Welcome to our Aviation & Aerospace group’s first newsletter of 2022, which summarizes and analyzes key developments in the Canadian aviation industry.
RUNNING OUT OF RUNWAY
Due to inclement weather conditions, an airliner attempting a landing at Toronto Pearson Airport’s Runway 24L in August of 2005, rolled past the end of the runway, tumbled down an unpaved area, and abruptly came to rest in a ravine. As a result of its investigation into incidents such as this, in 2007, the Transportation Safety Board of Canada (TSB) recommended that all Code 4 runways have a 300-meter runway end safety area (RESA) or a means of stopping aircraft that provides an equivalent level of safety.
RESAs are compact, level and obstacle-free areas located beyond each end of a runway. At the time of the 2005 incident, Runway 24L was compliant with the requirements of Transport Canada Aviation (TCA) by virtue of a 60-meter strip located beyond the end of the runway. However, this minima was lower than the International Civil Aviation Organization’s (ICAO) standard of 150 meters. TCA and the TSB subsequently exchanged responses and comments to the recommendation, which included, among other things, discussions on various regulatory approaches and cost-benefit analyses.
In March of 2020, after much consultation, TCA published proposed amendments to the Canadian Aviation Regulations (CARs) to address, among other things, the requirement for RESAs. TSB acknowledged that the proposed amendments focused only on the risk to a majority of, but not all, passengers and do not consider non-passenger air traffic or the terrain at the end of all runways. Also, TSB noted that the proposed amendments may not fully meet the ICAO standard, which requires a 150 m RESA for all runways 1200 m in length and longer, and provisions for other types of runways.
As a result of further consultations, on January 5, 2022, the amendments to the CARs came into effect with some variation from that which was proposed in 2020. The amendments require certain Canadian-certified aerodromes to (i) increase the size of the safety area outside the runway to a minimum length of 150 m at the ends of runways that serve scheduled commercial passenger-carrying flights, (ii) adjust the runway’s declared distances, (iii) install an Engineered Material Arresting System or (iv) use a combination of increasing the runway safety area outside the runway and adjusting the runway’s declared distances. Canadian airports with an annual passenger threshold of at least 325 000 for two consecutive years will be subject to the amendments. Upon meeting the required threshold, airport operators must then comply with the amendments within three (3) years.
Time will tell if these amendments will go the distance!
THE COST OF LUXURY
On April 19, 2021, the Canadian federal government announced a proposed luxury tax on certain aircraft, cars and boats (the Proposed Luxury Tax). The Proposed Luxury Tax has not yet come into force but the legislation setting out its details is expected to be released in early 2022. The following is an overview of the Proposed Luxury Tax:
The Proposed Luxury Tax would apply to aircraft (airplanes, helicopters and gliders) that meet the following conditions (Specified Aircraft):
manufactured after 2018;
total price (including charges and fees, but excluding applicable GST/HST or provincial sales tax) upon delivery or total value (as determined for the purposes of calculating GST/HST on imported goods) upon importation into Canada exceeding C$100,000; and
certified maximum carrying capacity of less than 40 seats.
A Specified Aircraft could still be exempt from the Proposed Luxury Tax if (i) it has been acquired by a “qualifying user” such as police or fire departments, hospitals, municipalities, Indigenous governing bodies and Crown entities, or (ii) if the purchaser or importer certifies that “all or substantially all” of the aircraft’s use will be a “qualifying exempt activity”, which includes commercial passenger service to the general public, flights to and from remote, fly-in communities, cargo flights, air ambulance service, aerial fire-fighting service, flight training service and certain other specified aerial services. Any future sales to non-“qualifying users” and for uses other than “qualifying exempt activities” would be subject to the Proposed Luxury Tax.
Application and Calculation of Tax
If the proposed legislation passes into law, the Proposed Luxury Tax would apply to the delivery or importation of any Specified Aircraft in Canada on or after January 1, 2022, except for deliveries or importations that were agreed to in writing prior to April 20, 2021.
Owners or importers would also be required to self-assess and remit the Proposed Luxury Tax if modifications (other than accessibility modifications) are made to aircraft within 12 months of delivery or importation where the total price paid for such modifications exceeds C$5,000 and the cost of such modification plus the total price or total value, as applicable, exceeds C$100,000.
The Proposed Luxury Tax is calculated as the lesser of:
20 per cent of the total price or import value of the Specified Aircraft that is above C$100,000; and
10 per cent of the sale price or import value of the Specified Aircraft.
