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Ottawa, March 5, 1997
1997-018

Final Details of the Aviation Fuel Excise Tax Rebate Program 

Backgrounder

The Government today announced the final details of the Aviation Fuel Excise Tax Rebate Program that was originally announced on November 27, 1996.

The basic structure of the proposed program remains unchanged. For the next four years, airline companies carrying on business in Canada will be able to obtain a rebate of up to $20 million per year of federal excise taxes paid on their aviation fuel in exchange for giving up the right to claim losses against income subject to tax. However, airline companies will now be required to give up the right to ten dollars of their accumulated tax losses (that would otherwise be available to reduce federal and provincial taxes on future profits) for each dollar of excise tax rebate received, instead of fifteen dollars.

As well, companies will be allowed, at their discretion, to repay the excise tax rebates received and fully re-instate the losses they had previously exchanged. Under the initial proposal, companies would have been allowed to re-instate half of the losses that they had exchanged.

Finally, airline companies that re-instate their losses in future years will not be required to pay an associated interest charge on their repayment of the rebate for the period up to January 1, 2000. After that date, interest will be charged at the rate prescribed by Revenue Canada on unpaid taxes.

The modified program would operate as follows:

• On application by an airline company, the federal government would provide a rebate of excise taxes paid by the company on its aviation fuel.

• To qualify for this rebate, an airline company would have to exchange $10 of tax losses for each dollar of excise tax rebate received.

• The program would be in place for a period of four years and would provide an annual benefit of up to a maximum $20 million per company depending upon the amount of federal excise tax paid on aviation fuel used and the amount of losses that it is willing to exchange. Only non-capital losses would be eligible to be exchanged. A company would have to exchange $200 million of losses per year in order to receive the maximum annual benefit.

• The $20 million maximum annual benefit would apply to a related group of companies (i.e., the total benefits received by a related group could not exceed $20 million).

• The rebate payable in 1997 would apply in respect of excise taxes paid on aviation fuel from January 1, 1996 to December 31, 1996. Similar excise tax rebates would be available in the succeeding three years, again based on aviation fuel excise taxes paid in the previous year.

• Airline companies that make use of the rebate would, at their discretion, be able to subsequently re-instate all of the losses they had exchanged in a particular year provided they repay the associated excise tax rebate previously received, including the payment of interest at the rate prescribed by Revenue Canada on unpaid taxes. No interest will be payable in respect of repayments of excise tax rebates for the period prior to January 1, 2000, and re-instated losses would remain losses for the year in which they were originally incurred.

Legislation to implement the program will be introduced shortly in Parliament.

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