As aviation and aerospace continues to right itself in the wake of the Covid-19 pandemic, another economic challenge has arrived: Canada’s new luxury tax on select aircraft, passenger vehicles, and boats.

The Select Luxury Items Tax Act was initially proposed in the 2021 federal budget and came into effect on Sept. 1, 2022. It applies to the purchase of personal aircraft with fewer than 40 seats; passenger motor vehicles with 10 seats or less; and leisure, recreation, or sporting boats. In all cases, the tax will apply to “subject vehicles” manufactured after 2018.

When an applicable vehicle is sold in Canada or imported into the country, the luxury tax will apply. Specific price thresholds have been established, with the tax applying to aircraft and vehicles priced over $100,000, and boats over $250,000.

The amount of tax will be calculated as the lesser of either 10 percent of the total purchase price; or, 20 percent of the total price exceeding the price threshold. The luxury tax will be added to the price of the item before GST/HST is applied. Registered vendors — those who manufacture, wholesale, retail, or import qualifying luxury items — will be required to collect and pay the luxury tax on each transaction.

With this new tax, the Liberal government says it is taking steps to address this country’s growing gap between rich and poor. As the middle class continues to shrink, the government is searching for ways to redistribute income more fairly.

Many Canadians agree the tax will only serve to harm Canadian manufacturers and dealers of aircraft, threatening jobs as a result. Heath Moffatt Photo

In her foreword to the 2021 budget, Chrystia Freeland, deputy prime minister and minister of finance, wrote: “If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat — congratulations! And thank you for contributing a little bit of that good fortune to help heal the wounds of Covid and invest in our future collective prosperity.”

While many Canadians do not contest the concept of income redistribution, they say the luxury tax was hastily implemented without appropriate study, and does not address the principles of fair taxation. Instead, they claim the tax will only serve to harm Canadian manufacturers and dealers of aircraft, cars, and boats, further handicapping these industries and ultimately threatening the jobs of ordinary citizens — the very people the new tax purports to help.

It’s a lesson learned by our neighbours to the south, when in 1990 the U.S. applied a 10 percent luxury tax to boat sales, among other things.

“The results were disastrous,” wrote boating industry CEO Bill Yeargin in February 2022. “Over 25,000 boating industry jobs were lost and a tax that was supposed to generate millions of additional government revenue actually cost the government revenue. Fortunately, Congress was quick to acknowledge the damage they were causing, and the tax was repealed.”

Yeargin said luxury taxes simply change consumer behaviour. To avoid the tax, buyers cancel their purchase, or conclude the transaction on foreign soil and base the asset outside the country. This hurts all domestic businesses associated with the manufacture, distribution, and sale of these items.

In his article, Yeargin cautioned the Canadian government to learn from not only the U.S., but the similar experiences of New Zealand, Italy, Norway, Turkey, and Spain — all of whom tried to implement luxury taxes but subsequently repealed them.

Numerous members of the industry are advocating for a $5 million threshold for the tax, as opposed to the current $100,000 threshold. Mike Reyno Photo

A Tax on Manufacturing

The effect of the luxury tax on the Canadian aviation and aerospace industry is expected to be significant.

“Implementing a luxury tax will affect jobs,” asserted Anthony Norejko, president and CEO of the Canadian Business Aviation Association (CBAA), which lobbied heavily against the tax, along with a consortium of other labor unions and industry groups.

He said the luxury tax is an ineffective tool to recoup the giant deficits associated with Covid-19.

“It’s inappropriate to suggest that putting a tax on aircraft is in any way going to recoup those dollars. It will be more prohibitive to own the products that Canadians make here at home. There is nothing there to strengthen the economy — it weakens us as we move forward. What it is and always has been is a tax on Canadian manufacturing.”

Norejko is frustrated that government seems to have designed and implemented the luxury tax without first conducting a proper economic impact analysis. He pointed to the minutes from a May 2, 2022, meeting of the House of Commons Standing Committee on Finance, where Bloc Québécois MP Gabriel Ste-Marie asked whether such an impact had been assessed.

