Tuesday, May 9, 2017

Canadian-US trade imbalance as exhibited by wine trade.

So you are taking a vacation abroad? Maybe to a nice wine producing area like France, Italy or California. And you would like to bring some wine back with you?
Duty Free Allowance
How much can you bring back? Well, the duty-free allowance (following trips of 48 hours or more) for bringing wine back to Canada is only 1.5 litres per person which is a rather miserly 2 bottles. You are allowed to bring back 8.5 litres of beer but only 2 bottles of wine. See CBSA site for the limits. If you are within the duty-free allowance, you won't have to pay anything extra. If you are lucky and have a nice customs person (of which there are quite a few), you might be allowed to bring back a bit more. There is zero duty-free allowance for alcohol for trips of less than 48 hours.
Charges & Fees Above Duty Free Allowance (For Wine Accompanying Traveller - Not for Wine that is Shipped Separately)
If you are above the duty-free limit but within the import limit for your province (45 litres for BC), you will have to pay applicable taxes, markups and duties. In BC, those charges are more than 100% of the value of the wine - that will quickly negate any savings.
As an example, for BC only, here are the extra charges that you may have to pay on wine above your duty-free allowance. For each 750 ml of bottle, the fees are as follows:
Customs Duty:$0.00 on U.S. wine, $0.03 on most other wine
Excise Duty:$0.47
GST:5% of (purchase price + customs duty + excise duty)
BC Liquor Board Fee:85% of (purchase price + customs duty + excise duty) with a minimum fee of $1.83 and a maximum of $12.75
To give you an example of how high these fees are, here is an example for a bottle of wine that you purchased for $8.00 (Cdn) in a U.S. store. Note that nearly all of the fees are PROVINCIAL. The federal government hardly charges anything in comparison.
Customs Duty:$0.00
Excise Duty:$0.47
BC Liquor Board Fee:$7.20
So on an $8.00 bottle of wine, you will pay an additional $9.70 at the border - so your wine ends up costing you $17.70. Only 89 cents of that goes to the federal government. The rest are provincial fees, mostly Liquor Board markups and fees.
However, you should note that because the LDB markup/fee caps out a maximum of $12.75 per bottle, and depending upon the price of the bottle, the personal import of more expensive wine may be economic. It is important to have receipts for all wine that is imported in the manner set out above - particularly if you are picking up wine that you have ordered online.
IMPORTANT: the above charges are only valid in the "traveller stream" (i.e. for individuals returning from a trip with liquor accompanying them). They are not valid if you try to import the wine yourself without going on a trip or if you arrange to have it shipped to you while you are away. In these latter situations, the import process is very complicated and the charges may be evenhigher. At the present time, I do not recommend that any BC resident have wine shipped to BC from abroad.
Comparisons With Other Jurisdictions
By contrast, the United States allows 1 litre of wine for its residents to bring back duty-free (less than Canada!) but the duty and tax rates on anything over the limit are extremely low: 3% duty (not applicable for Canadian wine due to NAFTA) plus maybe some other IRS or state taxes if applicable. See the U.S. CBP site for info . In addition, I am told that even these amounts are not often charged on reasonable amounts that are brought back. See this site for specific information on bringing B.C. wine back into Washington state.
For even greater contrast, look at the EU: for example, if you go over to France from England, you can apparently bring back up to 90 litres of wine without problem! See HM Customs page for wine import information .
Differences Between Provinces
The fees levied at the border within Canada vary depending upon what province you return into. As a result, your return point of entry may dramatically affect the fees: see this CBSA (Canada Customs) memorandum which sets out all the details of border tax collection (including wine markups). For example, if you are a resident of BC but return to Canada via Alberta, you will be charged the Alberta markups when you re-enter Canada (this is because Canada Customs does not have the jurisdiction to levy fees from one province in a different one). The fees in BC are very high for low to moderately priced wine. By contrast, in Alberta there is a flat per bottle fee charged, around $3 per bottle.
For further information on this topic and comparative rates between provinces, you may want to read this interesting article, Bringing it Back, by Girvan Patterson - however, it is wise to check current CBSA information for the current rates (I have not verified any of the info in this article other than the BC fees). In addition, you should be aware that, depending upon which province you live in, you may not be permitted to "land" in a favourable rate province such as Alberta and then bring the wine with you to a different one such as B.C. This is because some provinces limit the legal possession, importation or transport of wine "imported" from other provinces or from outside the country (see the related shipping laws article for details). 
Legal Authority to Collect Border Charges
There is no doubt that CBSA (Canada Customs) has the authority to collect taxes and duties at the border when you return to Canada. However, the vast majority of the amounts charged on wine (and other alcohol) are not taxes or duties ... they are liquor board markups. Liquor board markup is legally not valid as a tax (although all the revenue still goes to the relevant provincial government). It is imposed by the various liquor boards on the legal basis that they "own" the liquor in question and, as such, can levy whatever profits and fees they like on it. However, a small problem arises at the border because you, as the traveller, have already purchased the liquor (i.e. you own it) when you are bringing it back. In order to fix this, the liquor boards have created an artificial legal structure whereby they vest the customs officer with the power to act as an agent of the liquor board. The customs officer/liquor board agent then technically expropriates (seizes) your liquor from you (without compensating you) and will then release it back to you only when you pay all of the markups and fees. Don't believe me? Check out section 19 of the Liquor Distribution Act. There is also some federal legislation (which clearly relates only to tax), an "order-in-council" (which doesn't add much) and an agreement between the CBSA and the LDB.
Personally, I have some doubts as to the legal validity of this structure since the liquor board appears to be using its statutory monopoly power as a regulator to impose markups at levels which are excessive in order to discourage competition with its retail arm. For example, the markups discussed above are applied to the full retail price that you paid for the wine. Since markups are applied to the wholesale cost within BC and since the liquor board has no costs associated with your imported purchase, it seems punitive to impose this level of markup. In addition, since BC wine purchased directly from a winery has zero markup, it seems unfair (NAFTA? GATT?) to charge these levels of markup at the border when you purchase wine in exactly the same way from a winery in WA, OR or CA.
But until someone challenges it, that's the legal authority.

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