Frequent-flyer plans often allow members to donate points to charities. One charity that benefits is Hope Air, a provider of free flights to individuals who are in need of travel to obtain medical treatment but cannot afford travelling costs. The recipients’ average household income is below the poverty line, and many patients require cancer treatment or organ transplants. The charity has been in operation for almost 25 years and each year organizes about 2,500 flights.
Air travellers’ security charges
In 2007, Hope Air was at odds with the Minister of National Revenue over its claim for a refund of charges it paid under the Air Travellers Security Charge Act (the “Act”) between 2002 and 2007. It based its refund claim on an exception in the Act that says,
“No charge is payable in respect of an air transportation service that is acquired … by a registered charity from an air carrier for no consideration, if the service is donated by the charity to an individual for no consideration and in pursuit of its charitable purposes.”
Hope Air faced a bill of over $40,000 despite its charitable status, so it appealed the assessments to the Tax Court of Canada.
Form and routing of the donation
In general, Aeroplan members can donate or relinquish their points to approved registered charities or programs, including Air Canada’s charitable program Kids’ Horizons. Aeroplan began in 1984 as Air Canada’s points program, but by 2002 it had become a separate legal entity.
At the beginning of each year, Hope Air would meet with a Kids’ Horizons representative to request support based on the coming year’s expected needs. Air Canada then donated Aeroplan points and return-flight passes based on those discussions. On average, that amounted to about 3 million points and 100 passes annually.
As a given travel need arose, Hope Air determined whether it was more cost-efficient to use the flight passes or the points. The passes are redeemed with Air Canada directly, whereas Hope Air uses its account on the Aeroplan website to redeem points and purchase flights. The CRA’s assessments exempted the flight passes, but not the points.
Consideration paid?
The decision hinged on whether both transactions — donation of points to Hope Air and acquisition of air travel by Hope Air — were completed for no consideration. While the former transaction fulfilled the requirement, the judge determined that the acquisition of the flight via the Aeroplan website was an exchange for consideration.
Ironically, one of the cases relied upon to come to this decision was a claim by a taxpayer for a medical expense tax credit based on using Aeroplan points to fund a flight from Thunder Bay to Chicago for medical treatment. The assessment asserted that the points had no value, but the taxpayer successfully appealed on the basis that there was exchangeable value in that circumstance.
In the present case, the judge expressed that while Hope Air provides a valuable and essential service, it does not fall within the exclusion here. But he did suggest that the Crown could return the charges or remit the charges to Hope Air pursuant to provisions of the Financial Administration Act.
So maybe Hope is not lost after all.