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Canada Border Services Agency (“CBSA”) has announced that the final iteration of its recent revamping of Canada’s import systems will arrive May 13, 2024.

Direct Sellers importing their products into Canada for further distribution or sale to their salesforce or customers (including with the assistance of a customs broker) – will be particularly concerned with these changes!

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Direct Sellers and the distributor and representative businesses that work closely with them should be no stranger to oversight and scrutiny from all levels of government, no matter where they operate.

The Canada Revenue Agency (“CRA”) recently added one more headache for in-house Law Departments and other Compliance Professionals with Direct Selling Companies, issuing a warning exclaiming: “Watch out for tax schemes involving multilevel marketing businesses!” (the “Warning”).

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The Canada Border Services Agency (“CBSA”) resets its “audit priority areas” twice per year. Essentially, the CBSA designates certain products as priority areas for customs verifications (i.e., “audits”) based on the program areas that the CBSA believes pose a significant risk for import non-compliance in terms of tariff classification, valuation, and/or origin of goods.

The CBSA has now released its January 2024 Trade Compliance Verification priorities, setting the stage for the next six (6) months. While there are no new audit priorities in this round, the CBSA has announced its intention to engage in new rounds of verifications on a number of historic issues, and updated its statistics on existing verifications. As is often the case, most of the focus is on tariff classification!

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Canada Border Services Agency (“CBSA”) resets its “audit priority areas” twice per year – designating certain tariff classification codes as priority areas for customs verifications.

Priorities are based on CBSA’s work in certain industries or on CBSA’s view of “significant risk” importations from a tariff classification, valuation, and origin compliance perspective.

With the January 2024 audit priorities around the corner, it is a good time to review the outcomes from the July 2023 update.

Tariff Classification Priorities

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As Russia’s invasion of Ukraine nears the two-year mark, now is an appropriate time to take stock of the variety of trade sanction measures which have been put in place throughout this year.

Background

Importers will recall the government’s swift decision to remove “Most-Favoured-Nation” (“MFN”) tariff status from both Russia and Belarus in March 2022.

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When our Firm sees a spike in Ontario Employer Health Tax (“EHT”) files, we know that something is up.  And this may not bode well for employers that have traditionally viewed Ontario’s relatively low-rate EHT as an unimportant tax, delegating its compliance to payroll providers, staff members, and others.

Background

Ontario’s EHT is an employer liability payroll tax imposed on total Ontario remuneration paid to current and former employees.  With the  employer’s “exemption amount” (recently raised to $1,000,000 for most “eligible employers” until 2029), the effective rate is exceedingly low.  For example, a payroll of $2,000,000 would give rise to less than $20,000 in annual EHT.  Not really enough to keep anyone up at night and definitely not enough to build a fabulous law practice out of!

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A common theme of our direct selling blogs is that direct selling businesses should pay close attention to the wording of their key documents (compensation plans, contracts, and policies and procedures, etc.) to ensure that plan participants are properly characterized as independent contractors and not as employees.

While not in a direct selling context, a recent decision at the Tax Court of Canada serves as a cautionary tale for businesses that fail to examine the details of their documents – their workers may be characterized contrary to their intentions!

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The Tax Court of Canada recently released its decision in Windsor Elms Village for Continuing Care Society v. The King (2023 TCC 58), which dealt with the application of the GST/HST self-supply rules to a long-term care facility for seniors. The decision illustrates the complexity of the self-supply rules under the Excise Tax Act (“ETA”), especially in the context of mixed use or exempt use real estate transactions.

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As we have blogged about a fewtimes in the past, corporate tax debts are unlike other forms of liability and can pose special challenges for directors and shareholders of corporations that have unmet tax obligations.  This can lead to dreaded director’s liability and third-party assessments, which allow the CRA to effectively “pierce the veil” and go after individuals or other businesses that would otherwise be protected by the screen of limited corporate liability.

A recent decision at the Tax Court of Canada considered this issue, serving as a reminder to businesses and their owners that these debts are not so easily ignored.

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An often-overlooked aspect of Canadian indirect tax is the degree to which provincial fuel and carbon tax statutes vary across the country — and the surprising and significant consequences for non-resident businesses with limited connections to Canada.

US and international petroleum traders selling fuel into Canada present a good example of the complexities in this area, and how the rules can vary substantially from province-to-province leading to unforeseen registration, licensing, and Fuel Tax collection requirements!