“We haven’t done that type of assessment,” responded Miodrag Jovanovic, assistant deputy minister for finance. “However, the government has conducted an exhaustive consultation of the sector to ensure it minimizes the impact the tax will have on the private sector.”

In the meeting, Ste-Marie called that answer “really disturbing” and noted that a 20 percent tax can significantly impact industry and jobs.

Montreal-based Bombardier’s newest member of the popular Challenger family, the Challenger 3500, was introduced last September and recently entered into service. Bombardier Photo

Later in May, the Parliamentary Budget Officer (PBO) noted that the luxury tax could bring in $779 million over a five-year period — but it could also trigger a $2.9 billion drop in the sales of eligible vehicles over the same period.

The CBAA’s Norejko is frustrated by what he called the government’s “total lack of understanding” of the aviation industry. His association put forward a suggested tax threshold of $5 million to reflect the actual cost of aircraft, noting the current $100,000 figure is unrealistically low.

He also pointed to the threshold used to determine whether an aircraft is a business tool — and thus not subject to the tax — or simply for personal use. Whereas in the past, business usage more than 51 percent of the time would qualify an aircraft as a commercial tool, the government has now implemented a 90 percent threshold with the luxury tax. That means that aircraft used more than 10 percent of the time for personal use will automatically be subject to the luxury tax.

“I think the bigger issue is the unintended consequences,” he told Skies. “The shame of it all, is that despite what the PBO and opposition MPs said and put motions forward to that effect, the Liberal government is willing to just roll this thing out there.

“There will be folks who just don’t buy aircraft,” he warned, echoing Yeargin’s view of consumer behavior. “If you give someone eight million reasons to find an alternative, don’t be surprised if they find one.”

Jim Ferrier, interim president and CEO of the Canadian Owners and Pilots Association (COPA), said his general aviation (GA) membership views the luxury tax as mainly a “future problem” when it comes to the resale of aircraft built after 2018. While most of COPA’s 15,000+ members currently fly older aircraft, Ferrier said the $100,000 threshold for the tax is unrealistic from a recreational flying point of view.

The luxury tax came into effect on Sept. 1, but the Canadian Business Aviation Association — which represents roughly 400 bizav companies and organizations across Canada — plans to continue to press government on several issues regarding the tax. Annie Vogel Photo

“One big concern is the luxury tax is retroactive for the life of the aircraft, if its original use is tax exempt,” he said. “For example, a flight school brings a Cessna 172 into Canada for flight training. As a business, the school is luxury tax exempt. But what happens if they sell the same aircraft to a private individual down the road? It cost more than $500,000 new and will likely have appreciated. Is the next person in line looking at paying a tax based on its current value? That basically destroys the after-market availability of aircraft.”

Ferrier said the tax will also dissuade GA pilots from upgrading to newer aircraft, which can offer lower operating costs and are often more environmentally friendly. In an April letter to government, COPA also noted that there are no aircraft manufactured after 2018 that cost less than $100,000. Conversely, there are many so-called luxury cars available for less than $100,000; likewise, there are boats available for less than $250,000.

“I would wager my paycheque that I could find 100 boats for under $100,000 that I could buy brand new,” said Ferrier. “But it would be very difficult to find a brand new aircraft priced under $100,000. Whoever picked that number has never been involved in aviation.”

COPA, too, advocated for a $5 million threshold. In addition, the association proposed capping the luxury tax to a maximum of $1 million; changing its applicability to one-time use for new aircraft only; adding an exemption for those who choose to ‘fly green’; basing future tax on depreciated values versus fair market values; and removing any tax on subsequent improvements which are designed to increase safety.

COPA members believe the luxury tax will be a big problem in the future when it comes to the resale of aircraft built after 2018. Mike Reyno Photo

“We even suggested the government has an environmental agenda they are trying to meet with regards to carbon, yet they’re de-incentivizing people to upgrade to new aircraft,” concluded Ferrier. “It seems to me like this is an announcement about ‘we’re taxing the rich.’ But that’s definitely not the case in general aviation.”

