C-GLKY, a de Havilland DHC-8-300 aircraft operated by Perimeter Aviation LP, was conducting flight PAG663 from Winnipeg/James Armstrong Richardson Intl (CYWG), MB to Sandy Lake (CZSJ), ON with 3 crew members and 28 passengers on board. Shortly after takeoff, the flight crew received a lavatory smoke alarm, followed by the smell of smoke. The flight crew decided to declare an emergency, and returned to CYWG where the aircraft landed without further incident
with ARFF responding.
An inspection of the aircraft revealed a leaking compressor seal of the right engine (Pratt & Whitney Canada PW123), that introduced oil into the engine bleed air system. The aircraft was removed from service, and the engine was replaced.