Tax & Trade Blog

Canada has bilateral free trade agreements with a number of other nations (e.g., between the US and Mexico under the USMCA, between Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam under the CPTPP, and with most of the European Union under the CETA).

Canada’s next target for free trade appears to be India, and Global Affairs indicates that negotiations toward an Early Progress Trade Agreement have been progressing rapidly!

Imported goods are identified using Canada’s tariff classification system. Tariff classification is important for two reasons: (1) the duty rate depends on the tariff classification; and (2) tariff classification determines eligibility for preferential duty rates under Canada’s various preferential trade agreements (generally speaking, “Free Trade Agreements” or “FTAs” for short).

Importers can sometimes find themselves in the unfortunate position of facing an enormous increase in duties, or disqualification from preferential FTAs, due to a tariff classification dispute with the Canada Border Services Agency (“CBSA”). As seen in the decision in Canada v. Best Buy Canada Ltd., 2021 FCA 161, classification is not always obvious!

Are you a U.S. based business distributing goods in Canada?

If you have over $20 M in assets or $40 M in revenues, you are likely caught by Canada’s new “child and forced labour” rules and need to deal with this or risk $250,000 in fines!

If that is concerning, keep reading!

Businesses in the automotive sector will be interested in the recent conclusion to the automotive trade dispute between Canada, the US, and Mexico (the “USMCA Parties”).

The USMCA Parties had different interpretations of the automotive rules in the Canada-United States-Mexico trade Agreement (the “USMCA”), which required a USMCA Panel to be formed to review the different interpretations and settle the dispute.

The Panel publicly released its final decision on January 11, 2023 (the “Decision”).

This decision is important because it makes it easier for automotive producers to receive preferential tariff treatment under the USMCA, which will help the USMCA Parties save costs when importing and exporting vehicles between the USMCA Parties.

If a person intends to carry CAD $10,000 or more in Cash over Canada’s border (either entering or exiting Canada), the person carrying the cash must declare the amount being carried to Canadian Border Services Agency (“CBSA”). If a CBSA officer determines that a traveller is carrying undeclared cash and suspects that it may be proceeds of a crime, the CBSA may seized the cash and hold it until the matter is proven otherwise. A recent Federal Court decision in Evans v Canada (Public Safety and Emergency Preparedness), 2022 FC 1516 (“Evans”) serves notice that while there are appeal mechanisms available, it can be extremely difficult to overturn these seizures.

Whether a supply is taxable under the Excise Tax Act (“ETA”) can depend, in part, on how that supply is characterized. In normal commercial relations, businesses will often bundle many diverse services together – including both taxable and exempt services. Once bundled together, one must consider whether they remain multiple supplies, or whether they now constitute one single supply. If a single supply, one must then determine the character of that supply, which can impact whether it is taxable or exempt.

The courts’ approach to characterizing bundled supplies has evolved over the last few years. This was especially apparent in last year’s Federal Court of Canada (“FCA”) decision in Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 96 (“CIBC 2021”), which was recently denied leave to appeal to the Supreme Court of Canada (“SCC”) — making it the law of the land.

The recent Tax Court of Canada (“TCC”) decision in Canadian Imperial Bank of Commerce v. The Queen, 2022 TCC 83 (“CIBC 2022”), is an example of how the TCC is now applying the FCA’s text-focused approach to other GST/HST characterization cases.

2023 is shaping up to be quite a year for businesses operating in the real estate industry, with the Canada Revenue Agency (“CRA”) continuing aggressive industry audits (which have now made their way to court), and new tax rules for new housing assignments under the Excise Tax Act (“ETA”) and house flippers under the Income Tax Act (“ITA”)!

First Nations individuals are granted special tax status under section 87 of the Indian Act (the “Act”) which effectively exempts them from taxation in respect of personal property “situated on a reserve” (the “s. 87 exemption”). This unique exemption transcends all taxing legislation in Canada, federal or provincial.

The courts’ interpretation of s. 87 has evolved over the years but, until now, it has only applied in the context of reserve property.

A recent decision of the British Columbia (“BC”) Court of Appeal (“BCCA”) has seemingly expanded the scope of s. 87 to off-reserve property – albeit in the context of a Band that no longer had a reserve.

Lawyer-client relationships enjoy what is commonly referred to as solicitor-client privilege – or lawyer-client privilege. Regrettably (and surprisingly to some), accountants do not have this protection!

As the recent Federal Court of Appeal (“FCA”) decision in Zeifmans LLP has confirmed, where pushed for client information by the CRA, accounting firms – but not law firms – are required to disclose client information, including work done in tax situations!

British Columbia’s (“BC’s”) new PST rules regarding online marketplaces have been in effect for about three months now. First announced in the 2022 provincial budget, the provincial government claims the changes will close tax loopholes and “better adapt BC’s consumption taxes to the rapid expansion of e-commerce during the pandemic.” It is expected to result in an additional 100 million of revenue for the province in each of the next two years.

But where is all that new revenue really coming from?