Companies with policies about personal use of their aircraft often fall into two categories, those that offer this benefit and those that do not.
Those that offer it do so for various reasons. They may believe the incremental cost to add another passenger to a business trip is very little when compared to the fixed costs of the aircraft that are already in place. It’s often viewed as a useful benefit for company leadership. Companies that do not offer personal use are often publicly owned and may wish to avoid the necessary burden of tax paperwork.
Ryan DeMoor, CAM, head of aviation tax at MySky, said some clients have told him, “They don’t want to be involved with personal use of the airplane because the optics are terrible.” DeMoor said these companies often worry that an unscrupulous person might use a personal use policy against them in the news media or a proxy fight.
Aircraft use policies that are open to all employees are rare. A typical policy allows senior employees such as the CEO, CFO and the COO, to use company aircraft for personal travel, often bringing along family members. This benefit is often written into the compensation package executives are given before they hire on, typically with limits like 20-25 hours in a given year.
“There’s an imputed income to the employee on aircraft use, but in the end, it is still less expensive than a charter.”
Ryan DeMoor CAM, Head of Aviation Tax, MySky
DeMoor’s job includes coaching companies on best practices surrounding personal use of business aircraft and any associated tax restrictions. “There’s an imputed income to the employee on aircraft use,” DeMoor said, “but in the end, it is still less expensive than a charter.”
Eric Canup, who heads flight operations at an East Coast bank, said his company allows “a handful of senior executives to receive a set number of hours of personal aircraft use per year and can direct the use of the airplane. There is a second level in which anybody who works for the company can hop aboard if there’s an empty seat, including a spouse or their dependents.”
Canup said his company views personal aircraft use as part of the benefits package. “Employees who occupy a seat for personal use incur imputed income based on the IRS’s Standard Industry Fare Level (SIFL) and are taxed accordingly,” he said.
Four Important Elements
According to DeMoor, the key is to have a policy in writing that includes four important elements to ensure it’s honest, transparent and practical.
- “The company should understand what they want to give and who it is – and is not – making the aircraft available to,” DeMoor said. This avoids potentially uncomfortable discussions, such as an executive’s spouse who calls asking for a lift that’s outside the policy.
- “Next is deciding whether there will be reimbursement to the company for any part of the flight,” DeMoor said.
- “The policy must outline who will have priority over someone else when more than one person wants the airplane.”
- Finally, DeMoor said it’s critical to “stick to the plan. If you don’t, any use policy is meaningless.”