Christine Deslauriers unpacks a box of skates in her shop, Boutique Step Up, near Sudbury, Ont. Another return shipped backed from the United States, another $80 fee she has to cover on a sale she didn’t make. “That’s my profit,” she says. “Straight out of my pocket. I can’t make that back.”
Deslauriers, whose business specializes in skating, dance, and gymnastics apparel, is among the thousands of small and medium-sized business owners whose margins are made even skinnier because of the of taxes and duties they’re forced to pay at the border.
In Canada, the duty-free limit, also known as the de minimis threshold (DMT), is lower than any other country in the industrialized world—by far. Anything coming into Canada worth more than $20 (U.S.$15) is subject to federal and provincial sales taxes and duty fees. That’s half as much as Chile’s DMT, the next lowest, and 40 times lower than the limit in the U.S., which rose this year from U.S.$200 to U.S.$800.
Canadian businesses, as well as those in the U.S. looking to ship across the border, have been pressuring the government to raise the DMT—something that hasn’t happened since 1985. In February, U.S. Senator Jeanne Shaheen lobbied the Liberal administration to increase the threshold in the 2016 budget, but as of now there are no concrete plans to increase the limit.
The rationale for keeping the duty-free limit low is so the government can collect more taxes. But according to research published by the C.D. Howe Institute, revenues generated by the DMT are negligible. Researchers Christine McDaniel, Simon Schropp, and Olim Latipov calculated what would happen if the threshold increased to $80, $100, or $200. Boosting it from $20 to $80, the government would lose out on $39 million, but save $166 million in resources expended to collect taxes and duties—an overall savings of $127 million. At $100, the government could save $138 million, and raising the DMT to $200 could generate $161 million in savings.
For other stakeholders—namely consumers and small and medium-sized businesses—the benefits are much greater “because the cost savings for smaller entities is disproportionately large,” the report states.
Darrell Renaud, owner of outdoor apparel and equipment shop ScoutTech, says the low threshold makes it hard to offer the level of service he’d like to. “When customers want to do special orders, if we’re out of their size for footwear, for example, we’re not able to order it in for them,” he says. “When you factor in shipping, and taxes and tariffs, most of the time it becomes out of reach for the customer, and those costs are too expensive for us to cover.” Like Deslauriers, Renaud must carefully place a few large orders each year, and hope that he doesn’t run out of certain items before it’s time for the next shipment. “If a popular item starts to sell out, we can’t just reorder more on a smaller scale because of the way the low threshold affects us,” he says. “Often to justify all of the expenses, we have to order $800 worth or more.”
The long holdups at the border add another barrier for Canadian businesses and consumers. “There are some U.S. companies that won’t even sell to Canada because it’s such a pain to deal with customs,” says McDaniel, one of the authors of the C.D. Howe report. While any package under U.S.$800 coming into the States sails through customs unchecked, in Canada, virtually anything is fair game for an inspection, potentially creating huge delays.
“I’m limited by what I can offer,” says Deslauriers. “The fact that we’re not very competitive with our dollar versus the U.S., plus these extra fees at the border—we’re getting priced way, way out.”
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Has Canada’s low de minimis threshold hurt your business? Let us know by commenting below.