Tax & Trade Blog

Export Controls Overview

Canada’s “export control laws” under the Import and Export Permits Act place “controls” on the export of certain sensitive goods, technology and data. This ranges from basic goods of economic interest, to military, nuclear and strategic goods (famously described as “sharp and pointy things that go bang”). Underlying technology, information and know-how are also controlled as are “dual-use” goods. 

Goods subject to export control are set out in Canada’s Export Control List (ECL), which requires experience to apply. This is magnified by the complexity of the fact that:  (1) all U.S.- origin goods and technology are controlled (because of Canada’s bilateral commitments), and (2) all goods are controlled when sent to countries on the Area Control List (ACL).

Justice John Owen of the Tax Court of Canada has rendered one of the most important and potentially far-reaching decisions in 33 years of GST.  While Fiera Foods Company v. The King, 2023 TCC 140 is about some other things, the Tax Court’s keen observations about GST “Information Requirements” is its most important part:  they require sufficient evidence to be obtained prior to claiming input tax credits (“ITCs”), but do not specify or require the “form” of that evidence.

While the government of Canada appears focused on the political hot potato that is our residential housing industry, announcing new rules for rental houses are coming,  the CRA is headed in the other direction, apparently targeting residential home-owners that have recently sold their homes, on the basis that the degree to which they fixed them up prior to sale caused the homes to become “new homes” and subject to full GST/HST on their fair market value.

As discussed here and here, Canada has one of the most protectionist agricultural product sectors in the world. Indeed, we have import restrictions and incredibly high tariffs on many basic groceries like cheese, eggs and poultry – all leading to fuel inflation in Canada today, and continuing disputes with countries like the US and New Zealand over our protectionist approach.

This affects consumer and commercial importers of these products, with our current government enforcing import restrictions through tariff rate quotas (“TRQs”).

When you are a boutique Canadian law firm practising in a niche area like Indirect Tax, Customs and International Trade, AND you get multiple inquiries from multiple clients with the same problem, you KNOW something is up!

We have been getting a lot of recent inquiries about machinery being seized or held up at the Canadian border on the basis that it is “tobacco manufacturing equipment”.

As a boutique Canadian law firm practising in a niche area (we focus on Indirect Tax, Customs and International Trade matters) we often get inquiries from small businesses and even travellers seeking to appeal various tax assessments, customs infractions, seizures and the like.

The most basic question we are asked is “how can I appeal this?”.

Another question that we are often asked is what the CRA means by the term “carousel scheme”.  It is a great question, because the CRA does not define its position on that phrase anywhere, other than in private assessment documents that it sometimes provides to GST registered persons on the wrong end of the CRA’s Notices of Assessment powers.

According to the CRA, and in its simplest form:

We are often asked about “accommodation invoices”, and what the CRA is talking about when speaking about these types of invoices.

This is predominantly a term that is used in the GST context but is not defined anywhere in the Excise Tax Act (i.e., the GST legislation) or relatively speaking anywhere in any published CRA administrative document.

But CRA does disclose what it means by “Accommodation Invoices” when it comes time to assess wary taxpayers:

A common misconception when it comes to oil and gas trading with Canada is that, for GST/HST purposes, there will never be any obligations on foreign sellers selling on a DAP basis.* This is not true, and there can indeed by GST/HST collection and remittance obligations on US and international sellers, if certain conditions are met.

To understand why these misconceptions exist, one needs a deeper appreciation of the Canadian GST/HST legislation, found in Part IX of the Excise Tax Act(“ETA”), and also to get deep into the mindset of the Canada Revenue Agency (“CRA”), which administers the ETA and enforces GST/HST compliance.

As we blogged about here, here and here, CRA continues to audit telecommunications businesses for possible sham and carousel transactions (i.e., GST fraud).

The alleged fraudulent activities come in many forms, and one auditing efforts seems focussed on suppliers and/or recipients connected to the Iris Technologies Inc. case, winding its way through the Tax Court of Canada (“Iris Technologies”).

