New Duty-Free Limits Come Into Effect on June 1

IT Services in CanadaIn an inexplicable moment of largesse, the Canadian government decided to increase the spending limit on duty-free merchandise for Canadian citizens who make purchases while visiting the United States.

Let me start with this warning:  Day trippers still can’t bring anything back from the United States. Canadian citizens still have to remain stateside overnight in or order to take advantage of the new increased spending limits.

Those who do stay overnight can purchase up to $200 worth of merchandise where once they couldn’t spend more than $50. Folks who visit the U.S. for two to seven days, the spending limit has doubled. Where previously they could only spend $400 on purchases, they can now spend up to $800; however, those who stay down south for longer than seven days, the spending limit has increased by a mere $50 from $750 to $800.

This increase bodes well for Canadian consumers but not for retailers. First of all, according to currency exchange rates as of Jun. 1, 2012, one CAD $1 equals USD $.96. Now consider that some products cost less in the U.S., and you have the perfect incentive for a Canadian consumer to do more shopping south of the border. For example, the paperback version of Stephenie Meyer’s novel “The Host” costs $16.99 in the U.S. and $19.99 in Canada. While it’s doubtful that anyone will spend $200 or more on paperback novels, you see the point. Knowing that they can get certain things in the U.S. that they really enjoy for as much as $3 less than what they cost in Canada, could cause some Canadian citizens – particularly those who can stay with friends or family instead of paying for hotel accommodations – to put more of their hard earned Canadian dollars into the pockets of U.S. retailers.

For the individual Canadian retailer, the Canadian government’s generosity seems counterintuitive. U.S. colleges and universities face a similar dilemma.

U.S. parents have started sending their children to Canadian colleges and universities. A college education in Canada costs considerably less than it does in the U.S. where even small four-year colleges and universities can have tuitions that start at $14,000 or more per year for commuter students.

Although the small defection of U.S. students to Canadian colleges and universities is unlikely to put any U.S. colleges or universities out of business, the defection of Canadian shoppers to U.S. retail stores has the potential to put small Canadian retail businesses on the chopping block. On the other hand, because so many Canadians like to take day trips to the U.S., the government’s decision to maintain the 24-hour rule that prevents Canadian consumers from bringing into Canada merchandise purchased in the U.S. during a day trip could help those small Canadian retailers in business after all.

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