Tax & Trade Blog

As we have blogged about here, in the world of “natural health products” (“NHPs”), the ability to import unlicensed products into Canada for personal use — colloquially known in the industry as “Not for Resale” (“NFR”) — is a hot topic for direct sellers.  Businesses need to understand the specific and narrow administrative policies which allow for these importations, so they do not draw the ire, and enforcement actions, of Health Canada!

When Canada Border Services Agency (“CBSA”) Officers have reason to believe that the proper procedures have not been followed at the border on the import of goods (i.e., an item has been concealed for reporting, or an incorrect value or description has been provided), the Officer has the power to either seize the good and sometimes the conveyance (i.e., vehicle) used to transport it, or issue an ascertained forfeiture after the fact.

Both actions may come as a surprise to the importer — especially given that even minor contraventions of the law can lead to these significant seizures and actions, thereby requiring detailed and confusing appeal processes to remedy.

Our tax system is complex, with many potential procedural pitfalls that taxpayers need to navigate.  One such issue is the jurisdictional boundaries between the Tax Court and the Federal Court for tax disputes.  Recent Supreme Court’s companion decisions in Dow Chemical Canada ULC v. Canada (“Dow Chemical”), and Iris Technologies Inc. v. Canada (“Iris”) provide clarifications on this issue.  However, these “clarifications” may result in a less streamlined and more costly process and thus may not be good news for taxpayers.

Recently we’ve noticed an uptick in the number of Canada Border Services Agency (“CBSA”) audits regarding the tariff classification of gloves (see our prior blog).  With its mid-year update, the CBSA has officially upgraded this focus to a Trade Compliance Verification Priority!

This marks the third time gloves have been a “verification priority” having previously been in the spotlight in 2017 and 2019.  The results from the first two rounds revealed that 82% of the 49 companies targeted were non-compliant, resulting in reclassification duties and penalties totalling over $2.6 million.

On June 27, 2024, the Canada Border Services Agency (“CBSA”) issued a notice that it will be conducting a re-investigation in respect of oil country tubular goods originating in or exported from Chinese Taipei, India, Indonesia, South Korea, Thailand, Türkiye and Vietnam (the "Subject Goods”).  This re-investigation falls under measure in force code OCTG2.  Detailed information, including the definition of the Subject Goods, can be found on the OCTG2 page.

Additionally, the CBSA has announced it will also update the surrogate normal values for certain seamless carbon and oil country tubular goods originating in or exported from China, under measure in force codes SC and OCTG1 respectively!

On June 20, 2024, the Canadian International Trade Tribunal (the “CITT”) issued a preliminary determination of injury, concluding that there was evidence that the alleged dumping and subsidizing of certain pea protein from China (the “Subject Goods”) has caused material injury to the domestic industry.

More details, including the definition of the Subject Goods and product inclusion can be found in the determination here.

On January 17, 2024, the Canada Border Services Agency (the “CBSA”) announced that it has initiated a re-investigation of the normal values and export prices in respect of certain gypsum board (known more colloquially as “drywall” or “wallboard”) originating in or exported from the United States (the “Subject Goods”) for use or consumption in Western Canada (i.e., BC, AB, SK, YU, and NT).

On June 20, 2024, the CBSA released a notice concluding the re-investigation with updated normal values and export prices. 

The Digital Services Tax (“DST”) has come into force in Canada!  It was enacted in the Digital Services Tax Act (Bill C-59)  (the “Act”) and came into effect with an order-in-council issued on June 28, 2024, and with effect to January 1, 2024 – targeting large Canadian and non-Canadian businesses generating revenue from
“in-scope” digital services.

In short, this is a potential significant piece of taxing legislation, with potential retroactive effect to January 1, 2022, requiring major digital entities like Netflix, Amazon Prime, and Spotify to pay a 3% annual tax on digital services revenue attributable to Canadian customers.

On June 24, 2024, the Canadian International Trade Tribunal (the “CITT”) issued a notice that it was beginning an expiry review in respect of silicon metal originating in or exported from the People’s Republic of China (the “Subject Goods”).  On June 25, 2024, the Canada Border Services Agency (the “CBSA”) similarly gave notice of the initiation of their parallel expiry review investigation.

More details on the technical definition of the Subject Goods can be found here.