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An oft-overlooked component of Canada’s Excise Tax Act (“ETA”) involves the special registration rules which apply to taxi businesses – in place well before the advent of ride-sharing services like Uber and Lyft.

CRA has recently updated its administrative policies on these registration rules to reflect changes made to the ETA on this issue back in 2017!  The new changes update CRA’s published position to incorporate commercial ride-sharing services within the definition of taxi business and is indicative of the risk in relying on such positions which could be out of date and offside current law.

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Direct sellers in the United States could soon faceupdated rules which would ban businesses from relying on non-competition clauses in worker contracts. This parallels recent moves in certain Canadian provinces to further restrict same and is a perfect opportunity for direct sellers in Canada to review their own non-competition clauses in anticipation of potential changes.

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As we blogged about here and here, CRA has recently focused its audit powers to investigate allegations of shams (i.e., fraud) in the application of GST in the telecommunications industry.

The alleged fraudulent activities come in many forms and can even involve allegations of so-called GST ‘carousel schemes’. Below, we highlight two cases currently working their way through courts and the takeaway points for businesses unlucky enough to be facing similar situations.

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Tax professionals are well aware of how critical it is to file Notices of Objection on time — generally within 90 days of the mailing of a Notice of Assessment. For professionals and taxpayers who find themselves unable to have met this deadline, section 303 of the Excise Tax Act (the “ETA”) (and section 166.1 of the Income Tax Act) provides some potential relief (i.e., an extension to file, provided certain preconditions are met).

A recent Tax Court of Canada (“TCC”) decision in Lamarnic & J Ltd. v. The Queen (2022 TCC 35) explores this rule but, at the same time, serves as a cautionary tale for taxpayers and tax professionals alike that these extension rules may only be available if the rules are strictly adhered to within set statutory timelines.

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An often-misunderstood aspect of the liquor industry by aspiring brewmasters and restauranteurs is the sheer number of regulatory steps required to import, manufacturer, distribute, and/or sell alcohol in Canada.  Complicating matters is the fact each province may have its own separate rules and licensing regimes.

This blog explores the various provincial licenses required to start an Ontario liquor business.

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Canada Border Services Agency (“CBSA”) resets it “audit priority areas” twice a year. This sees CBSA designate certain tariff classification codes as priority areas for custom verifications (i.e., ‘audits’), based on the CBSA’s belief that those goods pose significant risks for non-compliance in terms of proper tariff classification, valuation, and country of origin.

CBSA has now released its July 2022 Trade Compliance Verifications, announcing a new priority area, as well as providing updates on a number of ongoing projects, which we have summarized below.

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As we have blogged about several times in the past, homebuilders are frequently in the gunsights of CRA in hopes of capturing potentially unremitted GST/HST on sales made the course of their commercial activity.

A less-explored issue is how CRA sometimes casts too wide a net, and mistakenly assesses unlucky individuals who are not builders, but whose facts may suggest otherwise. The recent case in Wang v. The Queen, 2021 TCC 86 (CanLII) deals with this issue and serves as a cautionary tale for individuals in the unfortunate position of staring down a CRA assessment on the unplanned sale of their new home.

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Further to our recent blog which outlined Canada’s recent economic sanctions against Russia, Prime Minister Justin Trudeau has announcedfurther new sanctions in light of Russia’s invasion of Ukraine — mirroring those taken by other members of the international community.

The new measures target additional individuals and institutions to prohibit Canadians from dealing with same, as well as impose a blanket ban on engaging in any transactions with the Russian Central Bank.

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On February 22, 2022, Prime Minister Justin Trudeau announced new sanctions on Russia in response to Russia’s escalation of the conflict in Ukraine — lock-step with the positions taken by other Western world leaders.

More sanctions against Russia and particular members of its government are also expected to follow in light of last evening’s commencement of the Russian war in Ukraine, again in concert with other members of the international community.

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With home prices across Canada skyrocketing (some say on account of a combination on and off-shore buyer speculation as well as a pandemic-induced exodus from major cities), various federal, provincial and municipal governments have been kicking the tires on new vacancy tax policies patterned off of Vancouver’s 2017 politically popular (and revenue generating) measures.

Canadian homeowners and first-time investors will need to brace themselves for the roll-out of these taxes across the country, as it seems that — like the “carbon tax” — these measures are almost sure to come on a broad-based level.

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