(This article was originaly written several years ago. Although it remains generally accurate some details, such as provincial tax rates, have changed. For additional more current information follow the CANADIAN MLM & DIRECT SELLING LAW link above.)
Canada is a federal state in which a federal government regulates some matters and the respective provincial governments regulate other matters. Consequently both federal and provincial statutes as well as court decisions apply to MLM marketing plans, and their participants, operating within Canada.
Canada's federal Competition Act regulates MLM marketing plans in section 55 and defines a subset of them as schemes of pyramid selling in section 55.1. Consequences of operating a MLM marketing plan in a way which violates the Competition Act MLM marketing plan requirements or operating a MLM marketing plan so that it includes any of the elements of a scheme of pyramid selling include either or both of fines and imprisonment.
Generally the Competition Act's major restrictions on the operation of a MLM marketing plan apply to the representations which may be made regarding compensation under the plan. Generally the Competition Act's prohibitions on schemes of pyramid selling apply to mulit-level marketing plans in which there are participation fees, purchase requirements as a condition of participation, inventory loading, or insufficient buy-back quarantees and lack of notice of the buyback guarantees. The Competition Act is enforced by Industry Canada. Industry Canada may examine what is in fact occurring, and where the factual evidence warrants, presume the presence of the prohibited scheme of pyramid selling elements.
Canada's federal Criminal Code also contains a provision prohibiting pyramid schemes. The Canadian Criminal Code definition of a pyramid scheme differs from the Competition Act's definition of a scheme of pyramid selling.
Each province regulates the operation of businesses within its own territory. Several provinces have legislation requiring corporations doing business within the province to register with the province. Several provinces have legislation requiring the licensing of people and businesses engaged in direct sales to the consumer. Several provinces require a favourable opinion letter from Industry Canada before they will license a direct sales company to sell products within their territory.
Canadian jurisdictions also have sales tax on purchases by consumers. The most commonly applicable tax rate is either the 7% federal Goods and Services Tax plus the 7% provincial Sales Tax or else the 14% Harmonized Tax. The difference depends upon in which jurisdiction the sale is made. There are exceptions to these tax rates for some services and products.
Many MLM marketing companies considering doing business in Canada must choose between exporting from the United States to Canada and dealing with the import duties on each individual shipment and establishing a distribution point within Canada.