1. CUSTOMS DUTIES
Generally speaking, the importer of goods into Canada is the person who has title to the goods at the time of importation and reports and accounts for the goods to the Canada Border Services Agency (“CBSA”) upon entry into Canada. The importer must pay any applicable customs duty and GST in respect of the goods to the CBSA at the time the goods are accounted for.
GST is payable on importation of the goods on the “value for tax”. The value for tax is deemed under the ETA to be equal to the total of the value for duty (discussed below) plus the amount of duties and taxes, if any, payable on the goods under certain other federal statutes. Provided the foreign investor (or its Canadian subsidiary, as the case may be) is registered for GST at the time the goods are accounted for, the foreign investor (or its Canadian subsidiary) will be entitled to claim ITCs to recover the full amount of GST paid on importation of the goods into Canada. The import/export profile of the company’s Business Number (BN) needs to activated in order for the company to import or export commercial goods to and from Canada.
2. VALUE FOR DUTY
Depending on the tariff classification and tariff treatment of the imported goods, customs duty may also be payable at the time of importation in addition to the GST. Customs duty will be calculated on the value for duty of the goods. Even if customs duty is not applicable on certain goods, the value for duty must be determined and reported to the CBSA at the time of importation. In most cases, the value for duty is the amount paid to the vendor for the goods. The company’s declaration of value for duty should be supported by a receipt or sales invoice from the vendor. This document must include a complete description of the goods, the selling price and conditions and terms of the sale. Memorandum D1-4-1, CBSA Invoice Requirements provides additional information. The value for duty declared to the CBSA is in Canadian funds.
Since most goods are imported to Canada as a result of a sale for export to a purchaser in Canada, the transactional value method (“TVM”) is applicable. Under the Customs Act (the “Customs Act”), the primary basis of determining the value for duty of imported goods is the TVM. This method and the five alternate methods of determination are identified in sections 48 to 53 of the Customs Act. The sequential order of these methods must be followed in order to determine value for duty.
The value for duty would be based on the price paid or payable for the goods in that sale, if all the requirements of the transaction value method are met. The transaction value method (section 48 of the Customs Act) can only be applied in cases where the goods being appraised must be the subject of a sale for export to Canada to a purchaser in Canada. Typically, a sale for export to a purchaser in Canada can be identified and it is for this reason that that the primary method of appraisal is the TVM. The remaining five customs valuation methods generally will be applied when no “sale for export to a purchaser in Canada” can be identified. The five alternative customs valuation methods are:
Section 49 – The transaction value method of identical goods
Section 50 – The transaction value method of similar goods
Section 51 – The deductive method of valuation
Section 52 – The computed method of valuation
Section 53 – The residual method of valuation
3. TARIFF CLASSIFICATION
The importer will need to determine the correct tariff classification number. These numbers along with the goods country of origin are used to determine the rate of duty applied to the goods at the time of importation.
Most countries use the World Customs Organization’s (“WCO”) Harmonized Commodity Description and Coding System, which is generally referred to as the Harmonized System (the “HS”). The classification is composed of 10 digits. The first six digits are a common identifier across all countries using the HS for that particular good. The following four are unique to Canada and used to establish the duty rates and for statistical purposes.
The Customs Tariff stipulates that regard for classifying goods shall be given to the Compendium of Classification Opinions to the Harmonized Commodity Description and Coding System and the Explanatory Notes to the Harmonized Commodity Description and Coding System, published by the WCO. For more information on classifying goods imported into Canada please refer to Canada customs memorandum D10-13-1 – Tariff Classification of Goods.
4. ORIGIN – PREFERENTIAL TARIFF TREATMENT
There are two elements that establish the customs rate of duty payable on imported goods. One of the elements is the tariff classification of the goods and the other is the origin of the goods.
A lower rate of duty on goods (i.e., typically duty-free rate) may be applied on imported goods for goods originating from countries with whom Canada has free trade agreements (each, a “FTA”). Other preferential tariff treatments (e.g., Least Developed Country Tariff, General Preferential Tariff) also provide duty-relief.
