Quebec Court Rejects (In Part) CRA's Published Guidance On The Valuation Of Travel Benefits On Private Corporate Aircraft

In Bitton,¹ the Court of Quebec—which hears tax appeals under Quebec's income tax legislation—issued what appears to be first reported decision on the Canada Revenue Agency (“CRA”)'s current published policy with respect to personal flights taken by shareholders or employees on corporate-owned aircraft. While it is uncontroversial that such flights may give rise to taxable benefits, the valuation of those benefits can vary greatly depending on the methodology used. To guide taxpayers, in March 2018, the CRA published its communiqué AD-18-01 “Taxable benefit for the personal use of an aircraft” (“AD-18-01”)² setting out what it considered to be the appropriate methodology to value personal flights taken on corporate aircraft. The CRA published AD-18-01 following an extensive consultation exercise with stakeholders to replace former guidance in Interpretation Bulletin IT-160R3, which had been cancelled on September 30, 2012 after having been in effect for over 30 years.

AD-18-01 sets out three “scenarios” to value personal flights, namely:

• Scenario 1, which applies when a person tags along for personal reasons on a flight which is otherwise made for business reasons. In such cases, “the value of the taxable benefit for the personal use would be equal to the highest priced ticket available in the marketplace for an equivalent commercial flight”.
• Scenario 2, which applies to personal flights taken on corporate aircraft which are primarily used for business purposes. In such cases, “the value of the taxable benefit would be equal to the price of the charter of an equivalent aircraft for an equivalent flight.”
• Scenario 3, which applies when a corporate aircraft is used primarily for personal purposes. In such cases, the value of the taxable benefit is essentially equal to a proportion of the aircraft's total operating costs as well as an “available-for-use amount” that “is equal to the original cost of the aircraft multiplied by an imputed monthly interest rate”.

In Bitton, a corporate aircraft was used primarily for business purposes and the taxpayer sought to rely on Scenarios 1 and 2 of AD-18-01 to value their personal flights; however, Revenu Quebec (“RQ”) urged the Court to reject AD-18-01 and, essentially, apply a variation of Scenario 3. The Court held that it was not bound by AD-18-01, but eventually chose to apply the methodology set out in Scenario 2 to all of the flights concerned. While the Court's rejection of Scenario 3 is a very welcome result, the decision leaves in its wake considerable uncertainty.

The Facts and Decision

The facts, which were not in dispute, were as follows:³

• The taxpayer was an individual who, with his family, operated a number of growing businesses operating in Canada, the US, Europe and Asia.
• A numbered company was incorporated for the purpose of acquiring an aircraft and leasing it to the taxpayer's businesses.
• The aircraft was not offered to provide charter flights to third parties.
• The aircraft was used primarily for the business of the related group of companies. The passengers on the flights were generally the taxpayer and various employees or officers. On some occasions, members of the taxpayer's family would tag along on the business flights for personal reasons.
• When the aircraft was not required for business purposes, the taxpayer and his brothers used it for personal flights; such personal flights amounted to no more than around 36% of the total flight-hours in any given taxation year.
• The taxpayer himself took approximately 20 hours and 39 hours of personal flights during the taxation years in issue; in some cases, he tagged along for personal reasons on a business flight, in other cases, he requisitioned the aircraft for his own purposes.
• The taxpayer reimbursed the Company for his personal flights for amounts based on Scenarios 1 and 2 of AD-18-01, depending on the particular flight.

RQ rejected the method set out in AD-18-01 on the basis that it is not bound by the administrative positions of the CRA and sought instead to calculate the taxable benefit on a case-by-case basis, in this instance based on multiplying the percentage of personal flights by the total fixed and variable operating costs of the aircraft, including fuel, maintenance, insurance and, notably, capital cost allowance (“CCA”)—the highly accelerated form of tax depreciation. RQ insisted that this approach “ensured equity between taxpayers” by relying on accounting data, such that it was “transparent, traceable and defensible”.⁴

The Court held, essentially, that:

• In circumstances when a member of the taxpayer's family tagged along on a business trip, using the price of a comparable commercial flight, even in first class, did not reflect the value received, given that a flight on a private plane was much quicker, allowed the passengers to avoid lines at a commercial airport, and provided additional comfort and privacy.⁵ Accordingly, Scenario 1 of AD-18-01 did not offer an appropriate methodology.
• On the other hand, the approach advocated by RQ would essentially amount to a codified standby charge analogous to that prescribed for automobiles. The Quebec legislature did not see fit to enact such a regime for aircraft, but rather it left the Court with the authority to value the benefit of the use of private aircraft.⁶
• On the particular facts of the case, the valuation of all flights should be done essentially using Scenario 2 (i.e., what it would cost to charter a comparable aircraft).
• To determine the comparable charter cost, the Court rejected the evidence of the president of an aircraft management company which indicated that the hourly charter rate of a comparable jet would fall in the range of US$4400 to US$4800, noting that this was a base price that did not include airport fees and crew costs.⁷ Rather, with little explanation, the Court applied a rate of US$6500 based on an accounting entry in the taxpayer's books and records, the nature of which was not explained.⁸

Takeaways

The decision provides a number of important takeaways:

1. The Court's rejection of RQ's theory that the valuation of a taxable benefit in connection with the personal use of corporate aircraft used primarily for business purposes should be based on a standby charge or otherwise proportionate to the value of owning and operating the aircraft, is extremely welcome and may have important implications for other cases involving alleged shareholder benefits.
2. Moreover, although not directly raised in this decision, the decision implicitly validates the position that the use of an aircraft entirely by related parties, without any third party charter use, does not detract from the position that the aircraft is nonetheless being put to a valid use for business purposes.
3. On the other hand, the Court's refusal to adopt the airline ticket valuation method set out in Scenario 1 of AD-18-01 is unfortunate, insofar as it has created an illogical situation where a business flight on which a passenger tags along for personal reasons is treated in exactly the same manner as if the passenger chartered the entire plane themselves. AD-18-01 aimed to reflect the fact that such flights present different concerns from a standpoint of fiscal policy which mandated that they be valued differently. This difference has now been obscured.
4. More fundamentally, the Court's refusal to follow AD-18-01 has created a divergence between the CRA and RQ, thus putting Quebec-based aircraft owners at a relative disadvantage as it creates a degree of uncertainty, as well as complexity in having to potentially value travel benefits differently in their federal and provincial returns.
5. Quebec-based owners of corporate aircraft would be well-advised to take care in reviewing the basis for the rate that they charge to use their corporate aircraft for non-business purposes.

The taxpayer has filed an appeal of the decision with the Quebec Court of Appeal. The case is one to watch.

Footnotes

1. Bitton v. Agence du revenu du Québec, 2026 QCCQ 312 (under appeal).

2. Canada Revenue Agency, “AD-18-01 Taxable benefit for the personal use of an aircraft” (2018-03-07).

3. Bitton, paragraphs 3, 14 and 46.

4. Bitton, paragraph 20 (translation of author).

5. Bitton, paragraphs 51-53.

6. Bitton, paragraphs 54-57. The applicable provisions can be found at section 41 et seq of Québec's Taxation Act, corresponding to paragraphs 6(1)(c), (k) and (l) of the federal Income Tax Act.

7. Bitton, paragraphs 51, 63, 65.

8. Bitton, paragraphs 64, 66.

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