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Annex 7
The Air Travellers Security Charge

Introduction

In the December 2001 budget, the Government allocated $7.7 billion through 2006–07 for a comprehensive plan to enhance personal and economic security for Canadians. This amount included $2.2 billion to make air travel more secure in accordance with rigorous new national standards, including the creation of a new federal air security authority, the Canadian Air Transport Security Authority (CATSA).

To fund the enhanced air travel security system, the Air Travellers Security Charge (ATSC or the charge) was introduced, effective April 1, 2002. The charge was established at a level sufficient to fund the enhanced air travel security system through 2006–07. The Government committed to review the ATSC over time to ensure that revenue remains in line with costs for the enhanced air travel security system over a five-year period. The Government also requested that the Auditor General of Canada undertake an annual audit of revenue from the charge and expenses for the enhanced air travel security system through 2006–07.

Following up on its commitment to review the charge, the Government presented updated revenue and cost information in Budget 2003, reducing the charge on round-trip domestic air travel to $14 from $24—a reduction of more than 40 per cent. The second review of the charge followed in Budget 2004, with the Government proposing to reduce the charge by approximately 15 per cent—to $12 from $14 for round-trip domestic air travel, to $10 from $12 for transborder air travel and to $20 from $24 for other international air travel.

This budget sets out the third review of the charge. Based on updated revenue and cost information, and taking into account the first audit report from the Auditor General, the Government is proposing that, effective for tickets purchased on or after March 1, 2005, the charge be reduced as follows: for air travel within Canada, to $5 from $6 for one-way travel and to $10 from $12 for round-trip travel; for transborder air travel, to $8.50 from $10; and for other international air travel, to $17 from $20.

Revenue From the Charge

Reporting Practices

ATSC remittances are reported each month in The Fiscal Monitor, published by the Department of Finance. These monthly figures are the cash amounts remitted by air carriers in accordance with the legislative and administrative provisions of the charge.

On an annual basis, the Public Accounts of Canada provide detailed financial information for the Government of Canada, including revenue from the ATSC. The Public Accounts are traditionally tabled in the House of Commons each year in the fall, providing financial information for the previous fiscal year.

Finally, as noted above, the Auditor General performs an annual audit of revenue from the charge.

Amounts to Date

Budget 2004 included an amount of $430 million for ATSC revenue in 2002–03. This amount was based on the $421 million reported in the 2003 Public Accounts of Canada, plus an estimated $9 million for the goods and services tax/harmonized sales tax (GST/HST) attributable to the charge, representing the best available information at the time of Budget 2004.

The first report from the Auditor General, released on November 17, 2004, set out total ATSC revenue of $443 million for 2002–03. The $13-million difference is primarily attributable to the impact of late-filed remittances that were available for review at the time of audit, but not during the preparation of the 2003 Public Accounts. The difference between the $430 million set out in Budget 2004 and the audited figure of $443 million is available to reduce the charge.

ATSC revenue of $410 million for 2003–04 was reported in the 2004 Public Accounts tabled in the House of Commons on October 21, 2004. GST/HST amounts attributable to the charge are estimated at $8 million, while penalty and interest are estimated at $2 million, for a total of $420 million for 2003–04. This $420 million amount is greater than the $400 million that was set out in the Budget 2004 baseline—the difference of $20 million is available to reduce the charge.

Outlook for Air Passenger Traffic

The ATSC revenue forecast for future years is based on projections for the level of air passenger traffic. In December 2004, the Aviation Forecast Centre at Transport Canada delivered its updated forecast for annual growth of origin-destination passengers, as set out in Table A7.1. These figures represent the expected aggregate growth in air passenger traffic for domestic, transborder and other international air travel.

Table A7.1
Air Passenger Traffic Growth in Canada

The updated forecast for air passenger traffic is more robust than that used in Budget 2004. While growth in air passenger traffic was negative in 2003, the decline was less than previously forecast. The final quarter of 2003 saw air passenger traffic begin a recovery that carried strongly through 2004. As a result, growth in 2004 is expected to be almost twice the level that was previously forecast. Projected growth rates for 2005 through 2007 are now modestly lower than forecast last year, reflecting the much stronger than anticipated growth in 2004. The net effect of the revised forecast from Transport Canada is to increase the estimate of the total number of passengers over the period from 2003 to 2007 by more than 4 per cent.

Updated Revenue Forecast

ATSC revenue for 2004–05 through 2006–07 is forecast on the basis of the updated figures for growth in air passenger traffic from Transport Canada. The results are shown in Table A7.2 and are compared to the baseline revenue that was established following the rate reductions announced in Budget 2004.

Table A7.2
Revenue From the ATSC

The forecast for total revenue of $2.065 billion through 2006–07 is $110 million higher than the baseline of $1.955 billion that was established following the rate reductions announced in Budget 2004. The $110-million difference is available to reduce the charge.

Costs for the Enhanced Air Travel Security System

Budget 2001 established the estimated cost of the enhanced air travel security system at $2.189 billion through 2006–07. Adjustments undertaken in the previous two reviews, including the impact of lapsed operating funds and an adjustment for accrual accounting, reduced baseline costs to roughly $1.955 billion through 2006–07.

