How does NAFTA work for a self-employed person?

May 26, 2016 5:08 PM

I'm a Canadian citizen who is self-employed who regularly employs the services of others to produce some of the merchandise I sell. I've recently been getting items made by someone in the US, who produces the items themselves. I know that, under some circumstances, NAFTA (North American Free Trade Agreement) can make it that I don't have to pay duties when importing these items. However, I can't find specific information to explain what situations these are. Can anyone help me out?

To give additional info, as well as deal with potential fallout from people questioning me, I do creative work producing original entertainment content. Any merchandise I sell is based on this original content. The items I sell that I don't produce, the people who DO make them are fully aware that the items they produce for me get resold to people who enjoy my work.

The items in question ARE produced in the US. I don't know where the materials (which is fleece) comes from, but finding that information could be difficult anyway.

I will admit, this question is actually a response to having already received a package with items and being charged taxes on it.

In regards to NAFTA, I've been trying to find information for days, yet I can only ever find information as it applies to individuals who buy things for personal use as opposed to selling them to Canadian citizens. Meanwhile, as far as I know, if/when I sell these items I'm to be expected to charge taxes on them, essentially meaning that I'm suppose to pay taxes twice? Is this right, or is the payment I made for taxes the only time I will have to in this process? So along with understanding how NAFTA would, if at all, apply to me, knowing how these taxes work would be great.

posted by hytrack to Work & Money (4 answers total)

hytrack, I hope this is helpful, but I am sure it won't be 100% complete...

1) Duties and taxes are different things. NAFTA covers goods originating in the USA and Mexico for most duties, but does not prevent you from paying taxes.

2) You will absolutely have to figure out a) where each part is originally from b) under what circumstances it entered the United States in the first place

3) You should probably start here:
Step-by-Step Guide to Importing Commercial Goods into Canada
http://www.cbsa-asfc.gc.ca/import/guide-eng.html
posted by tiamat at 6:09 PM on May 26, 2016

It's been a while since I had a going concern but my recollection is that if you have a GST number you claim the taxes you paid against your remittance on your business tax return (and if you don't, you can't, obvs). But you're not required to have a GST number unless you meet a certain threshold of transactions ($30000 retail?).
posted by rodlymight at 6:48 PM on May 26, 2016

I am almost certain that there are some instances where it isn't necessary that you know the origin of the materials that went into the end product in order to determine whether it qualifies for NAFTA preferential tariff treatment. I believe some goods qualify as NAFTA origin based solely upon a "tariff shift" without regard to the origin of the materials under preference criterion B. (If you refer to the link in Tiamat 's comment my comment should begin to make sense). The first thing I would do is determine the duty rate that normally applies. You may find that the additional effort required to qualify for NAFTA is not worth your while. As Tiamat noted, NAFTA doesn't affect HST/GST/PST.
posted by Carbolic at 4:45 AM on May 27, 2016

Response by poster: I checked the slip I have, and it does seem it was GST/HST. So that solves part of it. Guess this isn't a NAFTA issue then.

So if it doesn't affect HST/GST/PST and I still pay for that, will I have to then pay HST/GST/PST again when I sell the item to a customer? Like, can I mark my items at my normally planned rate before applying HST/GST/PST to customers and then not have to worry about making a second payment, or am I going to have to increase the rate equivalent to include taxes I already paid and then have to make a second tax payment to the government for the sales tax?

This in particular worries me, since I needed to keep my price within a specific area to actually have better odds of selling (This is from knowing the types of people I sell to, the general cost of similar items made by people in Canada, etc), and if taxes have to be paid twice for each item, it means I'm effectively forced to mark up my items 5-10% and possibly screw myself over.
posted by hytrack at 11:17 AM on May 28, 2016