Canada’s Duty Drawback Program
Canada’s Duty Drawback program is administered by the Canada Border Services Agency (CBSA) and is one of their Trade Incentive Programs which we explained in a previous blog post Canada’s Trade Incentive Program.
In this post, let's dive in and look at the specifics of this program. Generally speaking, commercial importers must pay duties and taxes for goods imported into Canada. The CBSA Duty Drawback program offers a means to recoup all or some of the duties paid under certain conditions.
The CBSA with their Drawback Program will provide a refund of customs duties paid for imported goods. The program is intended to help offset the cost of importing goods that are later exported to another country. Companies can apply for drawbacks on the duty paid to import goods and have some or all of the duty refunded by CBSA.
How Do I Qualify For A Duty Drawback?
To qualify for the Duty Drawback program you only need to meet one of three conditions:
- Goods that are imported are later exported as-is.
- Imported goods are used to produce other goods for export such as parts used to manufacture a product for export.
- Imported goods become obsolete, surplus or are manufactured into an item that is obsolete or surplus.
The Goods Imported and Exported Refund and Drawback Regulations state that as long as one of these conditions are met a drawback can be claimed by an importer, exporter, processor, owner or producer of goods who imports and subsequently exports these goods.
What Goods Qualify?
Virtually all goods qualify for drawbacks. There are very few limits placed on what can be claimed for a drawback. One limitation noted is with goods imported to be further processed. CBSA Memorandum D7-4-2 states “‘further processed’ includes imported goods, other than fuel or plant equipment, directly consumed or expended in the manufacture or production in Canada of goods for export.”
There are no changes to existing drawback conditions or processes in the Canada-United States-Mexico-Agreement (CUSMA) agreement from those conditions or processes in its predecessor the North American Free Trade Agreement (NAFTA). CBSA will be updating NAFTA references in all D-Memos. CBSA Memorandum D7-4-3 still applies.
CUSMA places limits on the amount of customs duties and anti-dumping and countervailing duties – Special Import Measures Act (SIMA) duties – refundable by way of drawback for goods exported from one CUSMA country to another. CUSMA does not affect GST relief, GST deferral, or GST Input Tax Credit refund processes.
Only certain goods are affected by the limitations on the Duty Drawback program. The CUSMA changes affect imported non-CUSMA originating goods (or goods substituted with identical or similar goods) that are used in the production of another good that is exported to a CUSMA country.
For exported goods affected by the limitations, drawback of customs duties cannot exceed:
- the lesser of the total amount of customs duties paid or owed on the goods imported into Canada; and
- the total amount of customs duties paid on the exported goods in the CUSMA country where the goods were imported.
This is known as the "lesser of the two duties" concept.
To determine the amount of customs duties subject to claim under the Duty Drawback program, companies must establish two duty amounts:
- (a) the amount of customs duties paid or owed on imported goods entering Canada;
- (b) the amount of customs duties paid on the goods entering the other CUSMA country.
- Note: Duties paid on the goods entering the other CUSMA country are required to be determined from that country's customs documentation requirements and be converted to Canadian dollars. See Appendix A in D-Memo 7-4-3 for examples of the calculations required.
There are, however, some specific exceptions in which Duty Drawback will not be offered:
- Antidumping or countervailing duties.
- Premiums offered or collected pursuant to any tendering system with respect to the administration of quantitative import restrictions.
- Tariff rate quotas or trade preference levels.
- Fees pursuant to Section 22 of the US Agricultural Adjustment Act.
To find out more about limitations placed on drawbacks for CUSMA go to the CBSA Memorandum D7-4-3.
How Do I Apply?
To start a drawback claim you must complete and submit form K32-Drawback claim.
The K32 requires that you provide proof of export. Satisfactory Evidence must be provided if the exports are affected by CUSMA. Satisfactory Evidence is explained in D7-4-3. Completion instructions are included with the form. The completed K32 can be submitted with supporting documentation to the nearest CBSA office.
A claim for drawback must be filed within four years of the release date of the goods imported. Before you submit your claim, the goods must be exported or “deemed exported.” Deemed exported is explained in Subsection 89(3) of the Customs Tariff.
To find out more about the US Customs and Border Protection’s (CBP) Duty Drawback program read our previous blog Why Can’t I File A Drawback On All Duties, Taxes And Fees?
For further information about the CBSA or CBP Duty Drawback programs speak to one of our Trade Advisors.