Earlier this week, the Trudeau government released its first budget in two years, promising over $100 billion in new spending intended to help promote Canada’s economic recovery from the COVID-19 pandemic. Among the measures proposed in Budget 2021 are a number of spending commitments and regulatory amendments that could have significant potential impacts on Canadian and non-resident businesses engaged in international trade.
Improving Duty/Tax Collection on Imported Goods
Budget 2021 proposes changes to the Customs Act to improve duty and tax collection while ensuring that goods are valued in a fair and consistent manner by all importers.
The government is taking aim at closing a loophole that currently enables some multinationals to value their goods at a lower price than most Canadian importers by using a “previous foreign sale price.” Proposed amendments to the Customs Act and related regulations would instead require that all importers value their goods using “the price in the last sale for export to a purchaser in Canada.”
Specific details of the proposed amendments were not included with Budget 2021, so companies that will most likely be affected, such as affiliates of foreign companies and foreign companies acting as non-resident importers, should closely monitor developments in the coming months to prepare for consequences of the change(s) when it comes to how their import transactions may need to be restructured in future.
Modernizing Customs Procedures & Voluntary Disclosures
As part of ongoing efforts to digitize payment of duty and tax and reduce administrative burden, the government says that it intends to support “a broad modernization of payment processes for commercial importers” featuring “a streamlined and harmonized billing cycle… that will include flexibility to make good-faith corrections without incurring penalties or interest.”
These changes, which will require amendments to the Customs Act, are meant to coincide with the implementation of key functionalities of the CBSA Assessment and Revenue Management initiative that is poised to serve as a single portal for commercial importers in the near future.
In respect of concerns that perceived shortcomings in the current transfer pricing rules (likely arising out of this legal defeat) can encourage the inappropriate shifting of corporate income out of Canada, the government proposes in Budget 2021 to consult with stakeholders on potential ways of addressing the issue.
The Department of Finance is expected to be releasing a transfer pricing consultation paper “in the coming months” on which stakeholders, including multinational enterprises and their Canadian affiliates, will be invited to comment.
Strengthening Canada’s Trade Remedy System
The government says it also intends to launch public consultations on measures to strengthen Canada’s trade remedy system, in particular by improving access for workers and small and medium-sized enterprises.
While some federal resources are currently available to support domestic producers who wish to bring a trade remedy complaint, assistance is limited and the process remains a highly technical, labour-intensive, and expensive undertaking for most SMEs.
No legislative amendments to the Special Import Measures Act and the Canadian International Trade Tribunal Act have yet been proposed, however.
Administration of Trade Controls
Budget 2021 proposes to provide $38.2 million over five years, starting in 2021–22, and $7.9 million per year ongoing, to Global Affairs Canada, as additional resourcing to support Canada’s import and export trade controls regime.
Better Supports for Exporters
Budget 2021 announces the government’s intention to work with Export Development Canada to enhance supports to small and medium-sized exporters and to strengthen human rights considerations in export supports. To facilitate these initiatives, the government may propose amendments to the Export Development Act.
GST/HST Registration for NRI E-Commerce Vendors
Following its announcement last Fall and subsequent public feedback, the government proposes that distribution platform operators be required to register under the normal GST/HST rules and to collect and remit GST/HST in respect of sales of goods shipped from a fulfillment warehouse or another place in Canada, when those sales are made by non-registered vendors through distribution platforms.
Non-resident importer e-commerce vendors that make sales on their own (i.e., not made through a distribution platform) to Canadian customers with an expected value exceeding C$30,000 per year, would also be required to register under the normal GST/HST rules and to collect and remit GST/HST on the sales of goods shipped from a fulfillment warehouse or another place in Canada.
CUSMA/UMCA Panel Selection
Budget 2021 proposes to further clarify the selection process for trade remedy dispute panels under the Canada-United States-Mexico Agreement Implementation Act. Annex 10-B.1 of the agreement sets out procedures for the creation of these dispute panels.
Border Carbon Adjustments
The government intends to launch a consultation process on border carbon adjustments in the coming weeks. This consultation process will begin in the summer with targeted discussions, including with provinces and territories, importers, and exporters—especially those who deal in emissions-intensive goods. The broader public will be engaged this fall. Throughout this process, the government intends to continue its international engagement with like-minded partners.
Excise Tax Collection on Tobacco and Vaping Products
Budget 2021 announces the federal government’s intention to introduce a “new taxation framework” to impose excise duties on vaping products that would start in 2022 if the budget is passed.
Tax on Select Luxury Goods
The budget proposes to introduce a tax on sales, for personal use, of luxury cars and personal aircraft with a retail sales price over $100,000, and boats, for personal use, over $250,000. The tax would be calculated at the lesser of:
- 20% of the value above the threshold (i.e. $100,000 for cars and personal aircraft, $250,000 for boats), or
- 10% of the full value of the luxury car, boat, or personal aircraft
In the case of imports, application of the tax would generally be either at the time of importation (in cases where there will not be a further sale of the goods in Canada) or at the time of the final point of purchase in Canada following importation.