Contradictory Policies

Stan Kuliavas is vice president of sales and business development at Levaero Aviation in Toronto, which sells new Pilatus aircraft and a variety of pre-owned makes. He said that from an aircraft dealer perspective, the luxury tax is surrounded by more questions than answers.

“Communication from the government regarding this tax has been vague, at best, since it was first proposed,” he told Skies. “The government has captured all aircraft built from 2019 onwards in this punitive tax structure, contradicting their other policies. While on one hand the prime minister is promoting a green agenda, on the other hand he is encouraging Canadians to purchase older, less fuel-efficient assets.”

Kuliavas pointed out that government regularly utilizes aircraft as the most efficient tool to conduct business across the country. It’s the same in the corporate world, he said.

“Business aircraft allow Canadian businesses to be competitive on a national and global scale, and to conduct business efficiently. For the government to treat these business tools as ‘luxuries’ and to impose a ‘luxury tax’ on them is not only hypocritical, but an irresponsible action. A government that considers business aircraft to be luxuries does not understand how business works, and how vital a tool aircraft are to many Canadian companies.”

While a flight school would be exempt from the luxury tax as a business, the school may eventually struggle to sell aging aircraft to private individuals who are not tax exempt. Aaron Burton Photo

He reiterated that it will encourage buyers to purchase older, less efficient aircraft that are exempt from the tax.

“Sustainability goals are real for Canadian corporations, yet the older aircraft that the government is encouraging people and companies to purchase will likely have a larger carbon footprint, making it harder for businesses to achieve their sustainability goals.”

Kuliavas also expects the luxury tax to dampen the demand for Canadian-made aircraft, as well as aircraft sold by Canadian dealers and brokers. In turn, this will negatively affect aviation and aerospace employment.

Bombardier, the Montreal-based manufacturer of world-class business jets, agreed. In a written statement to Skies, spokesperson Matthew Nicholls said Canada is well known for building the best aircraft.

While most of Bombardier’s jets are sold to international buyers who are not affected by Canada’s luxury tax, Nicholls said its implementation is “deeply troubling” for those who rely on the domestic industry.

“People around the world see this and wonder why the Canadian government wants to penalize Canadians for buying leading world-class products designed and manufactured by Canadians; and, why there is domestically a hindrance to what’s recognized as the best products in the industry.”

While most of Bombardier’s jets — like the Global 7500, for example — are sold to international buyers who are not affected by Canada’s luxury tax, a company spokesperson said its implementation is “deeply troubling” for those who rely on the domestic industry. Heath Moffatt Photo

Bombardier expects the tax to have the greatest impact on businesses in remote communities, including those who support business jet operations.

“We express our concern for the thousands of jobs that support our customers and jets based in Canada if growth is stunted domestically,” concluded Nicholls.

Unfair and Unjust

Some in the aviation industry feel that aircraft, boats, and motor vehicles were selected arbitrarily, while other so-called “luxury” items — expensive RVs, for example — remain unscathed.

“The lawmakers have decided that they are going to target aviation, luxury autos, and boats,” said Isaac Capua, vice president of Oshawa, Ontario-based Aviation Unlimited, which sells new Piper, Diamond, and Kodiak planes, as well as all makes of pre-owned aircraft.

“Even as a group of three, those are arbitrary. Aviation was specifically targeted with this $100,000 limit as opposed to $250,000 for boats. But we are assuming the value of an aircraft is as high as it is because it represents a luxury item. That is misaligned. Aircraft are expensive because of the technology that goes into them and the certification costs. If we want to target ostentatious purchases, perhaps we should be taxing luxury jewellery, country club memberships, or RVs.”

Capua said the tax is unfair and unjust. In the short term, he’s already seen it deter people from purchasing a new aircraft.

“In the longer term, buyers will simply find tax efficiencies by different methods — whether that is foreign registration or keeping an aircraft out of the country. They will find efficiencies by taking the aircraft out of the Canadian economy.”

There is also a safety concern when it comes to the tax; newer aircraft offer a lot more safety benefits compared to older aircraft. Galen Burrows Photo

The origins of the luxury tax are mired in “political strategy” and not sound decision-making, believes Capua. Newer aircraft offer a myriad of safety benefits as well as better environmental performance. Yet, the luxury tax only serves to deter those who seek to make a responsible decision when it comes to aviation safety and greener operations.

