2016-0651841E5 Designated Airport Authorities

Principal Issues: Are Designated Airport Authorities exempt from tax under paragraph 81(1)(a)?

Position: Yes.

Reasons: A designated airport authority is exempt on its income earned from an "airport business" by virtue of paragraph 81(1)(a) of the Income Tax Act and section 8 of the Airport Transfer (Miscellaneous Matters) Act.

Author: Townsend, Ann
Section: 81(1)(a)

XXXXXXXXXX                                                                                                             2016-065184
                                                                                                                                     Ann Townsend
August 8, 2016

Dear XXXXXXXXXX:

Re:  Designated Airport Authority

This is in response to your email of June 2, 2016 requesting confirmation that a designated airport authority is exempt from tax under paragraph 81(1)(a) of the Income Tax Act.

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R76, Advance Income Tax Rulings and Technical Interpretations. Although we cannot comment on your specific situation, we are able to provide the following general comments that may be of assistance.

Paragraph 81(1)(a) of the Income Tax Act provides that amounts which are declared exempt from tax by virtue of another act of the Parliament of Canada, that are not otherwise exempted by virtue of a tax convention or agreement with another country, are not to be included in computing a taxpayer's income.

Subsection 8(1) of the Airport Transfer (Miscellaneous Matters) Act (the “Airport Act”) provides that no tax is payable under Part I of the Income Tax Act by a corporation or other body on that portion of its taxable income for the year that may reasonably be regarded as being derived from an airport business:

a) that is throughout the year a designated airport authority and no part of its income or capital became payable to or otherwise available for the personal benefit of, any member or shareholder of the corporation; and
b) all or substantially all of the gross revenue of the corporation, other than dividends received from a taxable Canadian corporation, in the year was derived from an airport business;

The expression “designated airport authority”, “taxation year” and “airport business” are defined under section 2 and subsection 8(4) of the Airport Act, respectively.

To qualify for exemption, the corporation must not only be a designated airport authority with no part of its income or capital available for the personal benefit of any member or shareholder of the corporation, but it also must derive substantially all (i.e. 90% or more) of its gross revenue (other than dividends received from a taxable Canadian corporation) from an airport business in each year for which it seeks exemption under section 8 of the Airport Act. Generally, an airport business is defined to mean the business of operating an airport and any activities incidental to that operation.  The definition does not include activities relating to the operation of a hotel, motel, restaurant, bar, retail or wholesale store, a motor vehicle rental or leasing service, a taxi or limousine service, a freight transportation service, an airline, an aircraft rental or leasing service, an aircraft fuelling or maintenance service, a currency exchange service or an amusement or entertainment centre or any prescribed activity.

Accordingly, no tax is payable on the taxable income from an airport business earned by a designated airport authority by virtue of paragraph 81(1)(a) of the Income Tax Act and section 8 of the Airport Act. However, a designated airport authority is subject to tax on income earned from other sources.

We trust our comments will be of assistance to you.

Yours truly,

Roger Filion, CPA, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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