Tax Insights: Are your goods on the list? CBSA releases January 2025 trade compliance verification priorities

Issue 2025-02

In brief

What happened?

The Canada Border Services Agency (CBSA) has released an updated list of its trade compliance verificationsOpens in a new window¹ for January 2025.

Why is it relevant?

Businesses that import goods listed as a verification priority should prepare for the likelihood of a CBSA trade compliance verification (or audit) in the near future, the results of which may include payment of additional duties, GST, interest and penalties. Given the retrospective nature of these audits, assessed amounts tend to be difficult to recover from customers through increased pricing.

Actions to consider

Importers should consider reviewing their historical import data (which can be obtained from the CBSA) annually to assess the potential impact of audit verification priorities and, if errors are identified, take corrective action before being notified of a CBSA audit to mitigate punitive interest and potential penalties.

In detail

What is a trade compliance verification? 

The CBSA manages the verification program in two ways – by random verifications and through verification priorities. The list of verification priorities is continuously updated so that it reflects the CBSA’s assessment of non‑compliance with customs legislation to ensure that importers comply with the requirements for tariff classification, customs valuation and origin. The verification priorities are either imports from a specific category of goods or a specific industry. 

Some priorities carry over from one year to the next and some remain on the list for several years, e.g. the valuation of apparel (the CBSA has been targeting clothing and apparel for many years and there have been numerous related audits and assessments). 

The overall goal of these verifications is to:

• enforce compliance with customs requirements, and
• ensure that the correct amount of duties is being assessed 

All importers are at risk of random or compliance-based verifications.

The targeted priorities list

There are currently 11 (down from 12 in July 2024) active verification priorities, some of which have been in place for many years. This list contains nine priorities for tariff classification, one for customs valuation and one for origin of goods. The CBSA's current verification priorities are summarized in the Appendix.

Tariff classification issues 

The main tariff classifications issues relate to importers classifying their goods under a code that is duty-free or at a lower duty rate. This includes goods that:

• have been misclassified in the past (e.g. gloves under headings 39.26 and 42.03)
• are subject to high duty rates, or
• are from regions with known compliance issues

Importers should review their classifications to ensure compliance and limit the potential for duty exposures.

Customs valuation issues

The main customs valuation issues for all importers include:

• using an incorrect valuation method (e.g. the importer incorrectly reports the original cost)
• ensuring that the importer is also a purchaser in Canada (a defined term in Canadian law) so that the transaction value method can be used 
• adding to the reported value for duty, when applicable, an amount for "assists," royalties and subsequent proceeds (e.g. management/administrative fees, etc.)

It is important to note that not all audits are based on verification priorities. Although the priorities on the list focus on risk in the three principal customs areas (tariff classification, valuation and origin), verifications of import compliance can also cover other customs programs (e.g. trade incentives and compliance with areas of regulation administered by other government departments). Importers of goods that are not included on this list should, nevertheless, be aware that the CBSA also conducts random or compliance-based verifications. 

Importers should review their customs compliance practices to ensure that they are compliant and can withstand a CBSA audit.

Customs origin issues

The CBSA may audit any goods that are imported into Canada, including those that benefit from duty free status because of a trade agreement (e.g. Canada‑European Union Comprehensive Economic and Trade Agreement and the Canada-UK Trade Continuity Agreement). When importers rely on a trade agreement, they must ensure that these goods meet all the requirements under the relevant agreement, such as the information outlined in the rules of origin. Regardless of who completes the certificate of origin, the importer bears the ultimate responsibility for any information reported to the customs authority and must ensure that the evidentiary support is available at the time of declaration.

Other compliance priorities

The CBSA has also identified the following compliance priorities:

• tariff rate quotas related to certain frozen desserts that contain 5% of dairy products
• GST exemptions and excise duties and taxes on vaping products
• reviews of certain licensees under the Duties Relief Program
• proper application of tariff rates to goods imported from Russia and Belarus
• China surtax orders² relating to electric vehicles and steel and aluminum products

The takeaway

If your business imports goods into Canada, you should:

• know what your business actually imports
• pay extra attention to your import practices and customs paperwork
• determine your level of compliance with the legislative requirements and any overpayments
• take corrective action before you are notified of a CBSA audit to mitigate punitive interest and potential penalties
• be aware that a negative audit finding can hurt your business financially and could lead to a reassessment or supply chain disruptions due to closer scrutiny by the CBSA

Our customs specialists can work with you to evaluate your customs and trade compliance practices, guide you step-by-step to correct past errors and improve these practices going forward.

^{1. “Trade compliance verificationsOpens in a new window,” Canada Border Services Agency (January 2025).}

^{2. See our Tax Insights “Canada to impose surtaxes on steel and aluminum products from China and Chinese-made electric vehiclesOpens in a new window” (October 29, 2024 update).}

Appendix