Welcome to our Aviation & Aerospace group's newsletter, which summarizes and analyzes key developments in the Canadian aviation industry.
IT IS ALL FRENCH TO ME
On May 24, 2022, Bill 96, An Act respecting French, the official and common language of Québec (Act), which amends the Charter of the French Language, was adopted by Quebec’s National Assembly. The Act aims to promote the French language and affirm its status as Quebec’s only official language by requiring the civil administration to use the French language and ensure its protection in an exemplary manner.
As noted in our Blakes Bulletin: Bill 96: Impacts on the Real Estate and Financial Services Sectors, the Act will affect how registrations with Quebec's register of personal and movable real rights, the Registre des droits personnels et réels mobiliers (RDPRM), may be made. As of September 1, 2022, all such new registrations must be prepared in the French language only.
Given that many foreign lessors and financiers with interests in Quebec will often contract in the English language, the Act will require a change in practice. Both Quebec debtors and their foreign lessors/financiers will need to find a practical solution to address the costs and the language barrier that results from the Act and the requirements that filings be made in the French language only. Some of the practical solutions include requesting a certified translation of the relevant filings or certain representations from the Quebec debtor.
Regardless of the approach taken, it is clear that there is a new path forward required when dealing with assets located in Quebec and lessors and financiers will need to take note going forward.
LUXURY CAN BE TAXING
In the spring of 2021, the Canadian federal government announced a proposed luxury tax on certain aircraft, vehicles and boats (the Luxury Tax). Much to the critics’ dismay, the Luxury Tax came into force on September 1, 2022, under the Select Luxury Items Tax Act (Canada) as part of the Budget Implementation Act, 2022, No.1 (Canada). The following is an overview of the Luxury Tax as it pertains to aviation.
The Luxury Tax applies to sales or leases of aircraft (airplanes, helicopters and gliders) priced or valued over C$100,000 and manufactured after 2018 that meet any of the following conditions (Specified Aircraft):
is equipped only with one or more pilot seats and cannot have any other seating configuration;
is equipped only with one or more pilot seats, or is not equipped with any seats, and cannot have a seating configuration of 40 seats or greater (excluding pilot seats); or
is equipped with one or more pilot seats and one or more passenger seats and has a seating configuration of 39 seats or fewer (excluding pilot seats).
A Specified Aircraft could be exempt from the Luxury Tax if (i) it is sold to a registered vendor (ii) it is designed for military activities, equipped for cargo only, or is registered with a government and the user has possession prior to September 2022, or (iii) 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. Further, if a Subject Aircraft was imported solely for maintenance, overhaul or repair and then immediately exported, then generally the Luxury Tax will not be applicable.
Calculation of Tax
The Luxury Tax is calculated as the lesser of:
20% of the total price or import value of the Specified Aircraft that is above C$100,000; and
10% of the sale price or import value of the Specified Aircraft.
Obligation to Pay
In general, it is the vendor or importer that is liable to pay the Luxury Tax. This differs from general sales taxes in which the purchaser is generally liable to pay, and the vendor is merely obligated to collect such tax. Nonetheless, the Luxury Tax is still generally passed on to the purchaser and itemized on an invoice as a pass-through cost. In order to process such Luxury Tax, the vendor/importer is required to be registered with the Canada Revenue Agency and, on a given applicable transaction, must apply for a “tax certificate” which then confirms that the Luxury Tax has been paid. This is an important piece of evidence given that the Luxury Tax only applies to a Specified Aircraft once – it does not reoccur upon subsequent sales. Notwithstanding the foregoing, if the sale was previously exempt by virtue of qualifying for an exempt activity, then, the Luxury Tax would be applicable on a subsequent sale to the extent that such future activity was not exempt.
Failure to Comply
An importer or vendor’s failure to make a return as required in respect of the Luxury Tax could render them liable on summary conviction to a fine of not less than C$2,000 and not more than C$40,000 or to imprisonment for a term not exceeding 12 months, or both.
Given the above is a new regime that will have economic and compliance impacts on vendors, purchasers, importers and financiers, the impacts on the luxury aircraft market are yet to be determined.
TO INFINITY AND BEYOND…THE VISUAL LINE-OF-SIGHT
The Canadian drone industry continues to rapidly evolve, in part, due to the impact of COVID-19. In January 2021, Stellat'en First Nation, the village of Fraser Lake and the University of British Columbia’s Faculty of Medicine announced a collaborative project to make medical services more accessible to rural areas during the pandemic. The project saw quick success with its first drone delivery performed by Drone Delivery Canada Corp. (DDC), which flew four kilometers to deliver health-care supplies from Fraser Lake to the nearby Indigenous community. During May 2022, DDC received a Special Flight Operations Certificate (SFOC) from Transport Canada for Beyond Visual Line of Sight (BVLOS) commercial drone delivery for this project. Now that DDC has obtained the SFOC, DDC will move to BVLOS operations within the project, which ultimately allows the company to execute deliveries at a longer range, more often, and without the need for the drone to be within the pilot’s visual line of sight throughout the flight. The SFOC for BVLOS operations will contribute to the continued success of the project and ultimately demonstrate the commercial viability of drone logistics in the Canadian healthcare market.
