Tag Archives: tax

Canada’s Digital Services Tax is in US Crosshairs 

From: Jon Johnson
To: Global Affairs Canada 

On August 30, the US requested consultations respecting Canada’s Digital Services Tax Act under the dispute settlement procedure set out in the Canada-US-Mexico Agreement (CUSMA). The US maintains that by imposing the tax, Canada has failed to provide US service providers and investors treatment no less favourable than it provides to Canadian service providers and investors. Given Canada’s unique trade relationship with the US, this could have major implications.

The essence of the complaint is that Canada is violating a specific CUSMA obligation to grant US firms terms that are no less favourable than its own companies receive.

This is called national treatment. The crux of the US argument is that the revenue and earnings thresholds are so high that no Canadian service provider would be subject to the tax, but at least some US providers would be. While the DST is not discriminatory on its face, its practical effect is discriminatory. 

Canada’s taxation of digital services has been an on-going contentious issue with the US. The new legislation entered into effect on June 20 and imposes a 3-percent levy – retroactive to January 1, 2022 – on revenue (not income) earned from digital services when certain thresholds are met. Annual gross revenues in a calendar year must exceed €750 million for the tax to apply. The taxpayer must also earn at least C$20 million in Canadian digital services revenue in a calendar year. Affected companies are to start paying the tax next June 30. 

On August 1, the Congressional Research Office released a paper outlining multiple concerns. It cites industry associations that maintain that Canada’s DST could “cost US exporters and the US tax base up to $2.3 billion annually and could directly result in the loss of thousands of full-time US jobs.” The paper also cites possible violations of CUSMA and WTO obligations. 

The paper also notes that the United States Trade Representative (USTR) has applied sanctions under Section 301 of the 1974 Trade Act against digital services taxes enacted by other countries. Section 301 is much broader in its application than either CUSMA or the WTO.

The CUSMA panel could decide for the US if the facts establish that only US companies meet the €750 million threshold for overall earnings and whose Canadian digital earnings exceed C$20,000,000. 

Aside from the possibility of an adverse panel decision and action by the US under Section 301, there are other factors that Global Affairs Canada should consider before the Canadian government commences with the retroactive portion of the tax.  

CUSMA is up for renegotiation on July 1, 2026. The process on the US side starts with a USTR report to Congress, due by the end of 2025, that will include an assessment of CUSMA’s operation, as well as a recommendation on CUSMA extension. As Canadian initiatives to impose digital taxes have been a US concern for years now, the recommendation will doubtless address the question of Canada’s DST regime. If that regime remains an open issue and US concerns are not satisfied, the stage could be set for the ultimate demise of CUSMA in 2036.

CUSMA Article 32.6 also provides that a party can withdraw from CUSMA upon giving six months’ notice to the other parties.  

Decision time for the Canadian government falls on June 30, 2025, and it has to decide whether to go ahead and start collecting its retroactive DST and face the inevitable hostile reaction of its largest trading partner. This has to be carefully managed, or this small issue could become a big one. For the Silo, Jon Johnson.

Jon Johnson is a former advisor to the Canadian government during NAFTA negotiations and is a Senior Fellow at the C.D. Howe Institute.

7 Serious Tips for Better Bookkeeping in Canada

Bookkeeping is tedious for most business owners unless you are a seasoned accountant or a fan of working with numbers. That is because businesses have a lot of financial details that need to be recorded, for instance, which supplier should be paid, outstanding customers, equipment to buy, significant purchases to make, and more. Without an accounting and bookkeeping system, you may lose essential business data, miss important goals, or make uninformed decisions that may affect your company’s finances.

Proper money-handling strategies are integral in any business as it helps you keep track of your long-term goals, improve your profits, and streamline seasonal cash flow changes. In addition, it will help your business stay out of trouble with the Internal Revenue Service or IRS.

By adopting good bookkeeping habits, you can avoid costly errors when it comes to record keeping. You can opt to have an in-house team to handle all your bookkeeping services, but this can be un-economical for small business owners. To save on cost, you can work with a bookkeeping agency, which often offers professional online and virtual services in Canada at very fair rates.

Here are seven tips for better bookkeeping for businesses in Canada.

