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Editor's note:
It looks as if a three-year experiment on taxation north of the US border is coming to an end. The luxury tax on aircraft is going away.
First introduced in the 2021 budget - targeting new high-value goods bought for personal use, including cars, boats and aircraft - it took effect in the fall of 2022. In many industries, business jets are not indulgences but necessary tools for managing large operations efficiently; therefore, it is no surprise that this was not popular in Canadian business aviation circles.
Earlier this month, however, a reversal occurred, as the new federal budget removed the tax on personal aircraft and vessels.
YYZlaw Partner Ehsan Monfared and Associate Shakshi Shreya provided this fact sheet for the GlobalAir.com audience to better understand the changes and what they mean for business aircraft sales moving forward.
-Josh Coffman, GlobalAir.com
FEDERAL BUDGET 2025 PROPOSED ELIMINATION OF LUXURY TAX ON AIRCRAFT
The 2025 federal budget (Canada) has proposed to eliminate the luxury tax on aircraft - a measure that has been widely criticized by the Canadian aviation industry since its introduction in 2022 under the Select Luxury Items Tax Act (the "SLITA").
Proposed Legislative Changes
The Notice of Ways and Means Motion, tabled alongside Budget 2025, formally sets out the legislative steps to repeal the luxury tax on aircraft and boat. Key amendments proposed to the Select Luxury Items Tax Act include:
• Non-application of Tax
A new section (1.1) will provide that, despite any other provision in the Act, no luxury tax will be payable on subject aircraft or subject vessels as of Nov. 5, 2025).
• Registration Changes
Vendors dealing in aircraft and vessels will no longer be required to be registered for purposes of SLITA after Budget Day.
• Automatic Cancellation of Registrations
All registrations relating to aircraft and vessels under the Act will be cancelled effective Feb. 1, 2028.
• Reporting Relief
Vendors whose only activity relates to aircraft or vessels will not be required to file returns for reporting periods beginning after December 2025, provided no tax is payable.
These amendments are deemed to have come into force the day after Budget Day, subject to the enactment of the enabling legislation.
Why It Matters
The tax failed to generate meaningful revenues from aircraft relative to the administration costs incurred by the government. Meanwhile, it contributed to job losses, discouraged investment and slowed market activity across Canada's aviation ecosystem. The proposed repeal marks a major policy shift by Canada's federal government and signals the government's willingness to let businesses decide how best to allocate their capital.
Once repealed, the changes are expected to:
• Lower aircraft acquisition and import costs;
• Revive demand for new domestic aircraft transactions, maintenance, and refurbishment; and
• Strengthen the competitiveness of Canadian businesses in the global aviation market.
After accounting for administration costs, the shift in policy position will likely have a positive fiscal effect to government revenues, and it also provides meaningful relief to industry stakeholders who have faced reduced market activity and a big blow to their businesses since 2022.
What's Next
While administratively the government has halted the collection of these taxes, the repeal provisions will come into force once Parliament passes the corresponding Budget Implementation Act. Stakeholders should monitor for transitional guidance from the Canada Revenue Agency addressing in-progress transactions and return filing requirements through the end of 2025.
Key Takeaway
Effective on Nov. 5, 2025, Canada has eliminated the application of Luxury Tax on new aircraft purchase in Canada. This signals the government's recognition of the importance of business aviation in allowing Canadian businesses to achieve maximum levels of productivity and efficiency.Ehsan Monfared has been practicing as an aviation lawyer with YYZlaw in Canada for over a decade. He advises both public and private entities within the aviation sector through the complexities of commercial transactions and regulatory frameworks. Shakshi Shreya is an associate with YYZlaw. She holds an LL.M. in Air andamp; Space Law from McGill University, an MBA in Aviation Management from the University of Petroleum and Energy Studies, and a Juris Doctor from Guru Gobind Singh Indraprastha University.
Her academic pursuits led her to an invaluable internship at the International Civil Aviation Organization (ICAO) in Montreal, where she deepened her understanding of the aviation industry's legal framework, including bilateral and multilateral agreements, the Sustainable Aviation Fuels (SAFs) program, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
Her digital publication "100 Knots" captures the attention of over 30,000 aviation enthusiasts on LinkedIn. Her contributions to the literature on aircraft leasing and financing have been published by Bloomsbury, further establishing her as an authoritative voice in aviation law.