Tax & Trade Blog

While Canada was given a short reprieve yesterday from the tariffs threatened by US President, Donald J. Trump, President Trump appears to have doubled-down signalling that these 25% tariffs will be coming by February 1.

If this is to be believed, the days of US and Canadian weighted average tariffs in the 2.2-3.4% range are over, and Canadian businesses need to begin preparing for the challenges these sorts of significant tariffs will bring – including the likelihood of Canadian retaliatory measures, which we reported on here. 

The balance of this Report will review some basic preparation steps that can be taken right now.

The trade relationship between the United States (“US”) and Canada is facing renewed tensions as President Trump has reaffirmed that the US will impose a blanket 25 percent tariff on all Canadian goods, and is aiming to do this as soon as February 1, 2025.

In response, Canadian government officials have signaled Canada will respond with retaliatory tariffs and other possible countermeasures such as export taxes.  Consequently, it is important to understand how retaliatory import tariffs and export taxes have worked in the past, and how they might work in the future.

As we blogged on here, CRA has recently taken steps to reverse what was generally understood to have been their historical position on employer eligible ITCs in pension plan situations involving insurance segregated fund products.

In a recent Excise News Publication, CRA doubles-down on this position in a very public way, seemingly setting the stage for audits in this area to come.

The new year brings possible new tax reporting requirements for direct sales platform operators (“Direct Sellers”)!

These changes stem from amendments to the Income Tax Act (“ITA”) and mandate that digital platform operators throughout the online “gig” economy report income and certain other information about some of the sellers using their websites or apps to the Canada Revenue Agency (the “CRA”).  See our prior article for more technical information.

Those affected include certain Direct Sellers operating on a “buy-resale” model.  Filings for the 2024 year are due by January 31, 2025!

Which Direct Sellers Are Affected?

As we questioned the tax and health policies of Canada’s regulations on vaping products here, we note the Department of Finance’s position on non-alcoholic beer, which has been duty-free from an excise tax perspective since July 2022.  This is an example of good tax policy, focussing on promoting the adoption of safer, healthier alternatives by reducing the tax burden on substitutable products.  It contrasts to the current approach to vaping products, which involves taxing them at high rates, almost comparable to those applied to smoking products.

Excise Duty on Alcoholic Beer

In Canada, excise duty is imposed under the Excise Act on all beer produced for commercial purposes, with rates dictated by alcohol strength, production volume, and whether the beer is brewed domestically or imported.

Beginning this year, digital platform operators should be aware of the new tax reporting requirements under section 292 of the Income Tax Act (“ITA”).  Many reportable digital platforms (including many online “gig” platforms) will now be required to file reports with the CRA providing information about the activities of their “reportable sellers”.  Filings for the 2024 year are due by January 31, 2025!

Which Platform Operators are Affected?

The new requirements target a subset of “platform operators”, which under section 282 of the ITA include websites or applications that contract with sellers to use all or part of a platform to connect with customers. 

Since 1997, the Customs Act has imposed both mandatory payment and correction obligations on importers subject to Assessments.  In fact, if an importer wishes to challenge the Assessment, the only option is to first pay the assessed amount, and then request a review of the assessment – a system often referred to as “pay-to-play”.

As highlighted in the recent case of Skechers USA Canada, Inc. v. Canada Border Services Agency (2025 FCA 1) (“Skechers”), these obligations leave importers with limited options.  This means putting your best foot forward in a customs Compliance Verification is often the only practical way of dealing with a CBSA Assessment – often with the assistance of specialized legal advice.

Many travelers, including seasoned and sophisticated travelers, misunderstand the fundamental obligation to declare all goods being imported into Canada.

The most common misconception is often that “I’m within my exemption limits” and therefore “I don’t have to tell anybody what I’m bringing in”.

A recent case from the Federal Court of Appeal (“FCA”) demonstrates that this is far from the truth!

Staffing agencies (as well as Employment Agencies, Temporary Labour, Placement Agencies and other similar entities – “Agencies”) play a growing role in connecting businesses with Canadian workers, but these models can come with unexpected tax “strings attached”.