On June 24, 2024, the Canadian government announced the launch of a 30-day consultation period starting July 2, 2024, to explore potential policy responses aimed at protecting Canada’s auto workers and its growing electric vehicle (“EV”) industry against unfair trade practices from China.

Background

Canada’s automotive sector currently produces over 1.5 million vehicles annually, equivalent to one vehicle every 21 seconds.  This sector supports nearly 550,000 indirect jobs, contributed $18 billion to Canada’s GDP in 2023, and ranks among the nation’s largest industries.

On May 15, 2024, the Canadian International Trade Tribunal (the “CITT”) announced an Order in Expiry Review RR-2023-002 (the “Order”), continuing its finding of material injury in respect of the dumping of hot-rolled carbon steel plate originating in or exported from the People’s Republic of China (the “Subject Goods”). 

More detail, including the full definition of the Subject Goods, can be found in the Expiry Review.

Voluntary disclosures (“VDs”) are permitted for Canadian tax purposes under the Canada Revenue Agency’s (the “CRA”) Voluntary Disclosures Program (the “VDP Program”), and their importance is highlighted by a recent case where the CRA reached back into history to assess a taxpayer prior tax exposure.

CRA Power to Reassess Beyond Limitation Periods

Typically, the CRA can reassess a taxpayer within four years for GST/HST matters and three years for income taxes:  see paragraph 298(1)(a) of the Excise Tax Act (the “ETA”);  see subsection 152(3.1) of the Income Tax Act (the “ITA”).

Part of our Customs, Trade & Indirect Tax Practice is dealing with matters arising out of Canada’s Anti-Money Laundering legislation (more formally, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act).

A recent case from the Federal Court of Appeal (“FCA”), dealing with an Administrative Monetary Penalty (“AMP”) issued under this legislation, got us thinking about the secrecy shrouding the old English Star Chamber, and whether the current government’s predilection for hiding unfavourable information has been slowly filtering down through Canada’s vast government administration, and potentially to our judicial system – and the huge detrimental effects that might entail for our country.

On June 6, 2024, the Canada Border Services Agency (“CBSA”) released a notice of its preliminary determination of dumping in respect of certain wire rod originating in, or exported from, China, Egypt and Vietnam. 

Provisional duties are now imposed on imports of the Subject Goods released from the CBSA on or after June 6, 2024!

When it comes to a Direct Selling Company’s legal relationship with its Distributors, Canadian direct sellers are treated differently from those in the US, where IRS deeming rules operate to clarify that Distributors are independent contractors and not employees!

In Canada, there is no such special status, and the “common law” determines employee vs. independent contractor (“IC”) status, making this a perennial compliance issue.

In Charoen Pokphand Foods Canada Inc. v. President of Canada  Border Services Agency, the Federal Court of Appeal (the “FCA”) affirmed a decision from the Canadian International Trade Tribunal (the “CITT”) upholding the Canada Border Service Agency’s (the “CBSA”) classification of frozen wonton soup under the tariff item “stuffed pasta”, and not under the tariff item for “soups and broths”. 

Given Chief Justice Wagner’s recent comments about people forming critical opinions without reading the underlying courts’ judgement, let’s take a look at this seemingly paradoxical decision.

We have blogged here and here about the real estate projects that the CRA is currently working on, usually resulting in assessments of GST/HST on sales of renovated homes or short-term rental housing.

In a recent Tax Court case involving Cheema, the CRA was permitted to open up statue-barred periods in order to assess a homeowner for taxable income generated from a short-term purchase and resale of a house in Calgary.  This case serves as a warning for taxpayers in similar situations: treating housing like “inventory” to produce gains will result in CRA assessments —even many years later, making Voluntary Disclosures the only viable strategy for addressing past exposure.

On May 7, 2024, the Canadian International Trade Tribunal (the “CITT”) issued a preliminary determination of injury, concluding that there was evidence that the alleged dumping of certain wire rod from China, Egypt and Vietnam has caused material injury to the domestic industry.

Background Information

On March 11, 2024, following the initiation of an anti-dumping investigation by the Canada Border Services Agency (the “CBSA”), the CITT initiated a preliminary injury inquiry in respect of alleged dumping of wire rod, which we covered in a previous blog post.