Canada is infamous for having some of the most expensive flight prices in the world. There are a few factors that contribute to these high prices, including multiple types of taxes on Canadian airline tickets. Consumers should understand the taxes that are included in these airfares and how they can drastically raise the price of a flight. In some cases, Canadian airfare taxes may be recoverable for individuals traveling through Canada. You can learn more about Canadian airfare taxes and other tax concerns by speaking with one of the experienced Canadian tax attorneys at Jeremy Scott Law: contact us today at (902) 403-7201.
Canadian airline taxes include the Goods and Services Tax (GST) and Harmonized Sales Tax (HST). The GST is Canada’s federal sales tax, which is applicable to most goods and services sold in Canada. Presently, the federal GST rate in Canada is 5 percent. HST is a combination of the federal GST and a province’s provincial tax rate (where the province has opted into the harmonized tax system). The HST rate includes the 5 percent GST plus the local, provincial tax rate, which is typically between 8 and 10 percent. As such the total combined HST rate (inclusive of both the federal and provincial portions) is currently 13 or 15 percent. When buying airline tickets the rates for these taxes are based on the city of origin for the flight. For example, a flight from Vancouver to Toronto includes British Columbia’s 5% GST tax (the federal rate), while the reverse flight from Toronto to Vancouver would be taxed at Ontario’s 13% HST rate.
But sales taxes are not the only taxes assessed on Canadian flights:
- Canadian flights also include an airport improvement fee, which varies by destination – in some airports in Ontario, departing passengers pay $30, while those flying out of Vancouver pay $25.
- Flights in all Canadian provinces include an Air Travelers Security Charge of $7.12 for domestic flights, $12.10 for transborder flights departing from Canada, and $12.71 for transborder flights arriving from the United States.
- United States Transportation Taxes are applied to all transborder flights. Canadian citizens pay a flare rate of $19.70 per passenger, while United States citizens are charged 7.5% of the base fare, including surcharges.
Canadians who fly to and/or from the United States will also be subject to certain U.S. government fees, such as the United States Customs Processing Fee and Segment Tax.
Canadian airfare taxes are listed as two-letter abbreviations on airline tickets. These most commonly applied taxes on Canadian airfare tickets include:
- CA – Canadian Government Security Surcharge
- RC – Harmonized Sales Tax (HST)
- SQ – Airport Improvement Fee
- XG – Good and Service Tax (GST)
- XQ – Quebec Sales Tax (QST)
- ZP – Flight Segment Tax
Taxes are especially relevant to business travelers. The Canada Revenue Agency (CRA) allows businesses that are registered for GST purposes to recover any GST/HST they incur in the course of the commercial activity. These registrants must charge and collect GST/HST on all taxable supplies and regularly report these taxes on GST/HST returns. Most services and property either sold or imported into Canada are subject to GST/HST.
The CRA permits businesses to recover the amount of GST/HST they spent on business purchases during the tax year. The taxes paid on these allowable business expenses are known as input tax credits (ITCs). Businesses claim these tax credits by subtracting their total input tax credits from the total GST/HST the business collected from their customers when they complete a GST/HST return. Travel-related expenses like airfare, hotels, and car rentals may all qualify as allowable business expenses. Businesses should keep track of GST/HST taxes paid on airfare and all other travel expenses, as they may be recoverable when filing GST/HST returns. However, consumers who are not flying for business generally do not qualify to recover airfare taxes in Canada. If you have questions about recovering air travel taxes as a business, you can learn more by contacting the experienced Canadian tax lawyers at Jeremy Scott Law.
Businesses that regularly have employees or executives travel for business-related purposes should maintain thorough documentation, which can allow them to recover GST/HST taxes paid for flights. In order to properly claim Input tax credits, businesses must maintain adequate documentation such as invoices or service contracts. This documentation may be requested by the CRA during a routine audit. Airlines can provide these invoices to companies upon request.
Taxes on the air transport sector account for a significant amount of revenue for both the federal Canadian government and provincial governments. These taxes apply to both consumers and the commercial side of the Canadian air transport industry. Fuel is taxed at both the federal and provincial levels. The federal excise tax on aviation fuel is set at 4 cents per litre, while provincial fuel taxes can be anywhere from 3 cents to over 11 cents per liter.
Prior to the Covid-19 pandemic, provincial and federal sales taxes like the GST/HST account for almost $300 million per year, according to a study by the independent public policy think tank Ideas for a More Prosperous Society (MEI). The same MEI study estimates that the total revenue all levels of the Canadian government collect in taxes, fees, and rent (from both consumers and businesses) is at least $1.5 billion per year.
Whether you have taxes related to taxes on Canadian airline tickets or another tax matter, the team of dedicated tax attorneys at Jeremy Scott Law is ready to help. We provide our clients with legal guidance on a wide range of tax matters, both for businesses and individuals. We can help your business calculate all ICTs and ensure that you are not overpaying your GST/HST or other taxes. Get in touch with Jeremy Scott Law today at (902) 403-7201 for more information on airfare tickets and other tax concerns.