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Andrew Harrer/Bloomberg

An intense battle is raging in Ottawa over how Canadians shop online.

At issue is how much consumers should be able to spend on goods purchased and shipped from foreign merchants before they have to pay duties and taxes. Since 1985, that amount has been stuck at $20 – even though the Conservative government in 2012 raised the limit to as much as $800 for items purchased during 48-hour cross-border trips.

A person who exceeds the $20 limit for an online purchase from outside of Canada could pay up to 30 per cent or more of the item's advertised price in duties and taxes, in addition to shipping and brokerage fees.

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U.S. e-commerce giants Amazon.com Inc. and eBay Inc. are leading an effort to lobby MPs and the civil service for a change in policy. They argue the $20 limit is out of date and out of step with trading partners, such as the United States, which recently increased its duty-free threshold to $800 (U.S.) from $200. The Canadian limit was set before the advent of e-commerce and fails to take into account modern shopping habits, says the group, which also includes couriers , Ottawa-based software firm Shopify Inc. and the Canadian American Business Council.

While e-commerce is growing quickly, the "threshold, as it stands now, is creating an unnecessary barrier to that growth for consumers and for sellers," said Alexandra Clark, director of policy and government affairs at Shopify, which serves 300,000 online merchants.

Opposing the global e-commerce titans is the Retail Council of Canada, the lobby group for retailers. Traditional merchants are resisting efforts to raise the $20 minimum, concerned that more cross-border online shopping means less business for them at home. The retail council also warns that raising the threshold will reduce tax revenue for Ottawa and the provinces, while discouraging domestic retailers from making the heavy investments necessary to build their own e-commerce.

"We're worried there's a line of patter that's coming from the other side on the issue that fails to address the fact that there would be a built-in price advantage for offshore sellers" if the threshold were raised, said Karl Littler, vice-president at the Retail Council of Canada.

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The two sides have pulled out a showroom's worth of tactics, including commissioning polls and reports, encouraging petitions and letter-writing to MPs and lobbying elected officials across the political spectrum.

The battle is heating up as the federal Government prepares its budget for early next year. Last week, retail council executives were in Ottawa lobbying MPs to keep the status quo.

The issue is even dividing the retail council, since eBay is a member of the organization and disagrees with its stance. "I don't think the retail industry speaks with one voice," said Andrea Stairs, managing director of eBay Canada. "There are more cost-effective ways to protect Canadian retailers."

The Washington-based Canadian American Business Council, of which Amazon is a member, is calling for the minimum to be raised to $200 (Canadian) from $20, having gathered almost 14,000 signatures on a DumpTheDuties.ca petition. A recent poll it commissioned found 76.5 per cent of Canadians support its position.

"It's an outdated old policy that didn't contemplate e-commerce when it was put into effect," said Maryscott Greenwood, senior adviser to the council.

In 2012, Ottawa boosted the value of goods that could be imported duty- and tax-free by Canadian residents returning from abroad to $200 from $50 for a 24-hour absence and $800 from $400 for a 48-hour trip. But it didn't follow suit for inbound parcel shipments.

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Lifting the threshold for online orders would have a net economic benefit of up to $648-million, a recent C.D. Howe Institute report estimates. The government spends $166-million to collect just $39-million in duties and taxes on goods valued between $20 and $80, it says.

Dan Barnabe, a spokesman for the federal finance department, said Ottawa continues to assess the $20 limit. The government is "broadly supportive of streamlining custom processing and importation requirements," he said. But when it comes to waiving duties and taxes, "the impact that would have on Canadians and on Canadian businesses needs to be carefully considered, not to mention economic and administrative considerations for both the federal and provincial governments."

Ms. Stairs said Canada Border Services Agency and Canada Post don't strictly enforce the current $20 threshold, especially for shipments of under $100. The inconsistency supports the conclusion that the cost to collect duties and taxes on low-value shipments far outweighs the revenue payable to the government, she said.

"Unfortunately neither consumers nor businesses can predict when the threshold will be applied, creating uncertainty and, in the case of businesses, costs," eBay said in a submission to Ottawa. "Increasing [the minimum] to a point where collection is revenue-neutral or better will ensure that the threshold can be consistently enforced and will create certainty for businesses and consumers while generating fiscal benefits for the government."

The retail council counters that if the threshold were raised to, say, $200, it would mean that any item costing less than that could be shipped into Canada duty- and-tax-free while merchants here would have to collect sales taxes on the same or competing goods and pay duties on imported goods. "If you raise it, you are giving a tax advantage to foreign online sellers," Mr. Littler said.

He said the U.S. situation is often mischaracterized. While it has an $800 limit, it has no federal sales tax and doesn't collect state or local taxes at the border.

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