Tax & Trade Blog

The primary customs valuation method across the Western world is “transaction value”, which is a way of valuing goods coming across international borders. Transaction value is used by both the US Customs and Border Protection Agency (CBP) and the Canada Border Services Agency (CBSA) to value imported goods entering their respective territories.

After our February blog post, the Department of Finance finally released draft legislation for its “luxury tax” on vehicles, aircraft and vessels (“items”). Assuming it is passed, the Select Luxury Items Tax Act (“SLITA”) is scheduled to come into force on September 1, 2022. Any business selling items to which SLITA applies will have to register with the federal government, pay the luxury tax, and file quarterly returns!

Taxpayers who seek to challenge tax assessments made by the Canada Revenue Agency (“CRA”) usually have the right to file a Notice of Objection (“Objection”), and those Objections are usually due within 90 days of the mailing date of the assessment.

Objection is the first and most important step of the taxpayers appeal process for any tax assessment, and the 90-day deadline generally should not be missed. For taxpayers that have missed the 90-day deadline, all hope is not lost, as there are special rules that might allow for a late-filed Objection. Taxpayers seeking to benefit from these rules should generally seek legal advice to understand and select the most appropriate next steps!

As covered in a prior blog, Canada has one of the most tightly-controlled dairy industries in the world.  It is not surprising then that the first decision of a dispute resolution panel (“Panel”) under the Canada-United States-Mexico Agreement (“CUSMA”) would involve Canada's dairy “supply management” system (the “Dairy Decision”).  

Ultimately, despite a US victory, the limited scope of the Dairy Decision means that any changes expected from Canada are unlikely to satisfy US-based dairy producers – with both sides seemingly claiming victory!

On March 25, 2022 the Canada Border Services Agency (the “CBSA”) issued a Notice of Initiation of Investigation under the Special Import Measures Act (“SIMA”) of alleged dumping and subsidizing of “Drill Pipes” originating in or exported from the People’s Republic of China. This investigation was prompted by a complaint filed by Command Drilling Products Ltd. of Nisku, Alberta.

In December 2021, the Department of Finance (“DOF”) released its draft Digital Services Tax Act (“DSTA”) announced in the 2021 Federal Budget. The proposed tax will impose a 3% digital services tax (“DST”) on large businesses providing taxable digital services to Canadian users – mirroring recent efforts discussed at the OECD to address the tax challenges of the digital economy.

While the DOF indicates that these measures will not be imposed earlier than January 1, 2024, and only if the treaty implementing the OECD Pillar One tax regime has not come into force, taxpayers should prepare for these changes now, since the revenue calculation requirements start as early as January 2022!

Despite its shaky initial rollout, the new Ontario Business Registry (“OBR”) looks like it is here to stay. Companies incorporated or doing business in Ontario (or indeed looking to potentially expand into the province) need to be aware of the substantial changes the new system brings.

This blog post will focus on changes to the process of filing annual returns in Ontario. Readers are reminded that the information provided is of a general nature and are advised to seek advice for their own particular situation, including regarding changes beyond the annual returns process.

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.

On February 24, 2022 the Canada Border Services Agency (the "CBSA") issued a Notice of Initiation of Investigation under the Special Import Measures Act ("SIMA") of alleged dumping and subsidizing of Mattresses originating in or exported from China. This investigation was prompted by a complaint filed by Restwell Mattress Co. Ltd. And the United Steelworkers of Canada.

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.

A recent Federal Court of Appeal case dealing with standard form agreements is potentially welcome news for direct selling businesses which use standard, non-negotiable, distributor agreements for recruiting/managing their field force.

In the recent case Fédération des caisses Desjardins du Québec v. Canada (National Revenue), 2020 FCA 182 (CanLII) (“Desjardins”), the Federal Court of Appeal (“FCA”) overturned a Tax Court of Canada decision (“TCC”) which held that a person was an employee on the basis that the contract was not negotiated (i.e., a standard form contract) and that the individual had an obligation to work exclusively for Desjardins.

In our previous blog, we discussed CBSA’s Notice of Final Determination which concluded that imports of oil country tribular goodsfrom Mexico had been dumped (“OCTG3”).

Following CBSA’s determination, the inquiry moved to the Canadian International Trade Tribunal (the “CITT”) to determine whether Canada’s domestic industry had been injured by the dumping. On January 26, 2022 the CITT – much to the relief of importers – found that OCTG originating in or exported from the Mexico, has not caused and is not threatening to cause injury to the domestic industry!