“This is a tax on safety,” he emphasized. “The alternative decision will be to opt for an older, less safe aircraft. Then, there is the environment piece. The tax should consider relieving environmentally friendly aircraft, [as is the case] with cars.”

Like COPA, Capua pointed out that most people do not drive cars priced over $100,000. Many less expensive options are available.

“For aviation, I think you should come up with an average number that is in line and logical. A brand-new Cessna 172 or Diamond DA40 (entry-level aircraft used for flight training) costs $500,000+ for the base model. If you want to go after the luxury end of the [aircraft] market, you should raise the limit.”

As well, Capua suggested the luxury tax should be capped at a maximum amount, as it is a “rare example of a completely open-ended tax with no limit.”

For buyers who take their business outside Canada and choose to register aircraft elsewhere, Capua lamented the economic impact: “They won’t be insuring the aircraft in Canada. They cannot employ a Canadian-licensed pilot or mechanic. They wouldn’t be able to finance the aircraft in Canada. From a legislative point of view, those aircraft would not be beholden to Transport Canada regulations. The effect is far-reaching.”

While the luxury tax became a reality on Sept. 1, the CBAA’s Norejko said the fight is not over.

“Now that the federal government has returned from summer break, our efforts will be to widen the lanes on the luxury tax,” he said.

The CBAA’s president says, ultimately, the tax creates a disincentive to acquire a cleaner, greener, and safer aircraft, which “doesn’t make sense.” Galen Burrows Photo

“We’ll keep pressing on issues like the $100,000 price threshold, the environment, and the 90 percent usage threshold. Frankly, a government’s job is to create incentives to do the right thing. Creating a disincentive to acquire a cleaner, greener, and safer aircraft doesn’t make sense.”

Meanwhile, industry remains deeply concerned about the legislation’s economic impact.

“The business aviation sector contributes more than $12 billion annually to the Canadian economy,” noted Levaero’s Kuliavas. “The people this tax will hurt are the hard-working and highly skilled 47,000+ Canadians employed in the sector.”

Although this legislation is now enacted, there are still opportunities to create positive change to ensure Canada does not lose jobs. Contact your local MP to express your stance on this topic: https://www.ourcommons.ca/members/en.

It’s on the minds of everyone in aviation and aerospace these days: How do we attract, educate and retain top talent in the face of a fierce labour shortage?

On July 10, industry leaders came together at the 2019 Canadian Business Aviation Association (CBAA) convention in Calgary to share ideas, best practices and talent tips.

Moderated by Suzanne Kearns, associate professor in the aviation program at the University of Waterloo, the panel discussion included James Elian, president and COO of AirSprint Private Aviation; Gail Evans, president of The Wynford Group; Ian Ross, director, HR, Flying Colours Corporation; Richard Hotchkiss, president and CEO of Sunwest Aviation Ltd.; Tracy Medve, president of KF Aerospace; and Bill McGoey, president, Morningstar Air Express and Aurora Jet Partners.

Evans, whose firm The Wynford Group conducted the 2019 CBAA Compensation Survey, presented preliminary results to the audience. She noted that this year, “we heard a lot of concern for the attraction and retention of pilots in the [business aviation] sector.”

The biannual survey, which collected information about salaries and employer practices, was completed at no cost to participants, who will each receive a copy of the general results once they are formally released.

It includes cash comparisons for 63 different industry positions in the management, administration, ramp, maintenance, flight crew, safety and rotary sectors. New to this year’s survey were 11 new positions, modified flight crew positions based on aircraft category, and questions on recruitment and retention.

“Overall, salary differentials are keeping pace with inflation and cost of living,” said Evans. “Larger companies do tend to pay a bit more for sales and admin, and with maintenance there isn’t as much difference.”

