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Examining the Impact of Canada’s Select Luxury Items Tax Act on the Aviation Industry

Examining the Impact of Canada’s Select Luxury Items Tax Act on the Aviation Industry

In September 2022, the Canadian government passed the Select Luxury Items Tax Act, which imposes a 10% tax on aircraft valued at $100,000 or more. This tax can potentially impact the large Canadian business aviation industry, including OEMs, buyers, sellers, lenders, dealers and the supply chain of the business aviation industry.   

 Luxury taxes are controversial because they directly affect an individual’s purchasing power. As the Canadian government aims to increase its tax base, this article will discuss how the new luxury tax impacts those involved in aircraft transactions and the aviation business industry.   

What is the Select Luxury Items Tax Act?    

The Canadian government passed the Select Luxury Items Tax Act, which levies a 10% tax on selling and importing aircraft worth more than $100,000. The new tax went into effect on September 1, 2022. The Act also applies to luxury cars over $100,000 and boats over $250,000. 

The legislation applies to “subject aircraft,” meaning an airplane, glider or helicopter. The aircraft must be manufactured after 2018. There are a few exemptions, including: 

  • aircraft designed and equipped for military activities

  • aircraft equipped for the carriage of goods only 

  • aircraft registered with a government before September 2022, provided that a user of the aircraft has possession before this date   

The luxury tax also does not apply to the sale of a subject aircraft priced above the price threshold where a purchaser and a vendor have entered into a written agreement for the sale of the subject aircraft before 2022 in the course of the vendor’s business of selling subject aircraft equipped for military activities or solely for carrying goods.  

A manufacturer, wholesaler, retailer or importer is required to register with the Canada Revenue Agency (CRA) under the Select Luxury Items Tax Act if you are, and in the course of your business activities, you sell or import aircraft priced over $100,000.   

Those that qualify are required to apply to register with the CRA as a registered vendor of aircraft by the earlier of:   

  • the day of the first sale of an aircraft  

  • the day of the first importation of an aircraft  


How does the new tax affect aviation finance?     

This tax can potentially impact the significant business aviation industry in Canada. According to the International Trade Administration, Canada is still one of the world’s largest for engineering and manufacturing in aerospace. Canada is the number one civil flight simulator producer, third in civil engine production and fourth in civil aircraft production. In addition, about 80% of Canada’s aerospace sector is civil-oriented, and 20% is military oriented.    

Because this luxury tax is new, it is hard to determine the exact impact on the Canadian business aviation industry. However, according to a research report by Jacques Roy, professor at HEC Montreal Business School, the luxury tax on aircraft may reduce federal income by 29.9 million a year and lead to at least 2,000 direct jobs lost. 

This tax can impact the large Canadian aerospace industry in several ways.     

First, sellers will likely pass the 10% tax on to the buyer. Therefore, Canadian buyers may look for solutions to avoid the tax, but beware there may be hefty fines if not compliant. 

Lessors may also be impacted if a lessee defaults on an aircraft lease and the lessor is forced to sell the aircraft at a 10% higher price. Sellers who add 10% to an aircraft’s sale price may push the market value for a specific aircraft, which affects the number of potential buyers who would consider that aircraft.     

Secondly, Roy’s report estimated a loss of nearly 540 million for aviation companies because potential buyers will begin looking for alternatives, such as basing aircraft in the US or waiting to see if the details of the law’s applications changed. 

A report by the Parliamentary Budget Officer (PBO) estimated the government would receive nine million in new revenue from the aviation sector, which accounts for less than ten percent of the new revenue gain (would mostly come from auto sales). The report also estimated that the tax might reduce sales of autos, boats and planes by more than 600 million a year.    

In addition, since the tax only applies to aircraft manufactured after 2018, an older aircraft may be more appealing to a buyer, impacting the demand for new aircraft, manufacturers and the labor market. This also counters the government’s efforts to reduce carbon emissions by manufacturing more fuel-efficient planes.  

In a letter written by Anthony Norejko, President and CEO of the Canadian Business Aviation Association (CBAA) to Chrystia Freeland, Canada’s Minister of Finance, Norejko said, “the imposition of a luxury tax on aircraft in Canada will have negative consequences for Canada’s aviation and aerospace sectors, affecting job creation, business competitiveness, and importantly, the ability of operators to adopt the cleanest and greenest aircraft, impeding progress related to achieving Canada’s net-zero goals.”   

Moving forward  

CBAA leaders are encouraging the Canadian government to understand the luxury tax’s full impact on jobs and the economy. They suggest changes in the law, such as increasing the sales price threshold and pausing the luxury tax until the Department of Finance can conduct an economic analysis. 

Since the new tax is still in effect, it is important to analyze how it will affect any aircraft transaction. The Canadian Revenue Agency is frequently updating the Luxury Tax specifics, so it is best to consult with a tax professional to determine if you are liable for the new tax and how the purchase of aircraft in Canada will affect your tax obligations.   

In addition, each aircraft lender may approach the Luxury Tax differently, so it’s important to speak with your lender when there's a Canadian entity involved to discuss how the additional tax will be handled in the transaction.   


Similar to the new Canadian Luxury tax, The United States enacted a 10% federal luxury tax in 1991 but repealed it in 1993. Many see luxury taxes as damaging for luxury goods and believe they do not provide enough revenue to outweigh the damaging effects.    

Although we cannot predict the sustainability of the Canadian Luxury Tax, experts agree this will affect the Canadian aviation industry while it is still enforced. To understand how this tax will affect you, the National Aircraft Finance Association (NAFA) recommends speaking with a professional lender and tax professional before engaging in an aircraft transaction in Canada.     

For more information about the Select Luxury Items Tax, please see the website: