Tax & Trade Blog

On February 13, 2023, the Canadian International Trade Tribunal (“CITT”) issued a notice that it was beginning an expiry review in respect of certain liquid dielectric transformers (large power transformers) originating in or exported from the Republic of Korea (South Korea).  Anyone wanting to participate in the expiry review must file a Notice of Participation with the CITT by February 28, 2023!

Both domestic producers and exporters should consider participating in the expiry review, as current anti-dumping duties (“ADDs”) for goods without a normal value are 101%!

The direct selling industry poses a number of unique challenges for Canadian sales tax regimes. The patchwork of separate federal GST/HST and provincial PST/QST regimes only further complicates the matter, making it difficult for new entrants to the Canadian market to determine their collection, remittance, and reporting obligations. This article provides a brief overview of the optional sales tax rules available to direct sellers.

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.

On February 2, 2023, the Canadian International Trade Tribunal (“CITT”) released an Order continuing the CITT’s original 2017 finding that the dumping of steel concrete reinforcing bar (“rebar”) originating in or exported from Belarus, Taiwan, Hong Kong, Japan, Portugal, and Spain (the “Listed Countries”) has caused injury to Canadian domestic injury.

The Order effectively means that the current anti-dumping duties (“ADDs”) of up to 108.5% will remain in place for Subject Goods originating in or exported from the Listed Countries.

Canada has bilateral free trade agreements with a number of other nations (e.g., between the US and Mexico under the USMCA, between Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam under the CPTPP, and with most of the European Union under the CETA).

Canada’s next target for free trade appears to be India, and Global Affairs indicates that negotiations toward an Early Progress Trade Agreement have been progressing rapidly!

Imported goods are identified using Canada’s tariff classification system. Tariff classification is important for two reasons: (1) the duty rate depends on the tariff classification; and (2) tariff classification determines eligibility for preferential duty rates under Canada’s various preferential trade agreements (generally speaking, “Free Trade Agreements” or “FTAs” for short).

Importers can sometimes find themselves in the unfortunate position of facing an enormous increase in duties, or disqualification from preferential FTAs, due to a tariff classification dispute with the Canada Border Services Agency (“CBSA”). As seen in the decision in Canada v. Best Buy Canada Ltd., 2021 FCA 161, classification is not always obvious!

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

CBSA has now released its January 2023 Trade Compliance Verification priorities, setting the stage for the next six (6) months. As is often the case, most of the focus is on tariff classification!

Are you a U.S. based business distributing goods in Canada?

If you have over $20 M in assets or $40 M in revenues, you are likely caught by Canada’s new “child and forced labour” rules and need to deal with this or risk $250,000 in fines!

If that is concerning, keep reading!

On January 16, 2022, the Canadian Border Services Agency (“CBSA”) issued a notice that it will be conducting a re-investigation in respect of corrosion-resistant steel sheet (“COR (II)”) imported from Turkey and Vietnam (the “Listed Countries”). CBSA has issued a Request for Information (“RFI”) to both exporters and importers, and responses are due February 22, 2023!

Normal values established during the re-investigation will be effective as of the end date of the re-investigation, and all normal values currently in place will expire on that date.

On January 16, 2023, the Canadian International Trade Tribunal (“CITT”) issued a notice that it was beginning an expiry review in respect of certain carbon pipe fittings originating in or exported from the Socialist Republic of Vietnam (“Vietnam”). Anyone wanting to participate in the expiry review must file a Notice of Participation with the CITT by January 31, 2023!

Both domestic producers and exporters should consider participating in the expiry review, as current anti-dumping duties (“ADDs”) for goods without a normal value are 159%, and countervailing duties (“CVDs”) are 76,360.47 VND per unit!

Direct sellers in the US have a “safe harbour” which does not exist in Canada. Specifically, section 3508 of the US Internal Revenue Code expressly excludes the salesforce from the definition of “employee” for federal tax purposes! By contrast, direct sellers operating in Canada need to be proactive about making sure that the salesforce stays on the right side of the employee – independent contractor divide, which is a “common law” test in Canada.

The recent Tax Court of Canada (“TCC”) case of Mazraani provides a good refresher – and some positive comments for Canadian direct sellers – on the difference between employees and independent contractors.

Businesses in the automotive sector will be interested in the recent conclusion to the automotive trade dispute between Canada, the US, and Mexico (the “USMCA Parties”).

The USMCA Parties had different interpretations of the automotive rules in the Canada-United States-Mexico trade Agreement (the “USMCA”), which required a USMCA Panel to be formed to review the different interpretations and settle the dispute.

The Panel publicly released its final decision on January 11, 2023 (the “Decision”).

This decision is important because it makes it easier for automotive producers to receive preferential tariff treatment under the USMCA, which will help the USMCA Parties save costs when importing and exporting vehicles between the USMCA Parties.