On average, she said it takes 41 days to fill a flight crew job while it takes 52 days to fill a maintenance position. Employee referrals, social media and job boards continue to be popular when it comes to attracting new candidates. As well, Evans said 90 per cent of companies surveyed conducted one-on-one interviews, and an increasing number uses a preliminary phone interview to narrow the applicant field.

“We are also seeing some growth in the variable pay scenario, such as bonuses and shares in the company,” she concluded. “There is a trend to increase short-term and long-term incentive plans that are based upon the achievement of specific goals.”

Following Evans’ presentation, executives weighed in on how their companies are meeting the challenges presented by today’s tight labour market.

AirSprint’s James Elian outlined how his Calgary-based company has improved its employee retention performance over the last 12 years.

“AirSprint had a problem in 2007,” he told the audience. “Our attrition was close to 37 per cent for flight crew. They were going to other operators, the airlines, etc. I found that for every jet captain that left us, the impact to AirSprint was a cost of $90,000 per person. That includes rehiring, training, efficiencies of aircraft, etc.

“Today, we are projecting for 2019 that we’re trending to be less than 10 per cent attrition in an arguably much harder time.”

So, what is AirSprint’s turnaround secret? It’s simple, said Elian. Just hire the right person for the job.

“We took a really detailed look at what type of pilot works at AirSprint. We engaged a company to survey and analyze pilots’ behaviour. Now, every person who applies at AirSprint does this survey before the interview to determine if they are a good fit for the job. They need to truly understand what we are looking for and ask questions accordingly.

“The secret was just to put in the work and hire the right people. Don’t hire for a type rating – it’s a short-term cost.”

In addition, Elian said AirSprint developed a preferential bidding system that allows pilots to have input into their work schedules. Typically, pilots are granted around 90 per cent of their requests for time off.

Sunwest Aviation’s Hotchkiss said the company has implemented a few tools to attract new people while retaining its 75 pilots, 55 maintenance staff, and 20 FBO employees.

First, he said the company cultivates local affiliations with community groups, many of whom are often surprised by the breadth of services offered at Sunwest.

“We try to focus on hiring the right people as well,” said Hotchkiss. “There are some people that like the type of flying we do. So, we try to focus on those people. We try to make them feel like they’re part of a team at Sunwest. I sit down with my partner, Mike [Gocal], and spend an hour with the [new] people. We try to get to know them and explain our expectations and how things work. The feedback from that has been very, very positive.”

Sunwest offers its pilots flexible schedules owing to its wide variety of operations, including workforce transit, medevac and corporate jet charters.

“If you have a pilot who wants to be home every night, we have a job for them. And if a pilot has itchy feet and wants to travel the world, we have a job for them, too. And, we allow them to have input into customizing their schedule,” he continued. “We also offer flex hours for maintenance; for admin, it’s very important to offer flexible hours.”

Tired of what he called the “confrontational” annual employee review process, Hotchkiss said Sunwest has switched to a more “developmental” approach. The company also focuses on added perks such as social activities and an onsite gym for employees.

“It’s hard to compete sometimes with the airlines, for example, but we try to get our people to focus on the package,” he concluded. “Treat people fairly, be open, and give them meaningful and challenging work – recognize their hard work.”

In Peterborough, Ont., aircraft completions, sales, and maintenance, repair and overhaul (MRO) provider Flying Colours Corp. works within the local community to grow its staff, which now numbers more than 300 employees.

Ian Ross, the company’s director of human resources, said outreach is a key element of Flying Colours’ recruitment plan.

“Recruiting is a huge challenge and we live it every single day,” he said. “We are in the midst of an expansion; construction has started and my challenge is to populate that building with people.

“We tend to take the word to the colleges, tech schools, and career fairs, to spread the word about the many professions in aviation, both commercial and business,” he said.

“Once you take the time to explain or show someone the quality of work and the sustained effort in getting a project done, they generally walk away with the feeling this is something they might be interested in. Invest the time, be passionate about the subject matter, and in terms of onboarding those candidates you must listen to them and understand their concerns.”

Flying Colours has toured most of the local area, said Ross, in an effort to engage possible new recruits.

He acknowledged that today’s labour market is very challenging and recruitment is “business critical.”