For deliveries in Canada, in most situations, the registered vendor that delivers the Specified Aircraft would be responsible for withholding and remitting the Proposed Luxury Tax to the Canada Revenue Agency. For importations of Specified Aircraft by non-registered importers, the Proposed Luxury Tax would be payable at the border to the Canada Border Services Agency by such non-registered importer at the time of importation. Exports of Specified Aircraft are not subject to the Proposed Luxury Tax.
The Proposed Luxury Tax would not apply to leases of Specified Aircraft in Canada, since leasing an aircraft is not considered a delivery for the purposes of the Proposed Luxury Tax regime.
Stakeholders and interested members of the public were asked to provide feedback to the Department of Finance during a public engagement process that ran from August 10, 2021 to December 2, 2021. We will provide an update should this legislation come into effect.
COVID-19 IMPLICATIONS ON AIR TRAVELLERS
The surge of Omicron commencing at the end of 2021 brought a renewed sense of confusion for passengers transiting from, through or to Canadian airports. As such, Transport Canada released updated guidance on January 17, 2022. The following is a brief update on the major focus of the guidance:
Regardless of vaccination status, all travellers aged six and over must wear a mask of multiple layers on their entire travel journey. Failure to wear a mask could result in a fine for the traveller of C$5,000. There are certain exceptions to the mask mandate: a medical certificate indicating the traveller is unable to wear a mask, while eating, drinking or taking oral medications, though travellers are encouraged to finish such consumption within a period of no more than 15 minutes, and when an air operator official or other Canadian governmental official requests the removal for identification purposes.
As of January 15, 2022, all flight crews operating on foreign carriers are now required to be fully vaccinated in order to come to Canada.
As those who have travelled within the last two years will attest, there is usually some anxiety about the timing the “return to Canada” COVID-19 test. Travellers must have had a COVID-19 molecular test obtained within 72 hours of the traveller’s scheduled departure time to Canada. If the result of such test is positive, then, it must be dated at least 10 days, a decrease from the previously required 14 days, before but not more than 180 days prior to the traveller’s scheduled departure time to Canada. If the test result is negative, then it must be dated within 72 hours of the traveller’s scheduled departure time to Canada. If such flight is delayed, where such delay is not within the control of the traveller, then the negative COVID-19 molecular test result is now valid for up to an additional 24 hours.
In order to board a flight to Canada, within 72 hours of their flight, with limited exemptions, all travellers must digitally submit their travel information, travel history, contact information, suitable quarantine plan and proof of vaccination using ArriveCAN, via the mobile app or through Canada.ca/ArriveCAN. If a Canadian citizen or permanent resident of Canada fails to use ArriveCAN, then they are still permitted to board their flight and enter Canada, however, they could face a fine upon arrival. Foreign nationals who are travelling to Canada for discretionary travel will be prohibited from boarding their flight to Canada unless they use ArriveCan (or meet an exemption).
THE GROWING TEAM
As part of our commitment to the long-term success of our clients and the growth of our Aviation & Aerospace group, Jason MacIntyre was appointed as the Chair effective January 1, 2022. Outgoing Chair, Donald Gray, has successfully led the group for more than 12 years and will continue to support Jason, the practice and our many clients until his scheduled retirement from the Firm on December 31, 2022.
The Aviation & Aerospace group also welcomes Eric Goneau. Eric joined Blakes as a summer student in 2019 and completed his articles with the Firm in 2020/2021, where he focused on aviation regulatory and air finance law. Before joining Blakes, Eric worked at a major Canadian bank. Eric is a strong addition to the team and has hit the ground running.
CANADIAN AVIATION INDUSTRY AND COVID-19 RELATED UPDATES
Canadian airlines’ response to Omicron: In the first days of 2022, many Canadian airlines began responding to the surge of Omicron cases by reducing their flight schedules.
5G Wireless Technology Rollout: On January 19, 2022, major U.S. telecommunication companies announced last-minute delays to the scheduled rollout of new 5G wireless technology near airports. The concern was regarding the new C-band 5G service, which operates in a frequency range that could interfere with an aircraft’s radio altimeter. As of January 19, 2022, Air Canada, WestJet Airlines Inc. and Air Transat reported that no flights to the U.S. had been cancelled due to the issue.
NAV CANADA: On January 12, 2022, NAV CANADA announced that in the first quarter of fiscal 2022, the company saw air traffic levels, as measured in weighted charging units, increase 68.7 per cent on a year over year basis. NAV CANADA’s revenue for the first quarter of fiscal 2022 was C$345-million, compared to C$202-million over the same period in fiscal 2021. However, in comparison to the same period in fiscal 2019 (prior to the COVID-19 pandemic), weighted charging units were 30.1 per cent lower.
Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.
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