The importer must have valid proof of origin in their possession at the time of accounting to be provided to the CBSA upon request. All claims for a preferential tariff treatment must also meet the shipping requirements (such as direct shipment, transit and transhipment) for that tariff treatment.
5. IMPORTATION AND THE CANADA BORDER SERVICES AGENCY
All goods entering into Canada must be declared with the CBSA which verifies compliance of the imported goods with Canadian laws and collects customs duties and applicable excise taxes.
The federal government also controls the import, export and transfer of certain goods and technology. The Export and Import Permits Act provides for the control of certain goods imported or exported, and requires the importer or exporter, as the case may be, to obtain applicable permits prior to the importation or exportation of the listed goods. For example, an import permit must be obtained for importing goods such as steel products, weapons and munitions, and certain agricultural and food products.
Pursuant to the Defence Protection Act, an entity that possesses, examines or transports “controlled goods” within Canada must be registered under the Controlled Goods Program, which is administered by the Department of Public Works and Government Services. Controlled goods are listed in the Export Control List and include “Group 2” goods, being certain munitions.
There are also significant legislative requirements relating to the importation of foods, agricultural commodities, aquatic commodities and agricultural inputs. They are all subject to the inspection procedures of the Canadian Food Inspection Agency.
Imported goods may need to comply with bilingual (English and French) labelling requirements if the goods are sold in Canada.
6. EXPORT LIMITATIONS
Canadian exporters may be restricted from exporting certain goods to any country. For example, if an exporter is exporting certain restricted goods listed in the Export Control List, export permits or other authorizations may be required. Canadian exporters may also be restricted from exporting any goods to certain countries.
The Area Control List is a list of countries to which the export of any and all goods is restricted. Further, the Special Economic Measures Act (“SEMA”) restricts dealings with subject countries (e.g., Russia), including limitations on travel and the imposition of trade prohibitions.
Canadian sanctions are imposed under the United Nations Act, SEMA or the Justice for Victims of Corrupt Foreign Officials Act. For information corresponding to the specific sanctions regime imposed on countries or individuals the relevant regulations should be consulted. View the current Canadian sanctions.
7. ANTI-DUMPING & COUNTERVAILING
The Canada Border Services Agency supports Canadian producers who face unfair foreign competition in the domestic marketplace. The CBSA administers the Special Import Measures Act (SIMA), to protect Canadian industry from injury caused by the dumping and subsidizing of imported goods. SIMA provides the framework with respect to establishing whether Canadian producers have been injured and the applicable antidumping and countervailing duty.
View the current measures in force to which countervailing and antidumping duties are applicable.
8. FREE TRADE AGREEMENTS
In recent years, Canada has been a full participant in the effort to reduce global trade barriers. Free trade agreements have been negotiated with the United States and several other countries. Canada is a member of the World Trade Organization (the “WTO”) and has 15 FTAs with 51 different countries. The most notable FTAs are the Canada-U.S.-Mexico FTA (CUSMA), the Canada-EU Comprehensive Economic and Trade Agreement (CETA), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is a FTA between Canada and ten other countries mostly from the Asia Pacific region.
Preferential tariff treatment (duty-free) is provided for goods originating from FTA countries.
9. Modern Slavery Legislation
Canada’s new modern slavery legislation, Fighting Against Forced Labour and Child Labour in Supply Chains Act, commonly referred to as the Modern Slavery Act (the MSA), came into force on January 1, 2024. The MSA implements Canada’s international commitment to reduce the use of forced labour and child labour in foreign and domestic supply chains by increasing the transparency of various organizations’ supply chains.
To increase transparency, the MSA imposes a reporting obligation on a broad range of entities, including: government institutions, Canadian listed companies, domestic companies and certain foreign companies that do business or own assets in Canada.
This reporting obligation requires the annual filing of a statement on measures taken by covered entities to identify, address, and prevent both forced labour and child labour in their supply chains and operations. Affected companies must their statement by May 31st of each year.