The Customs Act (the “Act”) requires all persons arriving in Canada to report their imported goods brought into Canada. Accordingly, travellers arriving in Canada can expect to be investigated by the Canadian Border Services Agency (“CBSA”) who has been mandated to detect and apprehend violators of the Act. CBSA officers are vested with broad search and seizure powers.

Those in contravention of the Act may face enforcement actions including seizures, ascertained forfeitures, penalties and even potentially criminal smuggling charges!

On the civil side of things, CBSA’s enforcement actions can usually be challenged by acting timely and taking prudent steps such as, by engaging an experienced professional!

As previously discussed in our Customs & Trade Blog, the Government of Canada (“GoC”) has been preparing a “luxury tax” on cars/trucks, personal aircraft and personal boats. The luxury tax was initially proposed in the 2019 Liberal Party of Canada platform, as a 10% tax on cars, boats and personal aircraft over $100,000.

Budget 2021 outlined that the luxury tax would be the lesser of 20% of the vehicle’s value above a threshold, or 10% of the full value of the luxury vehicle. The threshold proposed was $100,000 for cars/trucks and aircraft and $250,000 for boats. The timeline for coming-into-force was January 1, 2022.

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

Right on schedule, CBSA has now released its January 2022 Trade Compliance Verifications, setting the stage for this year, and we have summarized some of the notable issue areas here.

International Trade continues to be a hotbed of action for governments and businesses around the world. We previously wrote in July 2021 about complaints made to the Canada Border Services Agency (the “CBSA”) that Mexico and Austria have been “dumping” certain Oil Country Tubular Goods (“OCTG”) into the Canadian marketplace.

In our previous blog, we discussed the Federal Court of Appeal’s decision in Canada v. Cameco Corporation (“Cameco”) which considered the CRA’s broad audit powers in paragraph 231.1(1)(a) of the Income Tax Act (“ITA”) (and/or 286 of the Excise Tax Act(“ETA”)), ultimately holding that a request for oral interviews was outside of the scope of those powers. Recently, the Federal Court (the “FC”) in Canada (National Revenue) v. Miller (“Miller”) considered the Cameco decision and the same ITA provisions but this time with respect to CRA’s use of Requests for Information (“RFIs”) to compel taxpayers to provide information that ought to be in the taxpayer’s books and records – even if it was not recorded/diarized there. In Miller, the FC upheld the CRA’s use of RFIs as within the scope of legislation, and issued a compliance order.

An oft-forgotten point in Trade and Customs disputes is the lack of legal weight courts will give to CBSA Administrative Policies (i.e., D-Memos) which set out CBSA’s interpretation of customs laws and procedures.

The recent case in Entreprise Robert Thibert Inc., 2021 CanLII 122329 (CA CITT) (“Entreprise”) serves as a useful reminder for importers that there is real risk in relying on these policies, especially in the tariff classification context, even when the CBSA’s published administrative position appears to be clear and unambiguous.

In our prior blog on World Customs Organization (“WCO”)’s five yearly revisions to the Nomenclature of Harmonized System or HS Codes, we discussed the possible amendments to the Canadian Customs Tariff. 

Effective January 1, the Canadian HS Code of tariff classification is being amended!  The Canadian Border Service Agency (“CBSA”) has recently published the proposed changes in the 2022 Customs Tariff.  These changes prompt importers/customs brokers to re-evaluate their tariff classifications and HS Coding systems to avoid any penalties associated with incorrect reporting and plan in advance by requesting validation of any existing CBSA Ruling!

Public law (or restitutionary) remedies are usually relied on as a last resort by taxpayers facing CRA assessments. They are last resorts because they are only available in exceptional circumstances, and the CRA almost never applies them, while the Courts rarely apply them.

One interesting historic restitutionary remedy, first established by the Supreme Court in Kingstreet Investments Ltd. v. New Brunswick (Finance)– and now called the “Kingstreet” remedy – allows a taxpayer the right to recover the taxes levied under unconstitutional legislation which before Kingstreet was doomed to fail under a claim for unjust enrichment against Crown.

The Federal Court in Canadian Pacific Railway Company v. Canada (“CPRC”) had the opportunity to consider this special remedy, and underlines its limited application: only being triggered when a tax charged by a government is constitutionally ultra vires (i.e., by virtue of unlawful legislation), and not triggered because of some unlawful government administrative actions!