12/18/2014 05:00 EST | Updated 02/18/2015 05:59 EST

Tax Cuts For Cross-Border Online Shopping Could Pay Off, Report Says

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Canadians and their federal government would save money by raising tenfold the amount consumers can spend on cross-border purchases before having to pay taxes and tariffs, a new report says.

The report by the Conference Board of Canada looked at the de minimis threshold, the level at which Canadians have to pay taxes and tariffs on orders shipped from outside Canada. Right now, those fees are charged on any order worth $20 or more.

Raising that limit to allow shoppers to order up to $200 worth of goods would cost the federal government somewhere between $193 million and $237 million in lost tax revenue, the Conference Board found.

That's a small price to pay for the $5-billion benefit to the Canadian economy estimated in a separate study that researchers used for comparison.

A 2013 Senate report much lauded by the Conservative government recommends considering raising the minimum threshold to narrow the price gap between Canadian and American prices.

Now, the Conference Board has estimated the cost to the federal government, and compared it to the $5-billion benefit to the economy estimated by the World Customs Journal in a study published in 2012. The benefits include shorter merchandise transit time and reduced government administration costs and business compliance costs.

Those savings seem to vastly outweigh the $193 million to $237 million in lost tax revenue.

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Unfair to retailers

Canada has one of the lowest minimum thresholds in the world. Americans can have $200 US shipped to them before they pay tariffs and taxes, which the government is considering raising to $800 US. Australians can spend up to $1,000 in their currency before tariffs and taxes kick in.

Canadians can also buy up to $200 in goods duty-free if they spend 24 hours or more outside the country, and up to $800 if they spend 48 hours or more outside Canada.

The numbers are striking, but the report comes with several important caveats:

- The federal government refused to provide data for the initial study, so the $5-billion benefit is an estimate.

- Ottawa also refused to provide data to the Conference Board researchers, so the cost to the government is an estimate.

- The report doesn't calculate lost revenue for the provinces.

The Conference Board tried to confirm the range of its calculations using Statistics Canada data on postal courier imports from the U.S. to Canadian households. It also used information provided by eBay Canada, which has been lobbying to raise the minimum threshold.

It's also unfair, Canadian retailers argue, to let consumers buy goods shipped from other countries without charging them the taxes they'd have to pay if they shopped at a store in Canada.

The tariffs and taxes applied as a package crosses the border are simply the same costs retailers bundle into the price consumers pay in stores, the vice-president of the Retail Council of Canada said in an interview with CBC News.

Karl Littler says the idea of raising the cap is alarming.

"It's a significant fairness problem because self-evidently a Canadian merchant can't then possibly compete," he told CBC News.

Is benefit greater than loss?

As for the much higher $1,000 limit in Australia, Littler argued the market is very different in the middle of the Pacific Ocean.

"There is much more limited opportunity to do regular cross-border shopping in order to obtain goods that aren't readily available in Australia.… Australia is a relatively small online market and you're not going to get what you need by taking the ferry to Port Moresby in Papua, New Guinea," he said.

Vijay Gill, director of policy research at the Conference Board of Canada, said it's important to consider whether the losses to stakeholders like retailers would be larger than the benefits of increasing the minimum threshold overall.

"Some people are going to benefit, some people are going to lose, like any policy change," Gill said.

"What I would want to know is [with] the losers, how much are they losing relative to the overall benefits?… And is there some way to take some of those benefits to compensate some of those losers?"

Gill also pointed out the government wouldn't necessarily save on administration if it redeploys anyone whose job is attached to administering the taxes and tariffs on cross-border orders. That labour could be redeployed to other jobs — possibly making the government more efficient, but not necessarily saving it any money.

Gill said the methodology used in the study that calculated the $5 billion in benefits is correct, but that the Conference Board didn't re-do the research.