Trade agreements save companies money, but what about the other programs that can reduce importing and carrying costs for importers and manufacturers?
The Government of Canada recognizes the need for Canadian companies to be competitive in the global market. Special circumstances apply to some and every importer has a unique profile based on their business model. Various companies participate in manufacturing activities, while others provide goods for sale in Canada and internationally.
Administration costs and the rapid growth of small businesses can sometimes cause business owners to overlook opportunities for cost savings available through government programs for minimizing duty and tax liability. Canada Border Services Agency (CBSA) and Canada Revenue Agency (CRA) offer several of these programs. They are not suited for every business and certain conditions apply. Depending on the nature of your business, you may find benefit to exploring your options and taking advantage of the tax and duty relief plans offered.
Four Trade Incentive Programs That Could Provide Relief From Duties:
1. The GST Direct Program
The GST direct program offers GST Registrants the option of paying their Goods and Services Tax (GST) directly to the Receiver General of Canada. A statement called a K84 Monthly Statement is generated on the 25th day of each month. It provides a breakdown summary of the GST owed for any importing activity within the previous month. Shipments imported after the 21st of the month, will appear on the following month's K84.
Low value shipments valued under $2,499.99 get longer grace time before payment of the GST is required. Low value shipments must be accounted for by hard copy or electronic transmission by the 24th day of the month following the month the goods were release.
The GST direct program allows importers to claim the GST input tax credit on the previous month, while allowing for almost a full extra month to remit the GST payment for shipments released after the 21st of the previous month. For example, a high value shipment released October 21 would not require the GST to be paid until the last business day of the month in November. There is currently no online option for payment when it comes to GST Direct. The GST must be received by way of a cheque to Receiver General no later than 4:30 pm local time on the last business day of the month. Your customs broker can deliver the cheque on your behalf to CBSA, some lead time will be required to ensure it is delivered on time. Late payment of the GST to the Receiver General can result in a penalty from CBSA.
This program requires a small adjustment to your business's accounting cycle. The benefit of this program for your company is improved cash flow and a reduction in your customs broker's liability on their customs broker bond. Depending on your import activity and entry complexity, this program can sometimes translate into an opportunity for a discount on your entry fees by reducing the financial exposure your customs broker takes on when clearing your freight. Your customs broker must post security with CBSA through and independent surety company. There is a cost associated with the customs brokers bond, so the higher your company's disbursements in duty and GST, the higher the cost to maintain a customs brokers bond to service your account.
To sign up for the GST direct program, a letter must be completed on your company letterhead. Your customs broker will need a copy to update your importer profile and activate GST direct on your import account.
2. Exporter Of Processing Services Program (EOPS)
This program allows companies who further manufacture goods for export, to import goods without payment of the Goods and Services Tax (GST) at the time of import.
To qualify, participants in this program:
- Must be a GST or HST Registrant
- Must have no ownership interests in either the imported goods that are coming into Canada for further manufacturing or the processed goods after production
- Must not be closely related to the supplier outside of Canada for whom you are processing the goods
To get approved for this program, a consultation with the Canada Revenue Agency (CRA) is required. Participants must keep detailed records for goods imported under this program as well as proof of export for the processed goods post manufacture. Goods imported under the EOPS program must be exported within four years from the date of accounting. Once approved for this program, Canada Customs assigns an Order in Council (OIC) number that must be shown on your import entries to allow for the GST exemption on imports entering Canada under this program. Pacific Customs Brokers can assist with the program application.
3. Duties Relief Program
This program allows importers to bring in goods duty free if they will eventually be exported. The goods must be exported in the same condition or after using or consuming them in the manufacturing process. This program is best suited to companies who import goods attached to tariffs with high rates of duty. It is a proactive approach because it allows for duty relief at the time of accounting; prior to payment of the customs duties on import. The prescribed timeline for export is a maximum of four years. This program requires detailed record keeping to ensure compliance in case of a customs audit. Your customs broker can assist with the application.
For more information on the Duties Relief Program, please consult the Canada Border Services Agency's D Memorandum D7-4-1: Duties Relief Program.
4. Duty Drawback Program
This program is similar to the Duty Relief Program but pertains to companies who have already paid customs duties on imported goods. Detailed records are required for compliance purposes, but this program allows for duty recovery for importers, producers, and manufacturers. Goods that have not been further advanced in condition are eligible for duty drawback. For goods being exported to a NAFTA country that have been further processed, additional conditions apply.
For more information on the Duty Drawback Program, please consult the Canada Border Services Agency's D Memorandum D7-4-2.
Good advice can save you money. When it comes to customs compliance, Pacific Customs Brokers' Trade Advisory Services can assist in identifying your exposure to risk in your supply chain and help navigate the most complex trade issues. This often translates into a competitive advantage in the marketplace and a positive relationship with customs. Our Trade Advisors can help explore the strategies that fit your organization.