Separate Your Business and Personal Finances

If you are a sole business owner, you should learn to separate your personal and business accounts. This will help you maintain records of every business and personal spending and help you keep the boundary to alleviate eating into the business growth finances.

For limited liability companies, the business is a separate entity from you, and your finances should be kept separate. That means you need to know which assets belong to the business and which are yours. By eliminating all personal transactions from the business accounts, you will lower the number of transactions the bookkeeper needs to categorize and reconcile. Additionally, your tax preparation and filing process will be seamless. You can find a bookkeeper in Canada to help you separate your accounts and provide outsourced business and personal bookkeeping services.

Control Your Business Credit

One of the common signs of an insolvent business is the inability to make payments promptly. The company may need better credit scores, lack of funding, or challenges in fulfilling its working capital needs.

When your business depends on bank financing to fund everyday operations, you will need help to pay back your high-interest debt. Therefore, you need to do due diligence before taking external funding.

You should set strict deadlines for your clients to pay what they owe and consider blocklisting repeat offenders that are taking advantage of you. Eliminate any late payments, as it is just like an interest-free loan. Your business may quickly become a cash-flow crisis if you lack rigorous credit control.

Track Business Expenses

Business expenses may be claimed against tax; therefore, tracking them is crucial if you want to cut overhead and maintain a healthy cash flow. You should always use a business credit card and keep records of expenses based on business activity.

Categorizing your expenses can be crucial, especially when your business is undergoing an CRA audit. The numbers on tax returns are often estimates, and these records help offer supporting evidence. Always remember that even trivial expenses will add up, and having records of everything can be helpful in the long run.

Overspending negatively affects any business; hence, keeping track of your expenses will ensure you track all your expenditures. Always remember that every dollar that you spend takes the business one step away from making a profit. Therefore, when running a business, keep a close watch on all your expenses, understand the benefit you gain from each expense, and document everything carefully. With outsourced online bookkeeping services, you can keep track of all your business expenses and maintain good records.

Schedule Routine Bookkeeping Times

As a business owner, you are handling many things at once, which can eat into the time you can use to monitor your financial record books.

The best way to keep your accounts is by consistently scheduling times to balance your books or working with a bookkeeping company in Canada. You can set aside time when your credit card statement is due and check through your monthly transactions to ensure everything is accurate. Although this task will take about one or two hours, it will simplify your life during the tax season by making tax preparation and filing much more effortless.

Create Budgets For Your Expenses And Set Financial Goals

Planning for business expenses, especially significant purchases, can help you best utilize your business resources and credit while giving you the peace of mind you need. Setting up and reviewing business budgets is directly related to the success of your business.

According to research, small businesses that regularly review their budgets on a weekly, monthly, and annual basis have success rates of 95%, 75%, and 25%, respectively. Therefore, if you want your business to succeed, you must have relatively high unused credit balances. In addition, you should also ensure your budget is monitored regularly, understand the benefits of using credit for your company, and be able to earmark the right amount of business payroll expenses.

Automate Manual Processes

One of the best accounting tips for growing businesses and start-ups is automating routine bookkeeping. Most accounting and bookkeeping activities are repetitive, and automating them will make your work easier and seamless.

Some repetitive bookkeeping processes you can automate include paying employees’ salaries monthly, following up on late invoices, and tracking invoices you send to customers. In addition, you can also automate the calculation of mileage payments for employee reimbursements and document utility bills in a central database.

Business owners can make life much easier by utilizing unified accounting project management solutions to help track expenses, automatically send invoices, and generate customized reports.

Consider Hiring a Tax Accountant

Investing in a seasoned tax accountant near me can be valuable for your business, even if the professional commits just a few hours every week or month to work on your small business bookkeeping and accounting needs.

A certified bookkeeper will record income and expenses and categorize them for a specified period. Conversely, a chartered accountant will help file your business taxes and set up your business’s accounting backbone. A reputable bookkeeping company will have certified tax consultants near me ready to assist you.

With an expert bookkeeper or chartered accountant handling all financial tasks, business owners can focus entirely on their business to attract customers and satisfy existing clients. They can also develop new products and services and grow their business.