The third and final phase of the Canada Border Services Agency’s (“CBSA”) Assessment and Revenue Management (“CARM”) project (i.e., “CARM R2”) now has a clear target date for release – October 2023! The exact implementation date will depend on when draft regulations, released on November 26, 2022, will be finalized. Importers, brokers, freight-forwarders, and anyone else interested in CARM has until January 10, 2023 to provide feedback on the regulations!

The draft regulations will tweak existing regulations to bring them in-line with how the CBSA envisages CARM applying in practice. Hopefully, this will take Canadian customs into the digital age more smoothly than some other recent Federal IT projects!

On December 29, 2022, the Canadian International Trade Tribunal (“CITT”) released an Order continuing the CITT’s original 2012 finding that the dumping and subsidizing of oil country tubular good pup joints (“pup joints) originating in or exported from China was threatening to cause injury to Canadian domestic injury.

The Order effectively means that the current anti-dumping duties (“ADDs”) of up to 173.4% and countervailing duties (“CVDs”) of 9,125.6 Renminbi per metric tonne will remain in place for Subject Goods originating in or exported from China.

On December 12, 2022, the Canada Border Services Agency (“CBSA”) issued a notice that it will be conducting a normal value review of refined sugar exported from the US by United Food Group Inc. (“United”).

Unlike re-investigations, where the CBSA reviews and redetermines normal values for all exporters in the industry, in a normal value review CBSA will only review the normal values of the named party – in this case United. (That said, CBSA will sometimes conduct normal value reviews in respect of 2-3 exporters at around the same time and may sync up their schedules so it issues decisions more or less at the same time.)

If a person intends to carry CAD $10,000 or more in Cash over Canada’s border (either entering or exiting Canada), the person carrying the cash must declare the amount being carried to Canadian Border Services Agency (“CBSA”). If a CBSA officer determines that a traveller is carrying undeclared cash and suspects that it may be proceeds of a crime, the CBSA may seized the cash and hold it until the matter is proven otherwise. A recent Federal Court decision in Evans v Canada (Public Safety and Emergency Preparedness), 2022 FC 1516 (“Evans”) serves notice that while there are appeal mechanisms available, it can be extremely difficult to overturn these seizures.

Whether a supply is taxable under the Excise Tax Act (“ETA”) can depend, in part, on how that supply is characterized. In normal commercial relations, businesses will often bundle many diverse services together – including both taxable and exempt services. Once bundled together, one must consider whether they remain multiple supplies, or whether they now constitute one single supply. If a single supply, one must then determine the character of that supply, which can impact whether it is taxable or exempt.

The courts’ approach to characterizing bundled supplies has evolved over the last few years. This was especially apparent in last year’s Federal Court of Canada (“FCA”) decision in Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 96 (“CIBC 2021”), which was recently denied leave to appeal to the Supreme Court of Canada (“SCC”) — making it the law of the land.

The recent Tax Court of Canada (“TCC”) decision in Canadian Imperial Bank of Commerce v. The Queen, 2022 TCC 83 (“CIBC 2022”), is an example of how the TCC is now applying the FCA’s text-focused approach to other GST/HST characterization cases.

2023 is shaping up to be quite a year for businesses operating in the real estate industry, with the Canada Revenue Agency (“CRA”) continuing aggressive industry audits (which have now made their way to court), and new tax rules for new housing assignments under the Excise Tax Act (“ETA”) and house flippers under the Income Tax Act (“ITA”)!

Since the inception of the GST/HST in 1991, the Canada Revenue Agency (“CRA”) has taken what we consider to be a strict approach to the documentary/information requirements under section 169(4) of the Excise Tax Act (“ETA”), which must be met in order to claim input tax credits (“ITCs” and the “ITC Information Requirements”). This approach has likely lead to millions if not billions of ITC denials, leaving GST/HST registrants unable to recover GST/HST paid on their business inputs, and leaving the costs of their goods and services artificially too high – because of this unrecoverable GST/HST left embedded in the system.

In what we regard as potentially the most important case in decades, the Tax Court of Canada’s (“TCC”) decision in CFI Funding Trust (2022 TCC 60) underscores that CRA’s strict approach is overly technical and incorrect!

First Nations individuals are granted special tax status under section 87 of the Indian Act (the “Act”) which effectively exempts them from taxation in respect of personal property “situated on a reserve” (the “s. 87 exemption”). This unique exemption transcends all taxing legislation in Canada, federal or provincial.

The courts’ interpretation of s. 87 has evolved over the years but, until now, it has only applied in the context of reserve property.

A recent decision of the British Columbia (“BC”) Court of Appeal (“BCCA”) has seemingly expanded the scope of s. 87 to off-reserve property – albeit in the context of a Band that no longer had a reserve.