International passenger air transportation service providers (in other words - airlines) operating flights between Canada and the rest of the world (subject to the taxation area described below) are generally not required to charge Canadian GST/HST on ticket sales.
Typically, passenger transportation services that include transportation by air is generally not subject to GST/HST when it is:
- provided to an individual or a group of individuals; and
- when the transportation service is part of a continuous journey of the individual or group where the origin or termination of the journey or any stopover during the journey is outside what is defined as the “taxation area” (i.e., Canada, the United States (except Hawaii) and the islands of St. Pierre and Miquelon).
Additionally, there would also be no GST/HST applicable if:
- The origin, termination of the continuous journey and all stopovers are outside Canada;
- The origin and termination of the continuous journey is within the taxation area, but outside Canada; or
- All places the individual or group embarks or disembarks an aircraft are outside Canada and the origin, termination of the continuous journey or any stopover is outside Canada.
As long as the ticket includes at least one origin, destination or stopover that is outside the taxation area, the Canada Revenue Agency (the “CRA”) will generally consider all passenger transportation services included in the ticket as being international services that are zero-rated for GST/HST purposes (i.e., taxed at the rate of zero per cent) and therefore, no GST/HST will apply to the sale of the ticket.
- A person purchases one return air ticket departing from Montreal to Tokyo with stopovers in Toronto and Vancouver for two days each. The ticket is zero-rated because there is an overseas destination. The stopovers in Canada do not affect the tax status of the passenger transportation service on a single ticket.
- A person buys a return air ticket with routing from Halifax to Paris. The supply of the flight is zero-rated because the continuous journey has a stopover in France, which is outside the taxation area.
What constitutes a continuous journey?
A continuous journey is the set of all passenger transportation services provided to the individual or group and for which:
- A single ticket or voucher in respect of all the services is issued; or
- Where two or more tickets or vouchers are issued in respect of two or more legs of a single journey of the individual or group on which there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, and all the tickets or vouchers are issued by the same supplier or by two or more suppliers through one agent acting on behalf of all the suppliers.
Depending on whether the tickets are supplied at the same time or at different times, the supplier or agent may have to either maintain or submit proof that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued.
What constitutes a stopover?
A stopover means any place at which the individual or group embarks or disembarks an aircraft used in the provision of a passenger transportation service included in the continuous journey, for any reason other than transferring to another aircraft or to allow for servicing or refuelling of the aircraft.
It is CRA’s administrative position that when a transfer to another aircraft is required to complete the continuous journey, a period of 24 hours will be considered reasonable to make this connection. If a longer stop is required, it is the responsibility of the supplier or travel agency to demonstrate that the length of the stop is for connection purposes only.
The GST/HST rules that govern passenger air transportation services can be very complex depending on the circumstances. While the above summary only provides a general overview of how these rules apply, it’s clear that international airlines operating in Canada should keep track of the relevant rules to ensure compliance with the GST/HST requirements.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.