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Ebay, Amazon want Canada's duty-free limit raised on foreign online purchases

Canada's Prime Minister Justin Trudeau scans merchandise with an employee during a tour of the Amazon Fulfillment Centre in Brampton, Ontario, Canada October 20, 2016. REUTERS/Fred Thornhill
[Canada’s Prime Minister Justin Trudeau scans merchandise with an employee during a tour of the Amazon Fulfillment Centre in Brampton, Ontario, Canada October 20, 2016. Amazon is just one of the retailers taking umbrage with the duty charged on parcels shipped to Canada. (REUTERS/Fred Thornhill)]

Ebay, Amazon and Shopify are just three of the names in the Internet retail game lobbying MPs to raise the duty and tax free limit (a.k.a the de minimis limit) for Canadians who make online purchases from retailers based outside the country.

In 2012, Stephen Harper’s conservative government raised the de minimis for Canadian residents returning from cross-border trips from $50 to $200 for a 24-hour stop and from $400 to $800 for a 48-hour stop. However, they forgot about parcels coming into Canada where the limit remains $20 – unchanged since 1985. Meanwhile, American online shoppers enjoy an $800 de minimis limit after it was raised from $200 U.S. in March 2016.

“We don’t think it makes sense for Canadians to be penalized in a way Americans are not and we don’t think it makes sense for them to be penalized when they shop online,” says Maryscott “Scotty” Greenwood, executive director and senior advisor of the Canadian American Business Council [CABC], which represents the cross-border business interests of companies such as Amazon, Facebook, Google and Air Canada.

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“When [Canadians] are looking for something and they can’t find it in the store down the street they can drive across the border and buy it, but if they try to buy it online they have to pay a penalty to get it over to Canada. We don’t think that’s fair, we don’t think that makes sense in today’s day and age and it’s sort of an old, leftover policy from the 80s, before e-commerce really existed.”

Over 15,000 Canadians agree – that’s approximately how many signed the CBAC’s “Dump the Duties” petition, at the time of this article’s publication. If the limit is going to change, it will most likely be announced with the Federal Budget in Spring 2017, so eBay has submitted a written submission outlining its case and Andrea Stairs, managing director of eBay Canada who testified before the Finance Committee on October 19, 2016.

“We want the threshold set so that the cost to collect the duties is more than offset by the duties themselves. We think that break-even point is somewhere between $80 to $200, but we don’t have the data the government has, so we encourage them to set the threshold at a point where the Canadian taxpayer isn’t out of pocket for duties and taxes,” says Stairs.

According to a report from the C.D. Howe Institute, an independent policy research organization, the government spends $170 million to collect $40 million on duties and taxes annually and the Canadian tax payer can pay up to an additional 30 per cent on shipments between $20 to $80 and these penalties are not leveled consistently, so you never know when you will have to pay.

“It’s not about a certain product or category when being assessed for duties and taxes. What really drives the ‘Duty Roulette’ is how the item is coming into the country,” says Stairs.

For example, courier items will more than likely be assessed for duties and taxes on top of the brokerage fees that you’ll have to pay, but if it comes via postal mail, usually items between $20 and $80 are only assessed occasionally.

But, despite the potential benefit to Canadian taxpayers, raising the de minimis limit is not without controversy. Opponents of the move say there are other important things to consider that may have a detrimental impact on the Canadian economy and retailers with brick-and-mortar businesses.

“It’s about fairness. Our issue is with a website that operates a warehouse in Amarillo, Texas shipping something into Canada that wouldn’t be subject to tax and duties and the effect that would have on a merchant that actually employs people in Canada and operates in Canada that would still have to collect the tax and the duty on that same item,” says Karl Littler, vice president of public affairs for the Retail Council of Canada, which represents the business interests of online retailers with physical store locations in Canada, such as Loews, Canadian Tire, Costco and Walmart.

“If you were to put it in a nutshell, what the advocates for the other side are proposing is a tax incentive supported by the Canadian Government to get Canadians to shop literally anywhere but Canada,” contends Littler.

He argues merchants based in Canada online or off would still have to charge more for their products to account for the sales taxes and duties that they’d have to pay, while foreign entities who invest the least and employ the fewest people in Canada would enjoy a tax advantaged cushion brought on by the higher de minimis limit.

This is the same reason the U.S. has something commonly referred to as Amazon Taxes. Prior to 2011, state governments weren’t charging taxes for something shipped into their state from elsewhere and local merchants couldn’t compete with the ability of out-of-state entities, such as Amazon, to ship in product without collecting taxes. Now 28 out of 50 states have legislation requiring entities like Amazon and eBay to collect taxes from customers in those states.

“This is the same point we have,” says Littler. “We’re not looking for an advantage, we’re just asking the Canadian Government not to create a disadvantage for those who hire and invest in Canada. Let’s compete with foreign shippers, but let’s compete on even footing.”

If they can’t, and the de minimis limit is raised to the levels the Canadian American Business Council’s members are proposing, the fear among retailers is that more customers will go online for a wider range of higher value goods they can get tax free and duty free, which will cripple their businesses. The Retail Council of Canada estimates clothes, books and housewares are just three of the sectors that will be hit particularly hard, but proponents of raising the limit say that’s not going to happen.

“It’s not really a question of do I want to buy something at a local store or do I buy it online because what the data shows is if anybody has the opportunity to buy something at their local store, that’s their strong preference,” says Greenwood.

She is half right. While recent surveys from the Canadian Internet Registration Authority [CIRA] and RedFlagDeals.com do show more Canadians prefer to shop within Canada – whether in store or online – responses show that’s more to do with heavy exchange rates, duty fees and customs delays than anything else, so there’s at least a possibility that were duties and taxes relaxed, more Canadians would favour American online retailers. Whether it would force Canadians out of business online remains to be seen.