For example, did you know that in some cases, Agencies hiring workers classified as independent contractors can still be required to make Canada Pension Plan (“CPP”) and Employment Insurance (“EI”) contributions (as if the workers were their employees)?  This tax quirk can be difficult to understand, especially when the Canada Revenue Agency (“CRA”) views one’s workers to be non-employees!

In 2024, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “FALC”) came into force, which imposed annual reporting obligations for certain entities.  While the 2024 reports were due last year, this is a recurring obligation with significant penalties for non-compliance.

Recently, the Canadian government issued its Report to Parliament summarizing the submissions received for the 2024 reporting cycle.  This Report serves as a reminder of the ongoing importance of timely compliance with the reporting obligations, with the next reporting deadline on May 31, 2025.

On January 1, 2025, Canada is set to make changes to its to unilateral tariff programs for imports under the Customs Tariff.  The changes include several beneficiary countries being graduated from the General Preferential Tariff (“GPT”) and Least Developed Country Tariff (“LDCT”) programs, and the introduction of a General Preferential Tariff Plus Program (“GPTP”) that will come into force at a later date.

Background

Canada’s customs system operates on the basis of preferential tariffs, in which countries are assigned a particular tariff treatment.  The tariff treatment assigned to a country is used (in conjunction with the HS Code) to determine the rate of duty imposed on a particular good imported into Canada from that country.

After COVID, the CRA seems to be really ramping up its audit activities, both for GST/HST and income tax matters.  Once a Notice of Assessment is issued, reversing the CRA’s position becomes an uphill battle as the Objection and Appeal processes are technical and complex.

This blog focuses on the Objection and Appeal processes under the Excise Tax Act (the “ETA”), highlighting common pitfalls and the need for a strategic approach in tax disputes.

When a Canada Revenue Agency (the “CRA”) audit concludes and a Proposed Assessment issued, it is presented in a “Statement of Proposed Audit Adjustment”.  This document outlines the CRA’s Assessment of the additional taxes owed.  At this stage, significant work needs to take place to try and understand the basis for the Proposed Assessment and attempt to rebut the CRA’s Assessment position. 

Because CRA is the “elephant in the room” (and typically does what it wants to do), where an Assessment is finalized and raised, it is a very signification matter, for the following reasons.

As we have written here and here, CRA is ALL over the Canadian real estate industry, assessing homebuyers, condo renters and everyone in between for GST/HST and income taxes related to use or sale of houses or condos on the suspicion of business or trading activities.

When using one’s home or other real estate holdings for business or trading purpose (CRA calls this an “adventure or concern in the nature of trade”), significant tax consequences can arise, as highlighted in CRA ruling from back in 2020, reviewed below.

On November 25, 2024, the Canadian International Trade Tribunal (the “CITT”) issued a notice that it was beginning an expiry review in respect of certain Aluminum Extrusions originating in or exported from the People’s Republic of China (the “Subject Goods”).  On November 26, 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.

Canada’s “Luxury Tax” implemented under the Select Luxury Items Tax Act (“SLITA”) has been a significant development for vendors, importers and buyers of high-priced vehicles, aircraft and vessels.  As we have previously discussed here, the SLITA imposes tax obligations that require careful compliance, including registration and record keeping.

Recently, the CRA released a new guidance document clarifying how third-party rebates impact the calculation of tax owing under the SLITA.  The main message is straightforward but significant – rebates from manufacturers or other third parties do not reduce the taxable value of luxury items and do not lower the amount of tax vendors and importers must pay!

On November 25, 2024, the Canada Border Services Agency (the “CBSA”) announced that it has initiated an investigation into whether container chassis imported from Vietnam are circumventing Canada’s trade remedy measures on container chassis from China.

This marks Canada’s first anti-circumvention investigation!

What is an Anti-Circumvention Investigation

In a previous blog, and Part 1 of this Series, we discussed CRA’s recent audit activity focussed on Canada’s Vaping Industry,  which is significantly impacting vaping licensees, and leading to a number of different assessments for duty liability under the under the Excise Act, 2001.  An even more serious governmental focal point, however, is likely to be Health Canada’s proposed regulatory ban on flavoured or sweetened vaping substances and products, which appears to be another significant storm brewing for the industry.

Part II of this series on the vaping industry focuses on this issue, its regulatory history, and the expected cataclysmic event it may entail for the economic viability of many of these businesses.