2021 Federal Budget Highlights

The Canadian government unveiled its 2021 Federal Budget on 19 April 2021.
Here are the key points as they relate to trade.

Modernizing Travel and Trade at Our Borders

Budget 2021 proposes to provide $656.1 million over five years, beginning in 2021-22, and $123.8 million ongoing, to the Canada Border Services Agency (CBSA) to modernize our borders. Funding will transform the border experience for travellers through touchless and automated interactions, enhance CBSA’s ability to detect contraband, and help protect the integrity of our border infrastructure. Funding will also support three Canadian preclearance pilots in the United Sates that would enable customs and immigration inspections to be completed before goods and travellers enter Canada.

Improving Duty and Tax Collection on Imported Goods

The efficient and fair collection of duties and taxes on imported goods protects the competitiveness of Canadian businesses.

  • Budget 2021 proposes changes to the Customs Act to improve duty and tax collection. These changes would ensure that goods are valued in a fair and consistent manner by all importers. This would level the playing field between domestic and foreign businesses and generate an estimated $150 million in additional annual duty revenues. The changes would also modernize and digitize the duty and tax payment process for commercial importers, to minimize administrative burden.

Currently, some importers with foreign ties value their goods at a lower price than most Canadian importers by using a previous foreign sale price. This practice results in a lower value of duties and taxes paid when importing these goods into Canada. The amendments to the Customs Act and related regulations would ensure that all importers value their goods using the value of the last sale for export to a purchaser in Canada, ensuring fairness for all importers and enhancing consistency with international rules.

Strengthening Canada’s Trade Remedy System

Maintaining a robust trade remedy system will ensure Canadian businesses can fully participate in the economic recovery and mitigate the impacts of unfairly traded imports.

Budget 2021 announces the government’s intention to launch public consultations on measures to strengthen Canada’s trade remedy system and to improve access for workers and small and medium-sized enterprises (SMEs). This may result in proposed amendments to the Special Import Measures Act and the Canadian International Trade Tribunal Act.

Administration of Trade Controls

The government has been taking steps to bolster its system of trade controls to ensure that Canada effectively manages the cross-border flow of sensitive goods. This includes strengthening Canada’s oversight of the movement of prohibited firearms and arms exports. It also includes additional monitoring and controls for imports of certain steel and aluminum products and supply managed goods to better monitor trade flows.

Better Supports for Exporters

Export Development Canada (EDC) helps Canadian companies of all sizes compete and succeed in the global marketplace. EDC recognizes its responsibility to uphold Canadian values and human rights when doing business. Budget 2021 announces the government’s intention to work with Export Development Canada to enhance supports to small and medium-sized exporters and to strengthen human rights considerations in export supports. The government may propose amendments to the Export Development Act

Border Carbon Adjustments

Border carbon adjustments make sure that regulations on a price on carbon pollution apply fairly between trading partners. If a different price on pollution is levied at source, the difference is accordingly applied on imports and exports between countries. This levels the playing field, ensures competitiveness, and protects our shared environment. An important part of advancing this work is ensuring a common understanding of border carbon adjustments and hearing views from interested Canadians, as well as working with Canada’s international partners.

  • The government intends to launch a consultation process on border carbon adjustments in the coming weeks. This consultation process will begin in the summer with targeted discussions, including with provinces and territories, importers, and exporters—especially those who deal in emissions-intensive goods. The broader public will be engaged this fall. Throughout this process, the government intends to continue its international engagement with like-minded partners.

Application of the GST/HST to E-commerce (non resident importers, fulfillment centres) 

The government proposed that distribution platform operators be required to register under the normal GST/HST rules and to collect and remit GST/HST in respect of sales of goods shipped from a fulfillment warehouse or another place in Canada, when those sales are made by non-registered vendors through distribution platforms. Non-resident vendors that make sales on their own (i.e., not made through a distribution platform) would also be required to register under the normal GST/HST rules and to collect and remit GST/HST in respect of sales of goods shipped from a fulfillment warehouse or another place in Canada.  These measures are expected to come into force in July 2021.

Excise Tax Collection on Tobacco and Vaping Products and Duty and Tax Collection on Imported Goods 

Budget 2021 proposes to introduce a tax on the retail sale of new luxury cars and personal aircraft priced over $100,000, and boats priced over $250,000, effective as of January 1, 2022. For vehicles, aircraft and boats sold in Canada, the tax would apply at the point of purchase if the final sale price paid by a consumer (not including the GST/HST or provincial sales tax) is above the $100,000 or $250,000 price threshold, as the case may be. Importations of vehicles, aircraft and boats would also be subject to the tax.

The tax would generally apply at the final point of purchase of new luxury vehicles, aircraft, and boats in Canada. In the case of imports, application would generally be either at the time of importation (in cases where there will not be a further sale of the goods in Canada) or at the time of the final point of purchase in Canada following importation.

Upon purchase or lease, the seller or lessor would be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time.

Exports will not be subject to the tax, in line with their treatment under other taxation regimes.

Excise Duty on Vaping Products

Budget 2021 proposes to implement a tax on vaping products in 2022 through the introduction of a new excise duty framework.  The new duty would apply solely to vaping liquids that are produced in Canada or imported and that are intended for use in a vaping device in Canada. The proposed framework would impose a single flat rate duty on every 10 milliliters (ml) of vaping liquid or fraction thereof, within an immediate container (i.e., the container holding the liquid itself). This rate could be in the order of $1.00 per 10 ml or fraction thereof, and the excise duty would be calculated and imposed based on the volume of the smallest immediate container holding the liquid.

Excise Duty on Tobacco

Effective 20 April 2021, the budget increases the tobacco excise duty rate by $4 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates for other tobacco products outlined as follows:

Cigarettes( per five cigarettes or fraction thereof- $0.72725
Tobacco Sticks (per stick) – $0.14545

Manufactured Tobacco (per 50grams or fractions thereof – $9.09062

Cigars – $31.65673 per 1,000 cigars plus the greater of $0.11379 and 88% of the sale price or duty-paid value.

The 2021 Federal Spring Budget is available on the Government of Canada’s website.