Analysts had forecast a much larger deficit of Can$1.4 billion, after a Can$811 million shortfall was posted in June.
Exports increased 2.3 percent to Can$45.5 billion in July, led by foreign sales of passenger cars and light trucks, consumer goods, and aircrafts and parts, according to Statistics Canada.
These gains were partially offset by a decrease in exports of energy products. Canada shipped six percent less oil and crude bitumen in the month and 15 percent less refined petroleum energy products abroad.
Year over year energy exports were down 35 percent.
Imports, meanwhile, rose 1.7 percent to Can$46.1 billion.
Imports of crude oil and crude bitumen, aircraft, aircraft engines and parts, as well as communications and audio and video equipment were up.
Canadians, however, imported less unwrought precious metals and precious metal alloys.
The United States remains Canada's largest trading partner, with bilateral trade up slightly in the month.
Exports to China rose 11 percent while imports from Britain were down 40 percent.