The taxes and duties Canadians pay on goods purchased online are the subject of an intense lobby battle ahead of the upcoming federal budget.
Online retailers, led by eBay Canada, are pushing the government to increase the current $20 threshold for shipments that are allowed into the country without federal and provincial taxes or import duties.
The so-called de minimis threshold hasn’t changed since 1985 and companies such as eBay would like to see it raised, possibly as high as $200. They argue it costs more for the government to collect taxes and duty on small-value parcels than they end up recouping.
“We are way out of step with our international peers,” said eBay Canada managing director Andrea Stairs.
“And really what that means is that Canadian consumers and small businesses can’t participate in international e-commerce the way that their peers can in other markets.”
Stairs says a better level would be a threshold in the $80 to $100 range.
The true cost of buying even inexpensive online goods from the U.S. can be dramatically increased when Canadian taxes, duties, custom brokerage charges, the exchange rate and shipping is factored in.
But Canadian retailers are actively lobbying the federal government to keep the de minimis threshold at its current level, saying that an increase would effectively give a tax exemption for U.S. online retail giants such as eBay or Amazon.
“They’ll be able to offer goods at significantly lower all-in prices than somebody operating in Canada,” said Karl Littler of the Retail Council of Canada.
Even if the de minimis level is raised to allow more tax-free imports from the U.S., the HST or GST and provincial sales taxes would still apply to products bought domestically -- including those purchased online -- putting Canadian vendors at a disadvantage, they argue.
“If you pick some online foreign vendor with a warehouse in Amarillo, you pay no tax,
Littler said. “If you click on Canadian Tire, Roots, Harry Rosen or, for that matter, Best Buy or Walmart, you’re going to pay tax.”
The issue has reportedly been divisive in cabinet, with Foreign Minister Chrystia Freeland, who retains responsibility for trade with the U.S., thought to favour raising the $20 threshold.
Online retailers also allege an inconsistent application of taxes and duty that seems to depend on how a package is shipped to Canada, with far closer scrutiny applied to shipments sent by couriers such as UPS or FedEX compared to those sent by mail.
Finance Minister Bill Morneau would not say Thursday whether there will be changes to the de miminis rules in the budget he is expected to deliver this spring.
“I certainly know a lot that I’m not going to talk about today,” he said.
More likely, however, is that a revision to the threshold would be part of renegotiations of the North American Free Trade Agreement. Some in the new Administration consider consumer taxes such as the HST or value-added taxes in other countries to be protectionist when applied to goods imported from the U.S.
The New York Times reported in January that changes to de minimis in Canada and Mexico are likely among the issues the U.S. hopes to address in NAFTA talks.
The U.S. last year raised its own level for duty-free and tax-free imports to US$800.
But Australia, concerned by loss of revenue as more and more people buy online, is eliminating tax-free imports altogether, cutting its de minimis from $1,000 Australian to zero.
