Tax & Trade Blog

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. 

When a specialty tax practice like our own, focussed on GST/HST and other indirect taxes, sees a plethora of inquiries from homeowners being either assessed by the Canada Revenue Agency (“CRA”) on the sale of their homes, or threatened with such assessments, we know that something is up!

As we have previously written, the CRA continues targeting residential homeowners. Specifically, those who have sold their home in a short period of time after: (1) substantially renovating; or (2) commissioning the construction of a new home for their own use.

On May 13, 2024, the Canadian International Trade Tribunal (“CITT”) issued a notice that it was beginning an expiry review in respect of unitized wall modules originating in or exported from the People’s Republic of China (“Subject Goods”).  On May 14, 2024, the Canada Border Services Agency (“CBSA”) similarly gave notice of the initiation of their parallel expiry review investigation.

The Subject Goods are defined as follows:

As we wrote here, Canada’s rules taxing Vaping Products were first enacted in 2018, with the Tobacco and Vaping Products Act (“TVPA”), continue to involve, with a number of provinces and territories now getting into the taxing game.  While the TVPA sets out a regulatory framework for manufacturers, importers, retailers and any other business involved in the vaping industry, the provincial rules center largely on ensuring their allocation of the taxes from this new found source of tax income!

The Canada Revenue Agency (“CRA”) has recently released some new Guidance on how all of these taxes are supposed to work together, but the policy goal of this (i.e., taxing something that in many eyes is meant to be an alternative to an incredibly-bad-for-your-health smoking habit) remains suspect.

On May 3, 2024, the Canada Border Services Agency (“CBSA”) issued a Notice of Initiation of Investigation under the Special Import Measures Act (“SIMA”) in respect of the alleged dumping of certain concrete reinforcing bar from Bulgaria, Thailand and the UAE.  This investigation was prompted by a joint complaint filed by three steel manufacturers.

The goods under investigation are more specifically described as:

Businesses engaged exclusively in commercial activities get full input tax credits (“ITCs”) enabling them to recover all the GST/HST they pay in the course of their business activities.  Organizations engaged exclusively in “exempt” activities (financial services, healthcare, educational-related institutions) get no ITCs, meaning that GST/HST is a hard cost in their business. 

In between the two are businesses that carry on BOTH commercial and exempt activities, and in order to determine the ITCs these businesses are eligible to claim, a “fair and reasonable” allocation method has to be used.  A recent decision of the Tax Court of Canada (the “TCC”) in Marine Atlantic Inc. v. The King (2023 TCC 95) explores what that really means.

Global Affairs Canada (“GAC”) recently announced the opening of the tariff-rate quota (the “TRQ”) application period for the 2024-2025 dairy year, which is open from May 1, 2024, to June 15, 2024.  We previously talked about the TRQ application process; however, this year’s announcement also comes with changes flowing from New Zealand’s successful challenge of Canada’s dairy TRQ policies.