With the next generation of workers attracted by high-tech and digital industries, “thinking laterally is an essential part of a recruitment strategy in the current climate,” he concluded.

KF Aerospace president Tracy Medve said the panel discussion was both timely and important.

Celebrating its 50th anniversary next March, Kelowna, B.C.-headquartered KF Aerospace operates aircraft, performs MRO services, and trains military pilots.

“I’m going to focus on the MRO side of our business, because nobody is talking about it enough,” she said. “Pilots get all the glory and all the focus, but if we don’t have people to look after the aircraft, we’re going nowhere.”

With three maintenance bases in Kelowna, Hamilton, Ont., and Vancouver, the company employs a total of 1,028 people. About 544 of them are in the various technical trades – and only six per cent of those employees are female.

“If you look around this room, it’s very representative of the demographics in our industry in terms of both age and gender,” said Medve. “If we don’t solve that, we won’t get this fixed. We are not paying enough attention to how we attract females to this industry. By January of 2020, between Hamilton and Kelowna, we will need at least another 85 to 100 positions and we’ve already hired hundreds in the last three years.”

KF Aerospace attends job fairs and school tours for potential candidates.

“We even do seniors’ tours and tell them to bring us their daughters and their grandchildren,” said Medve with a laugh. “We also have very strong relations with Mohawk College in Hamilton . . . and I’m going to dig an underground tunnel to our hangar so they can’t go anywhere else! We also have the KF Centre for Excellence in Kelowna, that will not only look at the history of innovation in the Okanagan Valley, but also hopefully a component with Okanagan College where they will have a training facility there as well.”

She said KF Aerospace also participates in both provincial and federal foreign worker programs. The company has developed two-week, tailored courses to train new employees on company culture and safety procedures.

“I think one important thing we do is conduct regular employee engagement surveys,” she added. “We’re finding that as our employee demographics change, the things we need to do to keep our employees engaged is changing, and we have to pay attention to that. We also benchmark our salaries regularly against our competitors.”

Lastly, KR Aerospace has developed an aircraft service technician trade.

“If you can’t get more qualified AMEs, you have to free up their time by offloading all those elementary maintenance activities that they used to do,” explained Medve. “So, we formed this aircraft service technician trade; they have a logbook and go through a rigorous training program. They look after washing the plane, servicing the interiors, removals, towing the planes, etc. This frees up the AMEs’ time so they can do the very things they were trained to do. That has been hugely helpful, and we continue to develop that program.”

The final panel speaker was Bill McGoey, president of Aurora Jet Partners and Morningstar Air Express, based in Edmonton, Alta.

With about 250 employees in total, he said the company is doing well, with an attrition rate below 10 per cent.

“There are a few things we’ve done that have generated some really good feedback . . . For example, we have mandatory exit interviews. Employees moving on will tell you exactly why they’re leaving, and it may be an opportunity to fix something that isn’t right.

“Listening to your employees and truly knowing where their problems are is hard. We had 200 employees before we actually hired an HR professional – that was way too late. She has coordinated our employee survey.”

For the survey to be effective, Aurora found it has to be distributed in a culture of psychological safety.

“Disgruntled employees will speak up if they feel they are safe from retribution. Then, you have to share the survey results whether you like them or not. Thirdly, you have to respond to those areas of weakness.”

McGoey also schedules time with his staff to discuss areas needing improvement. This interaction improves trust and mutual respect.

“Retention does come before attraction,” he said. “From a grassroots perspective, we have to get better at attracting females and keeping the older generation longer. But if you already have happy employees, they are your best recruiters.”

Panel moderator Suzanne Kearns summed up the dire human resources need in global aviation and aerospace. She told the audience she had mapped out how many competent professionals would have to be produced every single day to meet industry demand.

“We would have to produce 67 pilots every single day; 14 air traffic controllers; and 141 maintenance engineers every day. The maintenance engineer shortage is the most critical of all the shortages and it should be given the respect and attention it deserves.

“All projections state that our global capacity to train people is less than this need,” she said. “So, we really need to start thinking hard about not just how we bring people in, but also about how we train them and retain them.”