders. The aircraft are not available for transportation of members of the general public. The CRA concluded that since the aircraft was not made available to the public, the supply made by the corporation was not a passenger transportation service. The CRA also indicated that the interpretation of such term does not require that the corporation be a public carrier or that its commercial activity is to supply passenger transportation services.
According to the Oxford dictionary, the ordinary sense of the word “transport” or “transporting” is “to take or carry (people or goods) from one place to another by means of a vehicle, aircraft, or ship. In the Memorandum 28-3, the CRA mentions that it is understood that the term passenger transportation service includes all modes of transportation available to the general public, and not that it is restricted or limited to such modes. It is also noticed that the three criteria to be met do not indicate that the mode of conveyance be made available to the public.
Questions
- Can the CRA further explain its rationale to its conclusion in this interpretation letter? Why does the fact that a transportation mode be made available to the public or not change the qualification of a particular supply? If the supply made by the corporation is not a passenger transportation service, what is the nature of the supply (it is not indicated in the interpretation letter). Please note that in a ruling issued on November 14, 2023, by Revenu Québec (23-063996-001) relating to a similar case, it is mentioned that the CRA is of the view that the supply made is one of a tangible personal property otherwise than by way of sale.
- Given its comments in the above-mentioned ruling, can the CRA explain in which circumstances a corporation that is not a public carrier or whose commercial activity is not to supply passenger transportation services would still be providing passenger transportation services?
- Can the CRA expand on when an aircraft is "made available to the public"?
- Can the CRA also confirm whether the supply made in the following examples would qualify as a passenger transportation service:
Example 1: A corporation (Airco) owns an aircraft (either totally or has a fractional ownership) and has its own pilot and crew member to operate the aircraft. Airco is making supplies to other related corporations and provides travel on board of the aircraft to employees and shareholders of the other related corporations. Airco is invoicing the related corporations for its supplies. The aircraft is not made available to the public.
Example 2: Same facts as in example 1, but instead of having its own pilot and crew member, Airco subcontracts the operation of the aircraft to a third party who has the required licence to operate an aircraft.
Example 3: Same facts as in examples 1 and 2, but Airco provides its supplies to one or a limited number of unrelated corporations or individuals, but not to the general public at large.
For purposes of all examples, the aircraft is the mode of conveyance, there is an operator of the conveyance independent of the traveller and the identification of the passengers and an itinerary is being provided to Airco.
CRA Comments
- The characterization of the use of a mode of conveyance will always depends on the facts. The supply is generally a passenger transportation service (PTS) or of tangible personal property otherwise than by way of sale.
It is important to be able to properly characterise a supply because of the different place of supply rules and tax treatment. As mentioned in the question, a PTS is not defined in the Excise Tax Act (ETA) so an administration position was established early on by looking at how the industry regards a PTS so we are aligned with the industry.
As is often the case in regulated industries, common concepts or definitions are used or the meaning of a definition is referred to another act. The “available to the public” criteria exists for GST/HST purposes to ensure that those supplies that are truly regarded as passenger transportation services are either zero-rated or subject to the appropriate place of supply rules.
Further, such a requirement is consistent with how the industry regards “public” carriage. For example, Part II Air Transportation (Part II) of the Canada Transportation Act (CTA) administered by the Canada Transportation Agency, exist to ensure that public policy objective, such as economic and consumer protection, are met. Under Part II of the CTA an “air service” means a service, provided by means of an aircraft, that is publicly available for the transportation of passengers or goods, or both.
b. & c.
Whether an aircraft is made available to the public will depend on the particular facts and circumstances. Some elements that may be indicators of when an aircraft is made available to the public includes:
- There is a contract of carriage for the specific itinerary.
- The supplier invoices the passenger/charterer.
- The passenger/charterer is required to pay the supplier consideration.
- The supplier has published a tariff that provides the supplier's schedule of fares, rates, charges and terms and conditions of carriage applicable to the provision of an air service and other incidental services. Generally, a tariff outlines the supplier's policies with respect to its terms and conditions, and the contents of the tariff form part of the charter agreement between the supplier and the charterer.
- The aircraft is chartered to individuals or group of individuals outside the corporation (or parent, affiliated or subsidiary companies) and dealing with the supplier at arms-length.
- Based on the limited information provided, it is unlikely that example 1 or 2 would qualify as a PTS as the individuals using the aircraft are not dealing at arms-length with Airco. In addition, it is not clear if the other elements above under a) to d) are met. Further, in example 3, we would need to review all relevant facts to determine whether a PTS is provided to one or a limited number of unrelated corporations or individuals.
In case of doubt on whether a supply is PTS or tangible personal property otherwise than by way of sale, a request with all the relevant facts can be submitted for our review.