This SFOC is the first of its kind to be issued in Canada but not the last. Transport Canada has recently granted a suite of SFOCs for BVLOS operations. Earlier this year, Canadian UAVs secured a Canada-wide SFOC for the operation of its fleet of small remotely pilots aircraft systems (RPAS) to perform BVLOS operations anywhere in Canada in Class G airspace and up to 400 feet above ground level.
SFOC as a Catalyst for Innovation
Transport Canada will issue an SFOC for RPAS operations outside the rules for basic or advanced operations. For example, an SFOC is required when operating close to a military airport, when the RPAS weighs over 25 kilograms or for BVLOS operations. The purpose of the SFOC is to accommodate unusual and novel operations while allowing direct oversight by Transport Canada in the application and approval process. The SFOC is limited to a specific purpose, location and time. As operators envision new ways to utilize drones for commercial purposes, such as flying multiples drones at once, the SFOC balances the need to protect the public and our airspace while opening the door innovation.
As the use of RPAS for long distance flights continues to be tested and proven in the Canadian market, more operators will be asking the question: How do I obtain a SFOC for BVLOS operations?
Regulatory Requirements to Obtain a SFOC for BVLOS Operations
A BVLOS operation may only be conducted in the following locations:
Isolated areas, outside of concentrated population centers that are dispersed at a density of less than 0.1 persons per square kilometer;
Populated areas, outside of concentrated population centers that are dispersed at a density of less than five persons per square kilometer;
Atypical airspace such as Northern Domestic Airspace outside airports at or below 400 feet above ground level, restricted airspace with permission or 100 feet or less above any building or structure, less than 200 feet horizontally;
Uncontrolled Airspace (Class G airspace) where no air traffic control service is provided; or
More than five nautical miles from any aerodrome listed in the Canada Flight Supplement.
Prior to an SFOC for BVLOS operations being issued, the pilot must have obtained either a Basic Operations or an Advanced Operations certificated from Transport Canada. Then, the pilot must complete an Application for a Special Flight Operations Certificate (Application) and provide supporting documentation to Transport Canada. It may take up to 30 business days for Transport Canada to review and issue an SFOC for BVLOS for low-risk operations, and up 60 business days for complex operations.
RPAS are proving to be much more than a fancy way to have your pizza delivered. BVLOS operations can offer transportation solutions to reduce human risk in hazardous situations, perform search and rescue missions, enhance data collection and even deliver lifesaving medicine in a more timely and cost-efficient manner. When considering the rapid evolution of drone uses and regulatory frameworks, Buzz Lightyear’s famous catchphrase seems to be holding true.
PASSENGER PROTECTIONS AFTER COVID CHAOS
According to the Minister of Transport, the flight cancellations resulting from the COVID-19 pandemic on the Canadian aviation industry revealed a “gap” in Canada’s Air Passenger Protection Regulations (the APPRs): carriers were not required to compensate passengers for cancellations or lengthy delays due to situations outside of the carrier’s control, even when those external factors made it impossible for the carrier to ensure that the passenger completed their reservation within a reasonable time.
Though many passengers impacted by pandemic cancellations received refunds as a condition of such airlines accessing pandemic relief funding through the Federal Government’s Large Employer Emergency Financing Facility, new amendments to the APPRs came into force on September 8, 2022, with a view to permanently close this gap.
Under the new regulations, where there is a lengthy delay or cancellation for reasons outside of the carrier’s control, the carrier will be required to provide passengers with a confirmed reservation on the next available flight offered by the carrier or one of its partners. If the carrier is unable to rebook the passenger on a flight that leaves within 48 hours of the scheduled departure time of the original itinerary, passengers may choose from the following two potential remedies:
(1) A refund for the unused portion of the passenger’s tickets (including any unused add-on services), to be provided within 30 days using the passenger’s original payment method; or
(2) A rebooking of the travel (with comparable levels of service to the original booking) on the next available flight – including, for large carriers, flights offered by competitors – and refunds for unused add-on services and reductions in level of service.
Limited exceptions permit the carriers to offer alternative refund methods (e.g., vouchers) that do not expire with the written informed consent of passengers. For passengers selecting the refund option who are no longer at their point of origin, a flight back to the point of origin must also be provided, free of charge, in addition to the refund.
Like the rest of the APPRs, there are administrative monetary penalties for non-compliance.
To achieve its goal of “robust yet balanced” passenger protections, Transport Canada held repeated consultations with industry representatives, consumer advocates and other stakeholder groups. It also sought to use the amendments to bring the APPRs more in line with equivalent legislation in the United States and European Union, while being tailored to the unique realities of Canadian aviation. Whether the amendments live up to their promise of “balance” remains to be seen.