Tax-free U.S. retailers. Coming soon to your community?

LLBean

By John Williamson, Vice-President, Research

Since border enforcement and protection is a federal responsibility it is Ottawa’s responsibility to set the tax and duty limit exemption on consumer purchases entering Canada.  The limit is currently $20 but Ottawa is being pressured to boost it to $80 or even $200 for online purchases from the United States and overseas.

Increasing the tax exemption limit means online order destined for Canada won’t be charged HST or even U.S. state tax.  Consumers would rejoice.  Yet, it would treat two similar transactions differently and put domestic Canadian retailers at a competitive disadvantage since HST would continue to be applied on purchases made within Canada –  both locally at a neighbourhood store and online from Canadian-based shippers.  This is bad tax policy.

My recent AIMS column, which appeared in the Telegraph Journal and the Financial Post [click here to read] discussed why it is essential to maintain the neutrality of the HST on all consumer purchases.  It is also important for the provinces to enter this debate since any change would reduce provincial HST revenues.  New Brunswick along with Newfoundland & Labrador increased the HST over the summer.  Prince Edward Island will soon follow.  Nova Scotia did so several years ago.  These provincial governments say they need added tax revenue.

The Retail Council of Canada estimates the tax loophole would reduce provincial HST revenues in New Brunswick by $40-million.  Finance Minister Cathy Rogers was asked about the impact on the provincial treasury.  She opted to remain more or less neutral since it is a decision for Ottawa.

It is wrong for provinces to stay quiet about a federal tax change that would exempt the HST only on online sales made by foreign retailers after provincial governments hiked the tax on local Canadian retailers.  The change would give foreign vendors a sizable 15% tax advantage in Atlantic Canada, particularly when stores like Maine-based L.L. Bean ship to Canada for free.  Minister Rogers, along with other provincial finance ministers, should take a position.

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