Iris Technologies has been in the CRA’s gunsights for a number of years now, and allegedly involved in the fraudulent sale of long distance minutes to individuals and companies in Canada and abroad. CRA’s current focus appears to be on the allegedly fraudulent nature of these sales, seemingly taking the position that if Iris Technologies’ purchases and sales were sham transactions, then so too must be the suppliers and recipients transactions on the other side of Iris Technologies (i.e., those suppliers selling minutes to Iris, and those recipients purchasing minutes from Iris) – many (all?) of whom the CRA may be alleging are part of the same carousel schemes.

Further to our recent blogs here and here, Canada has announced even more measures to isolate Russia on the world stage.

Specifically, Canada joined other G7 nations to impose new Russian sanctions, announced in connection with the G7 Leaders’ Summit today in Hiroshima.

In short, over 70 new sanctions were announced, focussing on people viewed as “supporting Russia’s illegal military action and complicit in human rights violations”.  According to the Prime Minister’s Office, the sanctions target “17 individuals and 18 entities linked to Russian companies that provide military technology and know-how to Russia’s armed forces, family members of listed persons, and members of the Kremlin elite.”

Canada’s federal government recently took the steps necessary to impose significant limits on the manufacture, import and sale of certain single-use plastic goods. While the scope of goods covered by the regulations is relatively limited, importers should be aware of them – and be alerted to the fact that regulation may not stop with these specific goods!

A recent Ontario Court of Appeal case serves as a reminder that legal jurisdiction clauses (also referred to as "forum selection") must use express language if they intend to provide a forum with exclusive jurisdiction to hear contractual disputes.

Section 156 of the Excise Tax Act (the "ETA") provides GST/HST relief in the context of certain supplies between closely related corporations and partnerships, and is amongst the most important provisions in the GST/HST legislation. Recently enacted changes have created quite the buzz around this election, as among other things, it now needs to be filed with the CRA, and that filing needs to be done in early 2015 for it to be effective for 2015 supplies. Here are some helpful details.

With the New Year approaching, GST/HST registrants should be aware of a number of GST/HST compliance requirements for 2015, the more notable of which include as follows.

The Ontario Ministry of Finance has threatened to turn the Ontario cigar industry upside down, by beginning to assess vendors selling cigars and other non-cigarette tobacco to status indians on federal indian reserves, for Ontario provincial tobacco tax (PTT). Previously most industry insiders would have assumed - just from Ontario's acquiescence to wide-spread industry practice of exempting all sales of non-cigarette tobacco sold to Indians that sales of cigars, pipe tobacco and chewing tobacco to status Indians on federal Indian reserves was exempt of PTT.

A recent decision in the Federal Court ends up being a real good lesson for (mostly) all of the bad things that Canadian's can face when tempted to either non-report or undervalue their purchased goods when returning to Canada from abroad - all in the pursuit of saving a few dollars in duties or GST/HST. Indeed, what the CBSA was able to do to ferret out the non-reporting and under-valuation may be surprising to the average Canadian, and the facts of the case itself are probably a good heads up on what can face an importer when lying about his or her purchases.

CBSA Valuation Verifications Target Apparel Imports

The Canada Border Services Agency ("CBSA") publishes a list of its active trade compliance verification priorities twice a year, outlining the industries or goods that it is prioritizing for compliance verification. This year the Canadian Apparel industry has been targeted, and has been issued a spate of Trade Compliance Notification Letters. The five most critical things that Apparel importers need to know before responding to these Notification letters are as follows.

When things go awry in one’s business or personal affairs, taxes often get neglected. The Canada Revenue Agency (CRA) does not forget about these tax obligations, however, and has extensive collections powers available to it, including “directors liability” assessments which can transform corporate tax debts into personal tax debts of the affected directors.

The question that many directors and affected personal taxpayers often ask is whether these personal tax debts can be avoided on personal bankruptcy.

The answer is that “it depends”. Recent case law has been swinging toward forcing substantial payments by bankrupts where there are taxes owing to the CRA, as was seen in a recent British Columbia Supreme Court decision in Re Van Eeuwen [2012] GSTC 142.