Final Thoughts

Bookkeeping is a necessary evil that businesses cannot escape because almost everything depends on it. With an accurate and robust accounting system, you will get information about the business’s cash flow, performance, and financial condition, and it will help you make informed financial decisions. With the tips mentioned above in mind, you can ensure your small business bookkeeping records are available and can make better decisions for your business. You can also eliminate the headache of bookkeeping by outsourcing this function to a certified bookkeeper to help you out. Having a safe pair of skilled hands providing bookkeeping services for small businesses will give you, as the business owner, the confidence and freedom to lead from the front by focusing more on growing your business.

Contraband Tobacco solution requires more than Federal legislation ‘tinkering’

Illegal Cigarettes Stashed

SOLVING ILLICIT TOBACCCO  A National Strategy  There is no debate that the global trade in contraband tobacco has far-reaching implications for society. Too much evidence exists today to deny that the black market in tobacco draws in the involvement of a host of problems for public safety and national security.  Complicating the picture is the inevitable Canadian debate relative to which level of government has control over what activities and in so doing responsibility for quelling the illicit tobacco industry falls between the cracks.

The reality of the debate is much more visceral when viewed through the lenses of aboriginal rights and commercial responsibilities. Competing “constituencies” in the debate continue to pursue support by staking out scientific, social and moral positions on the smuggling and selling of untaxed and unregulated tobacco products.  The Ontario Convenience Store Association points fingers at the Canadian First Nations as the source of contraband tobacco off reserve.  Law Enforcement warns of the role of Organized Crime – up to 175 gangs and the Italian Mafioso too!  Band leaders on reserve say that it is their right to deal in tobacco all they want so long as it helps the economic prosperity of the community.  Ontario farmers blame the McGuinty Liberal Government for “ripping them off” for 69 cents for the tobacco pounds they agreed not to grow pursuant to the Tobacco Transition Program of 2008.  All in all, things are a mess!

The provisions of Bill C10, An Act to amend the Criminal Code (trafficking in contraband tobacco), which was sent to the Senate for “sober second thought” has passed Third Reading and awaits proclamation. The Bill will pass but it will leave a sour taste in the mouths of some of the Bill’s “constituencies”, including First Nations. During the Senate “consultation” process, several First Nations leaders decried the flawed consultation process with Canada’s First Nations.

Despite the progress against contraband tobacco with Bill C-10 from a law enforcement point of view, many of the conditions that support the illicit trade in tobacco remain. Save for high profile busts like the “Sweet Dreams” takedown last spring in Montreal that netted the Sicilian Mafia connection, the slow burn of the illicit tobacco trade has caused convenience store closures, stripped billions of dollars from federal and provincial tax coffers, made criminals out of law abiding farmers, and has opened new routes to marketing cigarettes to children on school grounds.

 

A National Approach

The solution to the many problems associated with contraband tobacco require more than just tinkering with federal legislation yet again. The complexities of the issue require a complete re-thinking of the problem of illicit tobacco and how best to deal with it.

A truly novel and potentially much more effective way of dealing with all tobacco regulation in Canada would be to appoint a National Tobacco Ombudsman (NTO) with sufficient investigative and search and seizure powers to greatly reduce or even eliminate the prevalence of illicit tobacco in Canada. To avoid any constitutional confusion, the NTO would be specifically national in scope but multi-jurisdictional in its powers and therefore a uniquely derived capability that can cross federal/provincial/First Nations lines to arrive at practical solutions.

 

Tobacco and Competing Constituencies

When it comes to a serious attempt to address the problems associated with the illicit tobacco trade in Canada, the solution needs to focus on four areas that need fixing. All four need to be dealt with rationally and objectively and potentially all by a properly selected and resourced NTO.

  • Law Enforcement

 

To date in Canada the RCMP has been afforded the mandate and financial resources to combat contraband tobacco. Unfortunately, the Mounties have been sorely inadequate to the task.  Despite RCMP press releases that take credit for illicit tobacco busts, two realities remain.  First, most of the Mounties believe that stopping the flow of contraband tobacco is an insult to their mandate as Canada’s federal police force.   Instead of trying to convince the RCMP that this is important work for them to pursue, it would be better to shift law enforcement to local and provincial police forces and provide them with the manpower and financial resources they need to investigate and pursue offenders.

