6 Methods Of Determining Customs Valuation

6 Methods Of Determining Customs Valuation

Are you uncertain of how to properly declare the value of your goods when importing into Canada? You are not alone. Many importers are. This lack of clarity is partly due to the many rules and factors when determining the value of duty. Customs valuation is one of the three primary targets for a Canada Border Services Agency (CBSA) audit

Unfortunately, we see many importers spending the least amount of attention on this area. A valuation can be an intricate area to navigate if your foreign purchases involve situations that could change the declared value to CBSA.

So, let's take a look at the six methods of determining Customs valuation by first understanding what valuations are.

What Is Valuation?

Valuation is the determination of the correct value of goods. CBSA requires all goods imported and declared into Canada to have a value for duty which is the base figure on which you must calculate the duty and taxes you may owe the CBSA on your imported goods.

With items like samples, replacements, warranty items, and short-shipped goods, you are still required to declare a fair market value, although, in the end, payment of duties and taxes may be unnecessary.

CBP VS CBSA Valuation History

How Is Customs Value Determined?

The Customs Act identifies six methods of customs valuation.

The World Trade Organization's Valuation Agreement is the basis of the requirements of each of these methods. These rules ensure the value of the imported goods is in accordance with commercial reality, and they prohibit the use of arbitrary or fictitious customs values.

The methods must be thought about in order, starting with Transaction Value and continuing through the remaining five, eliminating them one at a time until the usage of a method that works for the items is appropriate. 

Download Our Guide on the 6 Methods Of Determining Value For Duty

What Is Transaction Value?

Importers should use this method when determining the value for duty on the price paid or payable for imported goods with consideration to certain adjustments. This method is the most commonly used. When selling goods for export to Canada to a purchaser in Canada, the transaction valuation applies. We have outlined the difference between the price paid and payable below:

Price Paid is the total of all payments made directly or indirectly by the purchaser to the vendor. Price Payable, however, is the total of all payments that are owed and made directly or indirectly by the purchaser to the vendor.

You must use the transaction value method whenever possible to determine the customs value of imported goods.

What is the Value for Duty on Rescue Puppies: A Customs Valuation Case Study

What Is the Transaction Value Of Identical Goods?

When you cannot use transaction value, you must use an established value for the duty of identical goods. Identical goods are considered the same in all respects as the goods being appraised.

They have one exception, however, and that is for minor differences in appearance. These differences cannot affect the value of the goods. For goods to qualify, production would have to be in the same country as the identical goods.

What Is the Transaction Value Of Similar Goods?

When you cannot use transaction or identical goods, you must use an established value for the duty of similar goods. For goods to qualify, the value of goods must be:

  • Closely resembling the similar goods
  • Capable of performing the same function
  • Commercially interchangeable
  • Produced in the same country and by the same manufacturer as the similar goods

What Is Deductive Method Of Valuation?

If none of the above methods apply, the deductive value method is the next method to consider. The most typical selling price (per unit) of the commodities sold to Canadian customers by the Canadian importer serves as the foundation for this strategy.

The process typically involves deducting certain costs and expenses from the selling price, such as transportation costs, insurance fees, and any other expenses incurred before the goods arrive at the port of entry. These deductions are based on actual data or standard industry practices.

What Is the Computed Method Of Valuation?

The computed value is the cost of production, profit, and general expenses of the imported goods. These must be realized by producers in the exporting country when selling the same type of goods to Canadian importers.

By using a formula or a predetermined set of criteria, the customs authorities compute the customs value of the imported items. When using this tactic, it's important to consider a variety of aspects, including production costs, manufacturing expenses, and profit margins related to the manufacture and sale of comparable goods in the exporting nation.

The Most Commonly Overlooked Area of a Customs Audit - Valuation

What Is the Residual Method Of Valuation?

The residual method does not identify specific requirements for determining a value for duty. Instead, the value is based on one of the other methods (considered in sequence). It also requires the least amount of adjustment. The value must be fair market and reflect commercial reality.

In the end, the final value for duty can also be influenced by the following:

  • The relation between the parties involved. ( i.e., a related buyer and seller)
  • A condition where the goods were provided to the Canadian consignee at no charge (i.e., consignment)
  • Allowable additions or deductions to the value of the goods
  • Used goods
  • Goods not sold in Canada (i.e., for rent or lease)

Now that you understand the six different methods of determining a value for duty, the next step is to learn how to calculate your value for goods and why it's important to get the valuation right. Receive online training from a trade advisor.

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About the Author
Mandy Miles

While we strive for accuracy in all our communications, as the Importer of Record it is incumbent upon your company to ensure that you are aware of the requirements under the new regulations so that you maintain compliance as always.