Canadian Tariffs on U.S. Imports:  Deductible Expense In Canada?  

In early 2025, Canada escalated its trade response to U.S. protectionist measures by implementing a broad package of counter-tariffs. These actions have widespread implications for Canadian businesses that depend on U.S. imports, raising not only operational costs but also important tax questions about the deductibility of these tariffs.

This article explains the background behind the new tariffs, identifies the sectors most impacted, and clarifies how businesses can — and cannot — treat these tariffs when filing Canadian taxes.

Background and Scope

In March 2025, Canada introduced a 25% counter-tariff on approximately $29.8 billion worth of U.S. goods. This was a direct retaliation for U.S. tariffs targeting Canadian aluminum, steel, and, critically, the Canadian automotive sector.

The tariffs apply to a wide array of goods, including:

• Automobiles and automotive parts
• Steel and aluminum products
• Industrial goods like semi-finished iron and non-alloy steel
• Consumer products such as jewelry, candles, umbrellas, and ceramics

Then, in April 2025, Canada expanded its measures by applying 25% tariffs specifically on:

• Fully assembled vehicles imported from the United States that are non-CUSMA compliant, and
• The non-originating content in vehicles that otherwise qualify under CUSMA rules.

While an exemption was granted to residents of Campobello Island, New Brunswick, these tariffs otherwise apply nationally.

Which Regions and Sectors Are Most Affected?

The provinces most affected include:

• Ontario: Heavy concentration in automotive manufacturing and industrial inputs.
• Quebec: Significant exposure through aerospace, aluminum, and manufacturing sectors.
• Alberta: Broad-based manufacturing operations dependent on U.S. imports.
• British Columbia: Impacts on construction, machinery, and energy equipment.

These regions face immediate increases in input costs, placing pressure on business margins.

Are the Tariffs Tax Deductible for Canadian Businesses?

The crucial question: Can businesses claim a tax deduction for tariffs  paid by them?\

We must preface our analysis by saying that the issue of tax deductibility only arises on customs duties (tariffs) paid by Canadians on imports. There is no Canadian tax deduction possibility on U.S. duties on Canadian exports because they apply on the sales price of the goods and are therefore borne by U.S. purchasers. This then becomes a U.S. tax issue, not a Canadian one.

Regarding Canadian tax deductibility, we should start by noting that Canada’s Income Tax Act is silent on whether tariffs of this nature can be deducted. There is no rule saying that they can (or they can’t) be deducted.

The closest the Canadian Income Tax Act comes to addressing the deductibility of a tariff is through an explicit rule that says that countervailing and anti-dumping duties can be deducted. But there is no mention in this rule of regular custom duties or surtaxes imposed under Canada’s Custom Tariff. While one could consequently argue that this absence indicates that the Canadian government did not want to include these (as it would have been very simple just to mention them), there are also compelling reasons why not including them was not necessary.

A common view is that customs duty (the tariff) applies to goods purchased for resale or manufacturing, it becomes part of the cost of goods acquired and can thus be deducted as cost of goods sold as the inventory is sold.  

Similarly, if the tariff applies to capital assets — like machinery, vehicles, or equipment — it becomes capitalized into the asset’s cost.

The tariff cost is then deducted gradually through Capital Cost Allowance (CCA), Canada’s tax depreciation system.

Thus, timing of the deduction depends on how the imported good is classified for accounting purposes.

No Deduction for Consumers

Consumers who pay tariffs on personal imports cannot claim a deduction. Only businesses, and only for goods used in producing income, can deduct tariff costs.

Documentation Requirements: The Key to Deductibility

If any business wishes to deduct these tariffs, proper documentation is essential:

• Purchase contracts must clearly allocate tariff responsibility to the Canadian importer.
• Invoices, customs documents, and accounting entries must match and support the deduction.
• Any reimbursements or adjustments must be properly reflected.

Conclusion

Canada’s 2025 counter-tariffs have introduced real costs into Canadian supply chains.

Fortunately, for businesses, these tariffs are generally recoverable — either immediately through cost of goods sold or gradually through capital cost allowance.

However, the ability to deduct tariffs hinges on:

• Classifying goods correctly,
• Maintaining impeccable documentation, and
• Structuring contracts carefully.

As cross-border tensions continue, understanding the real financial impacts of tariffs has never been more important — both for businesses and for Canada’s broader tax system.