This business owner brought most of her manufacturing home from China — and feels punished for it

March 18, 2024 Canuck

A Canadian company that manufactures children’s toy couches finds itself facing a stiff bill for import tariffs after bringing production home to this country.

While Barumba Play is no longer importing a majority of its product, a single component of the couches has been reclassified by the Canada Border Services Agency and is no longer tariff-free.

The company’s flagship product is a couch for children made of pieces that can be easily taken apart and reassembled for play. Sara Feldstein founded the company in Markham, Ont., in 2021 and initially produced the couches entirely in China.

As the couches were classified as a children’s toy, Feldstein told CBC News they were not subject to tariffs and were brought into Canada without import fees. Tariffs can be used by the Canadian government as a form of taxation on imports to protect Canadian economic development.

Trouble started for her in 2023, when Feldstein opted to move production of the couches to Canada from China.

“I on-shored my manufacturing to Canada from China and have been penalized for it,” she said.

A woman is sitting on a pink toy couch. — Business owner Sara Feldstein sits on a Barumba Play couch. ‘I on-shored my manufacturing to Canada from China and have been penalized for it,’ she said. (Anis Heydari/CBC)

Feldstein was able to manufacture every part of the couch in Canada except for cloth slipcovers, which she had to keep producing in China.

She received a letter from the Canada Border Services Agency in the summer of 2023 indicating it felt classifying the slipcovers as part of a toy was incorrect. This contradicted what Feldstein was told to expect from business advisors and industry experts that she turned to for advice before opting to transfer manufacturing most of her product to Canada.

Instead, Feldman says the slipcovers have been lumped in with textiles such as carpets, bed linens and table linens — and now she’s expected to pay 18 per cent duty on imports.

Three cloth slipcovers are pictured on the floor. — These are some of the play couch slip covers that the Canada Border Services Agency has classified as textiles, rather than a component part of a toy. (Submitted by Sara Feldstein)

The CBSA declined an interview request from CBC News, and did not provide a written statement or any comment by publication deadline.

According to Feldstein, her business now owes at least $47,000 in retroactive tariffs, and she expects costs could escalate up to $70,000 while she waits for the appeals process to play out.

Businesses must pay, even during appeals

It’s a cost she’s not sure her business can bear, because she must pay the tariffs now even while she tries to appeal the decision.

That appeal process could take close to a year, according to the CBSA’s current processing times.

“It would make me want to tell others, don’t bother bringing your business back to Canada. Do it overseas. It’s safer that way,” she said.

It’s not unusual for businesses to be caught in the complicated web of tariffs, according to lawyer David Rotfleisch of TaxPage.com, a law firm specializing in tax and business.

A bald man with blue geometric eyeglasses is pictured in front of a bookcase, wearing a suit. — Tax lawyer David Rotfleisch says businesses have to pay tariffs as assessed before appeals are heard. (Gary Morton/CBC)

He confirmed that businesses such as Feldstein’s need to pay assessed tariffs even while mounting a legal challenge because collection is not paused or halted when an appeal is launched.

“Tariff classifications are complex and make income tax look relatively simple,” Rotfleisch said.

“Wrong assessments affect a lot of businesses because they can’t pay it, and by the time the appeal process runs its course, it’s going to take time and [businesses] can’t manage it. So they have to literally shut their doors.”

Suspending payments may not be solution

But eliminating the requirement to pay, even before appeals are exhausted, may not be the right solution, according to Jenifer Bartman, a business advisor based in Winnipeg.

“You could have companies not paying attention to the rules, saying, ‘We’ll go ahead and do this, and if it goes wrong, we’re not going to be out of pocket any time soon,'” she said.

A woman with long blonde hair in a blue sweater faces the camera on a video call. — Business advisor Jenifer Bartman says companies must seek out advice before changing supply chains across borders. (Anis Heydari/CBC)

Bartman pointed out that importing products to Canada, whether partial or fully manufactured, requires a lot of preparation and advice.

“It’s really important for business leaders, especially if they’re venturing into a new aspect of their supply chain … to understand what the rules are in advance because they can save themselves a lot of time and trouble down the line.”

Business owner says she did her research

For her part, business owner Feldstein said she did consult with experts prior to repatriating manufacturing of her couches to Canada. The decision by CBSA to reclassify surprised her.

Feldstein maintains the slipcovers currently being classified as textiles by CBSA should still be considered just a part of the couches she sells as a children’s toy, and not a separate linen that could be used on its own.

If the slipcovers are a part of the toy couch, they would not have the tens of thousands of dollars in tariffs assessed.

According to the CBSA’s website, to be considered a “part,” the item must meet criteria including that it has no alternative function, be marketed and shipped along with other parts of the product, needed for “safe and prudent use” of the item, and be “committed” to use with the unit.

Barumba Play’s founder isn’t sure what comes next, but until the problem is resolved she’s holding off on growing her business.

“I’m very hesitant to spend money on other items right now when this is in limbo,” said Feldstein.

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Canada News

This business owner brought most of her manufacturing home from China — and feels punished for it

Businesses must pay, even during appeals

Suspending payments may not be solution

Business owner says she did her research

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