Importers must provide to the Canada Border Services Agency (CBSA) a “value for duty” for all goods imported into Canada. Value for duty must be determined in accordance with the Canada Customs Act regardless of the circumstances of the importation. CBSA will assess the duty and taxes payable on the value for duty of the importation. Importers must use one of the six methods identified in sections 48 - 53 of the Customs Act. You must use the methods in sequence as listed i.e if you can not use the transaction value as per Section 48 then you proceed to section 49 and on and on until you identify the appropriate method. Before we begin to review the methods of valuation we need to understand a few terms.
What Does Price Paid Or Payable Mean?
Price paid or Payable is defined in the Customs Act as “...in respect of the sale of goods for export to Canada, means the aggregate of all payments made or be made directly or indirectly, in respect of the goods by the purchaser to or for the benefit of the vendor.”
“All payments” made to the vendor must be included such as credits, foreign sales tax, and storage expenses. All discounts must be considered whether they apply before or after importation such as quantity purchase discounts.
How Do I Qualify As A Purchaser In Canada?
According to Customs Memorandum D13-1-3 “To meet the qualifications of a purchaser in Canada, one must be either a resident of Canada, a permanent resident in Canada, or a person who is importing goods into Canada for their own consumption, use or enjoyment in Canada but not for sale; or for sale in Canada, provided that before the purchase of the goods, the person has not entered into an agreement to sell the goods to a resident.”
Was There A Sale For Export?
The goods imported into Canada must be as a direct result of a sale agreement between a purchaser and vendor. The purchaser must be directly involved in the sale.
CBSA Memorandum D13-4-1 explains what sale for export means.
“The Customs Act states: ". . . the value for duty of goods is the transaction value of the goods if the goods are sold for export to Canada . . . ." This means that, for goods to be appraised under the transaction value method, the importer must be able to show:
- (a) the goods presented to the CBSA have been "sold" (i.e., the vendor has transferred, or has agreed to transfer, title for a price to the purchaser of the subject goods); and
- (b) the subject goods were "for export to Canada" as a condition of the sale agreement between the vendor and the purchaser.
The Six Methods Of Valuation
The Six methods of Valuation and the applicable Customs Act reference.
- The Transaction Value. Section 48 of the Customs Act
- The Transaction Value method of identical goods. Section 49 of the Customs Act.
- The Transaction Value method of similar goods. Section 50 of the Customs Act.
- The Deductive method of valuation. Section 51 of the Customs Act.
- The Computed method of valuation. Section 52 of the Customs Act.
- The Residual method of valuation. Section 53 of the Customs Act.
CBSA Methods of Determining Value for Duty are also explained in Customs memorandum D13-3-1.
Proposed Regulatory Amendments
In 2021 CBSA announced that they were considering potential regulatory amendments to the Valuation for Duty Regulations. This was as a result of Budget 2021 which ”proposed changes to the Customs Act to improve duty and tax collection by ensuring that goods are valued in a fair and consistent manner by all importers, as a means to level the playing field between domestic and foreign businesses.”
Bill C-30 entitled “Budget Implementation Act, 2021, No 1 was introduced on April 30, 2021. It received Royal Assent June 29, 2021. It is a legislative amendment to subsection 45(1) of the Customs Act. The amendment introduces a definition of the term “sold for export to Canada”. The meaning will be assigned by the Valuation for Duty Regulations.
The legislative amendment clarifies what a sale for export to Canada is - where the value for duty of imported goods is to be based on the sale that brings the goods into Canada and not an earlier sale between foreign entities. The proposed amendment will define the term “sold for export to Canada” and address the existing “regulatory loophole that unduly benefits non-resident importers (NTIs) with minimal operations and investments in Canada.The amendments will ensure that the price in a sale of goods between two foreign entities is not eligible to be used as the basis for the value for duty (VFD) calculation if an agreement to sell goods to a person in Canada ( i.e. resident or non-resident with permanent establishment in Canada) exists before those goods are imported.” (Source.)
Basically the amendments will mean that the last sale in the supply chain will be considered the “sale for export”. Also, the purchaser in Canada must have a commercial presence in Canada and have specific procurement functions within Canada.
CBSA sent out a Consultation Notice entitled “Potential regulatory amendments to the Valuation for Duty Regulations” in June of 2021 and it closed July 4 of 2021. The notice described the proposed amendment and asked for feedback from importers, Canadian retailers, brokers and any other interested stakeholders.
There has been all sorts of commentary on the proposed changes, not all positive.
These amendments are now part of the CBSA Forward Regulatory Plan 2022 to 2024 which means public consultations on the proposed regulatory amendments will be undertaken in the 2022 to 2023 fiscal year via the Consulting with Canadians website as well as the Canada Border Services agency website. Once these consultations are completed the Value for Duty Regulations will be completed clarifying the definition “sold for export” .
Should you have any questions regarding CBSA Valuation please contact one of our Trade Advisors for assistance.