The ongoing prospect of U.S. tariffs are prompting Canadian businesses and consumers to mitigate potential disruptions to supply chains and the purchase and sale of consumer products. Federal tax incentives, potential legislative changes and other tactics can provide some relief amid this uncertainty.
Canadians face the prospect of higher costs of U.S. goods and supply chain disruptions should broad U.S. tariffs take effect after a negotiated pause and targeted levies on steel and aluminum come into force.
As businesses and consumers brace for significant challenges, there are federal incentives that can be leveraged alongside other mitigation strategies to address trade uncertainty.
Here is a look at where things stand with the latest U.S. policies, Canada’s current and projected economic situation and how tax strategies can help contend with ongoing challenges.
Recent tariff announcements on Canadian goods from U.S. President Donald Trump mark a significant shift in the trade environment between the two longstanding trade partners.
Trump’s initial tariffs, scheduled to take effect in early March after he and Prime Minister Justin Trudeau agreed to a delay, would impose a broad 25 per cent duty on most Canadian exports, with a 10 per cent tariff on energy resources. Trump then followed up with 25 per cent tariffs on all steel and aluminum imports that, should they be enforced on March 12, would disproportionately impact Canada.
These measures would have substantial implications for Canadian businesses that are reliant on the U.S. in their supply chains. They could also result in higher prices for Canadian consumers as businesses contend with rising production costs and disruptions in their supply chains.
While a wide range of industries will be impacted, of significance to Canada is the clean energy industry which is particularly vulnerable, as tariffs on products such as solar panels, wind turbines and electric vehicle components could hinder both growth and innovation.
Consumer products, one of Canada’s cornerstone industries, will likely be heavily impacted by the introduction of tariffs. Businesses could expect significant disruptions to their supply chains and increased production costs, with these costs being passed off to the end consumers.
For businesses, the scientific research and experimental development (SR&ED) program offers significant benefits at the research and development (R&D) stage, including those involved in consumer product development. By providing tax credits for eligible R&D activities, companies can offset costs and invest more in innovation.
Changes proposed by the federal government in its fall economic statement (FES) aim to enhance these benefits by increasing the current expenditure limit of $3 million to $4.5 million for the enhanced investment tax credit applicable to Canadian-controlled private corporations (CCPCs) and reinstating capital expenditures as eligible deductible costs on property acquired after Dec. 15, 2024.
These proposed changes may be considered politically neutral as they provide a credit for business innovation and should be considered viable no matter the outcome of Canada’s ongoing political uncertainty.
With the recent introduction of the clean technology manufacturing investment tax credit (CTM ITC), there is a movement towards investment in clean technology manufacturing and processing, which is essential for producing eco-friendly and sustainable consumer products. Both the SR&ED incentive and the CTM ITC can help businesses stay competitive even if U.S. tariffs take effect.
To get ahead of these potential trade disruptions, businesses could act proactively by leveraging existing tax credits such as CTM ITC and other SR&ED tax credits. By absorbing some of the increased costs through these credits, companies may maintain their profitability while minimizing price hikes for consumers.
This approach helps ensure that consumers can continue to have access to affordable products despite the challenging trade environment.
The possibility of multi-level tariffs on goods imported into Canada, transformed and then exported back to the U.S. adds another layer of complexity. This scenario can significantly affect the cost structure and pricing of consumer products, as businesses may face tariffs at multiple stages of the supply chain.
Companies must navigate these challenges carefully, seeking ways to diversify their supply chains and leverage available and relevant tax credits to mitigate the financial impact of the purposed U.S. tariffs.
U.S. tariffs on Canadian goods could significantly impact consumer prices and affect the availability of products.
As businesses face higher production costs and supply chain disruptions due to these tariffs, it is likely that they will pass these additional costs on to consumers, resulting in higher prices on a wide range of goods. This can lead to reduced purchasing power for consumers and potential shortages of certain products, particularly those heavily reliant on cross-border trade.
Late last year, Canada introduced a temporary GST/HST holiday that was in place from Dec. 14, 2024 until Feb. 15, 2025. During this period, no GST/HST was charged on qualifying items such as groceries, children’s clothing, diapers and certain toys. This initiative aimed to provide relief to consumers by making essential items more affordable during the holiday season.
While the increased tariffs pose challenges for both businesses and consumers, measures like the tax holiday could help alleviate some of the financial burden.
These strategies should be considered to mitigate the impact felt by Canadian businesses and consumers as a result of U.S. tariffs:
Potential Canadian tax policy changes could further support businesses and consumers in navigating the changing tariff landscape. The CTM ITC and other SR&ED incentives and credits offer significant advantages by reducing the financial burden on companies investing in innovation and sustainable practices. Targeted tax holidays may also mitigate the rising costs of trade by providing immediate financial relief to consumers.
These incentives may help businesses offset increased costs due to tariffs, ultimately benefitting consumers. As some of these credits and policy measures are only advantageous to companies within specific sectors, like clean energy, enhancements to these programs by increasing the expenditure limits or expanding eligibility criteria could be considered by the federal government.