Costs are now being revised to reflect two additional items—the results of the first report from the Auditor General and the financial information from CATSA’s 2004 annual report. First, costs are being adjusted downward by $13 million to reflect lower costs for 2001–02 and 2002–03 at Transport Canada and the RCMP than factored into previous reviews. Secondly, costs are being adjusted downward by $32 million to reflect the lapse of operating funds in 2003–04 as set out in CATSA’s 2004 annual report. In total, baseline costs are being revised downward by $45 million, an amount that is available to reduce the charge.

Planning for the Long Term

The Government committed to review the charge over time to ensure that revenue remains in line with costs. Successive budgets have presented updated financial information for the period through 2006–07, as per the framework originally set out in Budget 2001.

Revenue estimates have been updated to reflect ATSC collections and revised Transport Canada forecasts for growth in air passenger traffic. Costs have been revised to reflect actual amounts to date and an adjustment for accrual accounting reflecting the operation of a mature air travel security system. This budget also includes adjustments to revenue and costs, taking into account the results of the first report from the Auditor General.

In Budget 2004, the Government indicated that it would adopt a rolling timeframe for review of the charge, so as to ensure an appropriate planning horizon to maintain revenue in line with costs. Accordingly, this review will take into account revenue and cost estimates for 2007–08. For that fiscal year revenue is forecast at $445 million, while the ongoing annual costs for the mature air travel security system are estimated at $400 million. The $45-million difference is available to reduce the charge.

Reducing the Charge

On the basis of the analysis provided above, the total amount available through 2007–08 to reduce the level of the charge is $200 million, as set out in Table A7.3.

The $200 million available to reduce the level of the charge allows for a reduction in the range of 15 per cent across the three categories of air travel—domestic, transborder and other international.

Table A7.3
Adjustments Through 2007–08
Recovery of Costs for the Enhanced Air Travel Security System

Accordingly, the Government proposes that the level of the charge be reduced as follows: for air travel within Canada, to $10 from $12 for round-trip travel and to $5 from $6 for one-way travel; for transborder air travel, to $8.50 from $10; and for other international air travel, to $17 from $20. The new rates are set out in Table A7.4.

Table A7.4
ATSC Rate Structure

The new rates preserve the simplicity of the charge, facilitate compliance and administration, and allow for the reduction to be implemented quickly and with minimal disruption. The Government proposes that the new rates apply to tickets purchased on or after March 1, 2005, as per the attached Notice of Ways and Means Motion.

Looking Forward

The Government will continue to review the charge over time to maintain revenue in line with costs for the enhanced air travel security system over a rolling five-year period. The Auditor General will continue to perform annual audits through 2006–07 and the results of these audits will be incorporated in future reviews.

Notice of Ways and Means Motion to Amend the Air Travellers Security Charge Act

Notice of Ways and Means Motion to Amend the Air Travellers Security Charge Act

That it is expedient to amend the Air Travellers Security Charge Act to provide among other things:

(1) That if an air transportation service is acquired in Canada, the amount of the Air Travellers Security Charge in respect of the service be reduced to:

(a) $4.67 for each chargeable emplanement included in the service, to a maximum of $9.35, if the service does not include transportation to a destination outside Canada and if tax under subsection 165(1) of the Excise Tax Act is required to be paid in respect of the service;

(b) $5.00 for each chargeable emplanement included in the service, to a maximum of $10.00, if the service does not include transportation to a destination outside Canada and if tax under subsection 165(1) of the Excise Tax Act is not required to be paid in respect of the service;

(c) $7.94 for each chargeable emplanement included in the service, to a maximum of $15.89, if the service includes transportation to a destination outside Canada and does not include transportation to a destination outside the continental zone and if tax under subsection 165(1) of the Excise Tax Act is required to be paid in respect of the service;

(d) $8.50 for each chargeable emplanement included in the service, to a maximum of $17.00, if the service includes transportation to a destination outside Canada and does not include transportation to a destination outside the continental zone and if tax under subsection 165(1) of the Excise Tax Act is not required to be paid in respect of the service;

(e) $17.00, if the service includes transportation to a destination outside the continental zone.

(2) That if an air transportation service is acquired outside Canada, the amount of the Air Travellers Security Charge in respect of the service be reduced to:

(a) $7.94 for each chargeable emplanement by an individual on an aircraft used to transport the individual to a destination outside Canada but within the continental zone, to a maximum of $15.89, if the service does not include transportation to a destination outside the continental zone and if tax under subsection 165(1) of the Excise Tax Act is required to be paid in respect of the service;

(b) $8.50 for each chargeable emplanement by an individual on an aircraft used to transport the individual to a destination outside Canada but within the continental zone, to a maximum of $17.00, if the service does not include transportation to a destination outside the continental zone and if tax under subsection 165(1) of the Excise Tax Act is not required to be paid in respect of the service;

(c) $17.00, if the service includes transportation to a destination outside the continental zone.

(3) That any enactment founded on paragraph (1) or (2) apply to air transportation services that include a chargeable emplanement on or after March 1, 2005 and for which consideration is paid or becomes payable on or after that date.

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