Navigating Cross-Border Tax Challenges

As published on CanadianSME.ca on May 15, 2025

In this exclusive interview with CanadianSME Small Business Magazine, we connect with Errol Tenenbaum, Partner at Robins Appleby LLP, specializing in Tax, Estate Planning, and Business Law, alongside Jordana Lyons, a dedicated Tax Lawyer at Robins Appleby LLP. Together, they shed light on the complex financial and legal landscapes faced by Canadian entrepreneurs, family-owned businesses, and high-net-worth individuals. With a deep understanding of both business operations and personal wealth management, Erroll and Jordana discuss practical strategies for tax planning, succession, and dispute resolution that empower business owners to protect their legacies while driving growth. Their combined expertise brings clarity to complicated issues, helping clients navigate challenges confidently and make informed decisions tailored to their unique needs. This conversation offers invaluable perspectives for Canadian SMEs striving for sustainable success and lasting impact.

How do ongoing trade tensions and tariffs between Canada and the U.S. influence tax strategies for Ontario businesses with cross-border operations? What proactive measures can companies take to mitigate the impacts of tariffs?

While the hope is that current trade tensions and tariffs between Canada and the U.S. are temporary, Ontario businesses must prepare for the possibility of lasting disruption and proactive planning is critical in this regard.

Some businesses may opt to take a ‘wait-and-see’ approach amidst the uncertainty of tariffs and the future of trade between the U.S. and Canada. This approach may be suitable for companies with relatively minor U.S. dealings and it may be prudent for these businesses to hold off on making any significant changes right now. 

However, many Ontario businesses have significant U.S. dealings and will be more directly impacted by tariffs. Businesses that engage in substantial importing or exporting between Canada and the U.S. will need to reassess how tariffs affect their pricing and supply contracts. These businesses may ultimately have to pass on increased costs to their customers through pricing. 

There may be exemptions or refunds available from tariffs for certain businesses. For example, there are available exemptions from qualifying goods imported from Canada under the United States-Mexico-Canada Agreement, and temporary relief available from the Canadian government for goods imported from the U.S. used in critical Canadian sectors such as manufacturing, health and national security.

How can Ontario businesses effectively navigate cross-border tax planning to minimize financial strain resulting from increased tariffs?

If your business has significant or growing operations in the U.S., establishing a U.S. subsidiary may be a strategic way to lower or eliminate exposure to tariffs. Incorporating a U.S. subsidiary can allow your company to conduct business more directly and more competitively in the U.S. market and perhaps qualify for local tax incentives. Businesses should be aware that doing so will necessitate changes to their tax and accounting policies, including potentially considering any transfer pricing implications. Cross-border structuring involves complex legal and tax considerations and should be implemented in consultation with both Canadian and U.S. counsel.

Businesses without significant U.S. scale may wish to re-examine the role of U.S. suppliers and customers in their value chain. Businesses heavily reliant on U.S. inputs or goods could explore sourcing alternatives from countries that have more favourable trade agreements with Canada or even domestic suppliers to avoid tariffs altogether. Moving forward, another potential consideration is whether to increase their inter-provincial operations as an alternative to their US business. It is likely that the federal and provincial governments will look to minimize or eliminate current inter-provincial trade barriers where possible, thereby opening up another potential venue for Ontario businesses to increase revenue.

Given the evolving tax landscape in Ontario, what are some key considerations for businesses and business owners when developing tax strategies for 2025 and future years?

During uncertain economic times, it is extremely important for businesses and business owners to have proper tax plans in place, in order to maximize retention of wealth and ensure flexibility to meet changing needs. 

One of the most valuable tools available to Canadian small private businesses is the Small Business Deduction (SBD). This deduction allows eligible corporations to benefit from a reduced corporate tax rate on active business income, up to a certain limit. Qualifying SMBs should ensure that they are taking advantage of this benefit, as well as the other benefits afforded to SMBs under Canadian tax legislation. 

Businesses should also be proactive in claiming available tax credits and incentives. This includes the Scientific Research and Experimental Development (SR&ED) program, which offers tax credits for eligible R&D expenditures, and investment tax credits for capital expenditures and digital modernization. These incentives can significantly reduce a corporation’s tax liability.

Small and medium-sized businesses (SMBs) often face unique challenges with tax optimization. What advice would you offer to help SMBs leverage tax planning to support long-term growth?

SMBs should optimize their structure to achieve favourable tax outcomes, which may entail establishing a holding company or family trust structure.

For incorporated businesses, holding companies present several advantages. Dividends can often flow tax-free from operating company to holding company, rather than directly to the business owner which attracts immediate tax at personal rates. A holding company structure allows for tax deferral and opportunity for reinvestment; the holding company can pay dividends to the business owner(s) or their family once they need the funds personally. This structure affords greater creditor and asset protection, as earnings and investments can be separated from the operational risks of the active business.

A business owner may wish to establish a family trust for the benefit of their spouses, children and/or other family members. A family trust provides significant income splitting opportunities by allocating income to family members taxed at lower rates (subject to the Tax on Split Income Rules in the Income Tax Act) and by multiplying access to the lifetime capital gains exemption (LCGE) on a future sale. It is important to note that too much business outside of Canada disqualifies the shares from LCGE eligibility, so proper structuring is critical to ensure eligibility.

As an expert in tax law, what final advice or insights would you share with SMBs looking to thrive in a complex economic environment?

In today’s complex economic environment, it is essential for SMBs to engage a team of trusted professionals who can provide strategic guidance. Tax planning for SMBs present unique challenges and requires a nuanced understanding of the business’ unique operations and objectives.

Businesses should seek to build a collaborative team comprising of legal counsel, accountants, and other advisors who have a nuanced understanding of their business operations and objectives. This team of advisors can work together to develop bespoke, forward-thinking solutions that align with the needs of the business and ensure that decisions are not made in isolation, but rather reflect a comprehensive strategy.

While recent tariffs and ongoing trade tensions have created significant disruption for many Ontario businesses, it is important not to lose sight of long-term sustainability and growth of the business. There is no one-size-fits-all approach to mitigating the impact of trade policies. The most effective responses to economic uncertainty will be those that are customized, flexible, and grounded in expert advice.