After practicing corporate tax law for more than 25 years, one particular audit stands out for Steven Sitcoff. In 2010, he worked on an aircraft acquisition structure for a client.
“When that client later came under audit by the Canada Revenue Agency, I realized there was an underserved market for taxation specialists who have a real understanding of business aviation,” says the Montreal and Toronto-based partner with McMillan LLP.
Sitcoff began by visiting jet assembly facilities, attending trade shows and consulting industry experts.
“One mentor told me, ‘We know you understand the tax side of things. Get to understand the aviation side, and the clients will follow.’ That’s really what set me down the path.” Today, he speaks at conferences, gives webinars, writes on tax-related matters for aircraft owners and helps clients optimize ownership while managing risks.
Sitcoff also took the lead in advocating for the business aviation industry after the federal luxury tax on aircraft was announced in 2021.
“The tax has already impacted aircraft sales in Canada, with many buyers having deferred or canceled acquisitions,” Sitcoff says. “But with proper planning, it’s possible to mitigate its impact.”
Another challenge has been the CRA’s audit program for corporate aircraft, which has led to increasing scrutiny since 2015.
“Auditors often lack experience with private aircraft, and they’ve become more aggressive,” Sitcoff says. “Poorly handled audits can expand into broader investigations, making strategic management of audits essential.”
Meanwhile, McMillan’s aviation law practice has grown to become one of the largest in Canada, with specialists in tax, financing, regulatory issues, corporate, competition law and litigation.
Here, Sitcoff offers tips for wealthy Canadians considering aircraft ownership.
Understand your needs first
Finding an aircraft that aligns with a client’s needs—or their “mission,” as the business aviation industry tends to call it—is Sitcoff’s top priority.
“For example, while a large transcontinental jet might seem appealing, it is impractical and unnecessarily costly if most of the client’s flights are short-haul. A lack of alignment between the aircraft and the client’s actual needs can lead to regret. In some cases, the best solution might be acquiring multiple aircraft tailored to different types of travel.”
Sitcoff favours a bespoke approach to determining the ownership structures that best address clients’ operational, legal and tax needs.
“There is no ‘one size fits all,’ so as a starting point it’s crucial for me to get an understanding of the client’s goals and concerns,” he says. “How do they intend to use their aircraft? Is it mostly for personal use? Will there be any business use? Are they considering making it available for charter by third parties? What are the particular tax implications of the intended use, and are there any steps that should be taken before the acquisition?”
Prioritize business over luxury
Private jets are often perceived as luxury items, when in fact they are vital business tools for many high-net-worth individuals and companies, Sitcoff says.
“While the cost of private aircraft may be high, this is largely due to the sophisticated engineering and government-mandated safety equipment designed to ensure safe travel. Given the challenges of commercial air travel in Canada, especially for businesses outside major airline hubs, private aircraft can be a practical necessity rather than a luxury.”
Enlist legal counsel
Soon after starting his business aviation journey, Sitcoff discovered that many buyers lacked specialized legal counsel.
“I’ve found that aircraft purchasers have become increasingly hands-on, especially with the growing involvement of family offices, but they often don’t know how to optimize or delegate operational, legal and tax structures.
“I’ve seen aircraft held in operating companies or mixed with other assets, both of which are generally inadvisable. Without proper planning, clients can face costly legal exposure that might be remedied with a proper review of existing structures.”
Mitigate risk
Aircraft ownership can expose clients to significant liability risks, Sitcoff says, adding that relying solely on insurance may not be enough.
“Since many Canadian aircraft owners frequently fly in and out of the U.S., where litigation risks are much higher, it’s critical to establish an ownership structure that protects clients from unnecessary exposure to costly legal battles.”
Prepare for a tax audit
Aircraft owners need to manage the risk of audits and ensure compliance with tax laws.
“I always advise clients to expect a tax audit at some point and to have all necessary arrangements and documentation in place from the very beginning. If clients already have a structure in place, they should have it reviewed for potential areas of exposure, because finding out they’re out of line with CRA policy during an audit is the worst possible time.”
Handle taxes with care
Many clients mistakenly believe that acquiring an aircraft through a corporation automatically guarantees the recovery of sales tax incurred on the purchase and operation of the aircraft.
“In reality, proper planning and analysis are necessary to ensure sales tax recovery, and clients must be aware that filing a claim for a sales tax refund will often trigger a desk audit,” Sitcoff says. “These audits must be carefully managed to prevent unintended consequences and ensure proper compliance.”
Likewise, some clients hastily pursue ill-advised schemes to avoid the luxury tax, while others prematurely assume that it applies to their situation without understanding the details.
“In my experience, the luxury tax can often be managed in a compliant manner, but it requires a thorough review—there are no shortcuts. Rushing into decisions without proper advice can lead to unnecessary complications or penalties.”
Avoid emotional decisions
Acquiring aircraft is often an emotionally charged experience for wealthy individuals, Sitcoff says. “It’s a real treat to see how excited clients become during the delivery of their new aircraft,” he says.
Advisors, however, need to balance sensitivity to the client’s emotions with an objective view. This sometimes means advising clients to walk away from a deal if it doesn’t serve their best interests, despite the emotional pull.
“While I work closely with brokers, operators and lenders, clients appreciate that I can provide them with impartial feedback regarding deal terms, financing terms and management agreements, knowing that I have no vested interest in steering them in any particular direction.”
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