A Canadian company that manufactures children's toy sofas finds itself facing steep import duty charges after bringing production back home.
Although Barumba Play does not import most of its products, one component of the sofa was reclassified by the Canada Border Services Agency and is no longer duty-free.
The company's main product is a children's sofa that can be easily disassembled and assembled to play. Sarah Feldstein founded her company in Markham, Ontario in 2021, and initially produced all of her sofas in China.
Feldstein told CBC News that because the sofa was classified as a children's toy, it was not subject to customs duties and was brought into Canada without any import fees. Tariffs can be used by the Canadian government as a type of tax on imported goods to protect Canada's economic development.
For her, problems began in 2023, when Feldstein chose to move sofa production from China to Canada.
“I had a manufacturing business based in Canada from China, and I was punished for that,” she said.
Feldstein was able to manufacture all parts of the sofa in Canada, except for the fabric slipcover, which had to continue to be produced in China.
She received a letter from the Canada Border Services Agency in the summer of 2023 stating that it believed it was incorrect to classify slipcovers as part of the toy. This contradicted what Feldstein was told to expect by the business advisors and industry experts he consulted before choosing to move the manufacturing of the majority of his products to Canada.
Instead, Feldstein said slipcovers are being bundled with textile products such as carpets, bed linen and table linen, and are expected to pay an 18% duty on imported goods. .
The CBSA declined an interview request from CBC News and did not provide a written statement or comment by publication deadline.
Feldstein said her company currently owes at least $47,000 in retroactive duties and expects the costs could rise to as much as $70,000 while the appeal process is completed. There is.
After Barumba Play founder Sarah Feldstein brought her manufacturing business back to Canada from China, she received a letter from the Canada Border Services Agency stating that her children's toy sofa had been reclassified from the toy category to textiles. As a result, an 18% tariff was imposed. It applies retroactively to the past several years of operation. She can appeal, but she must first pay the full amount owed in advance.
Companies must pay even under appeal
She is not sure whether her business will be able to sustain the cost, as she will still have to pay customs duties while attempting to appeal the decision.
Based on the CBSA's current processing times, this appeals process could take nearly a year.
“If you hear that, you might want to tell other people not to take their business back to Canada and instead do it overseas because it's safer,” she says.
According to David Rotfleisch, an attorney with tax and business law firm TaxPage.com, it's not uncommon for businesses to find themselves caught up in a complex web of tariffs.
He confirmed that companies like Feldstein will still need to pay the assessed duties even if they have a legal challenge, as collections will not be suspended or stopped even if an appeal is initiated. .
“Tariff classification is complex, making income tax look relatively simple,” Rotfleisch said.
“Incorrect valuations affect many businesses because they are unable to pay. The appeal process takes time to complete; [businesses] You can't manage it. So they literally have to close their doors. ”
Suspending payments may not be the solution
But Jennifer Bartman, a Winnipeg-based business advisor, said eliminating the payment requirement even before all appeals have been exhausted may not be the right solution.
“It's possible that companies won't pay attention to the rules and say, 'We're going to do this, and if it doesn't work, we're not going to run out of money right away,'” she said.
Baartman noted that importing products into Canada, whether partially manufactured or fully manufactured, requires a lot of preparation and advice.
“It is very important for business leaders, especially when venturing into new aspects of the supply chain, to understand what the rules are upfront because it can save a lot of time and trouble.”
The manager says he investigated it himself.
Business owner Feldstein said he consulted experts before manufacturing the sofa and repatriating it to Canada. The reclassification decision by the CBSA surprised her.
Feldstein said slipcovers, which are currently classified as woven by the CBSA, should be considered just part of the sofa that is still being sold as a children's toy, and not another linen that can be used on its own. claim.
If the cover was part of a toy sofa, it would not be subject to tens of thousands of dollars in customs duties.
According to the CBSA website, to be considered a “component,” an item must have no substitute function, be sold and shipped with other parts of the item that are necessary for the item's “safe and prudent use,” and It is necessary to meet criteria such as: , and be “enthusiastic” about using the unit.
Barumba Play's founders don't know what will happen next, but they are holding off on growing their business until the issue is resolved.
“Now that this is stuck, I'm very hesitant to spend money on other items,” Feldstein said.
