NAFTA replacement raises duty-free shopping limits for Canadians
One change in Canada’s new trade deal with the U.S. and Mexico is likely to be welcomed by Canadian online shoppers.
The United States-Mexico-Canada Agreement raises the minimum cross-border purchase price for duties and taxes to apply, known as the de minimis threshold.
Canada’s de minimis threshold has been $20 since 1985. All items shipped into the country worth more than $20 can be made subject to GST and HST, as well as additional fees in the form of duties.
Under USMCA, the threshold will be raised to $40 for GST and HST purposes. Cross-border shipments by Canadians will have to be worth at least $150 before duties can be applied.
Shipments valued below the de minimis threshold also receive less attention from customs agents, as they require less paperwork, meaning items worth $20 and $150 could arrive at their final destination more quickly than before.
There is one caveat. The deal states that the higher thresholds apply to items delivered through “express shipments” – a term which is not explicitly defined.
A spokesperson for e-commerce giant eBay, which has been pushing the government to increase its di minimis levels, says the company is concerned the term “express shipments” may mean the higher limit will not apply to items sent through standard mail.
“At this point, there seem to be many open questions and it is unclear whether Canadian consumers will meaningfully benefit from this change, or whether small businesses will see improved competitiveness and predictability,” Andrea Stairs, eBay’s general manager for Canada and Latin America, said in a statement.
While the increase means Canadians buying and shipping items from the U.S. and Mexico will pay less in taxes and duties, it is less positive news for Canadian retailers.
“They’re not going to like this,” Bernard Wolf, professor emeritus of economics and international business at York University’s Schulich School of Business, told CTV News Channel. “It means that they’ve got to compete more strongly. They’ve got to try to get their costs down.”
The retail industry has long argued against the increase, claiming it would benefit American retail companies while putting Canadian businesses at a tax disadvantage.
Retailers have voiced concerns that a higher de minimis level will lead to shoppers staying away from bricks-and-mortar stores in favour of increasingly buying products online. They say that could lead to stores closing, which in turn could cause trouble for the country’s commercial real estate sector.
American politicians, as well as global e-commerce giants such as Amazon and eBay, had been pushing Canada to increase its threshold.
The de minimis levels for shipments to Mexico will be set at US$100, up from $50 under NAFTA. The U.S. is only required to have a minimum of US$100, although it self-imposed a limit of US$800 in 2016.
EBay commissioned a 2016 study that concluded that raising the de minimis threshold would be a net fiscal positive for the federal government. The study found that losses in tax collection would be offset bythe government needing fewer people to inspect items being shipped across the border.
Businesses would also see savings, the study found, as they would no longer need to produce paperwork in order to claim tax credits for shipments below the higher threshold.
With files from The Canadian Press