Besides pursuing organized crime groups and chasing terrorism-related financial networks, there are many other, less sexy law enforcement activities that need to be attended to in order to fully address the contraband problem. For one example, enforcing the regulations that control the production and distribution of tobacco are provincial matters but require the monitoring and investigative expertise that comes with experienced and trained law enforcement personnel.

A NTO should be given the mandate to define the roles and resources of local and provincial police forces to support the enforcement of tobacco growing and distribution legislation and regulations at both the provincial and federal levels. Moreover, should the provisions of Bill C-10 (or something like it) come into effect, sworn peace officers from local and provincial forces will need to be coordinated in training and procedure.

 

  • First Nations – Rights and Fairness

A First Nations Chief stated that Bill C-10 effectively allows the Canadian Government to enter the 6 Nations of the Grand River or Tyendinaga, both in Ontario, with no-knock raids, flash bangs, police dogs and RCMP in riot gear if we have in our possession unstamped tobacco products.  In both the Akwesasne and Kahnawake reserves in Quebec there are no less than 50 illicit cigarette factories.  First Nations here have long served notice to both legislative authorities and law enforcement that they are most unwelcome.  Both of these reserves continue to produce high volumes of contraband tobacco that continue to be distributed across Canada.

 

  • Growers – the 69 cent solution

 

Farmers in Southern Ontario believe fervently that they have been “screwed” by the Ontario Government. This screwing took place when Premiere McGuinty reneged on a deal, as part of the Federal Government’s Tobacco Transition Program of 2008, to pay farmers sixty-nine cents for every pound of tobacco they would not grow in future.  Some of the farmers lost their farms; others found ways to circumvent the deal – take the money from the feds and continue to grow tobacco for sale to the black market.

The NTO would not permit this fiasco to develop. Fairness would have dictated a process for negotiating the buyout such that all parties would be agreeable to the outcome and all parties would respect the terms of activity or payment.  To give the deal teeth, the NTO would have the resources to monitor the results of the agreement, including payments promised and behaviour modified.

 

  • Taxation Rationalization

 

It is widely known that the infamous U.S. mobster, Al Capone, was convicted for tax evasion in order to put him away for life. Present day mobsters are involved in using contraband proceeds to engage in other serious criminal activities such as drug, gun and human trafficking and terrorism funding.

Illegal Cigarette Profits Feed Terrorism

Studies by reputable think tanks such as the US Mackinac Institute have determined that there is a sweet spot in government taxation levels that represents the most effective price deterrent to smoking and the point where tax hikes drive consumers – especially young consumers – to buy contraband cigarettes.

A NTO would have the ability to provide much wisdom and hopefully much influence in advising governments at all levels how to set tax policy and rates within the context of knowledgeable consequences. The other important aspect that would be performed by the NTO is to ensure harmonization across jurisdictions which would eliminate “spatial arbitrage” between jurisdictional lines.

 

Action Required

The concept of a National Tobacco Ombudsman requires immediate discussion and very near term implementation so that tax bases can be restored with money now flowing to the criminal elements in Canada and abroad.

Ombudsmen are about protecting the rights of the public. A NTO with criminal investigative powers led by a credible Ombudsman  would protect the legitimate interests of the First Nations communities, provide law enforcement with the tools to rid our communities of organized crime groups, provide guidelines for the orderly growing of tobacco on or off reserves, and stop the lust for tax grabs at the expense of public safety.  This Ombudsman would be answerable to Parliament and would not be buried in the bureaucracy with hierarchical structures that have been established to protect and avoid issues of significant importance.  Contraband tobacco in Canada continues to be a multi-billion dollar rip off that fuels organized crime and is a significant threat to national security as the illicit trade moves with fluidity across national and international borders.

The establishment of the NTO requires unwavering leadership, transparency and accountability at all levels of government, within commercial activity involving tobacco, and within First Nations’ communities. For the Silo, Edward R. Myers

SupplementalTobacco.org home to tobacco news and information

In England, convenience store owners (called Publicans) are charged and serve jail time for selling illegal cigarettes and tobacco