Tax Insights: Proposed changes to Canadian customs valuation rules – Implications for importers

May 16, 2024

Issue 2023-19R

May 16, 2024 update: The Canada Border Services Agency (CBSA) has released an update relating to the proposed amendments to the Valuation for Duty Regulations. The update:

states that, while most respondents supported the policy intentions behind the proposed regulatory amendments (i.e. basing the import value on the last sale in a series of sales when imported into Canada), some respondents raised concerns that the proposed amendments might not achieve the overall intent and could lead to unintended consequences (e.g. use of domestic sales as the basis for the customs value, which would increase costs for businesses) and a misalignment with the Customs Valuation Agreement established by the World Trade Organization
reiterates that the CBSA’s policy objective of the proposed regulations is “not to use a price in a sale between a Canadian resident importer and its Canadian customer as the basis for determining the value for duty” and that these proposed amendments are not expected to affect Canadian resident importers, but will affect non‑resident importers who are currently declaring their purchase price from a foreign supplier, instead of declaring its resale price to a Canadian customer (these non-resident importers will face higher duty costs as a result of these proposed amendments)

As previously noted in our October 16, 2023 update, the Canada Gazette, Part I, Volume 157, Number 21: Regulations Amending the Valuation for Duty Regulations has been updated with the comments received during the consultation period (the consultation period, which had been extended by 30 days in late June 2023, ended on July 26, 2023).

The remainder of this Tax Insights was published on June 12, 2023. It has not been altered to reflect the information in CBSA’s October 2023 and May 2024 updates or the 30-day extension of the consultation period.

In brief

On May 27, 2023, proposed amendments to the Valuation for Duty Regulations¹ were published in Part I of the Canada Gazette.² These amendments, which are sponsored by the Canada Border Services Agency (CBSA), will affect how customs value is declared by importers of goods into Canada. The proposed changes were first announced in the federal government’s 2021 budget and a preliminary consultation was held in June/July 2021.³

The amendments address a perceived regulatory gap that, in the CBSA’s view, benefits non-resident importers (NRIs) by allowing them to pay less customs duty than Canadian resident importers. Although the proposed changes primarily target NRIs, they may also impact Canadian resident importers.

The timeline to implement these amendments is uncertain, but the CBSA has confirmed that they will not be implemented retroactively. Importers and other stakeholders can provide comments on these proposed regulatory amendments until June 26, 2023.

In detail

Currently, customs value for goods imported into Canada is primarily determined using the Transaction Value Method and regulated by the Customs Act and associated regulations. Under the existing rules, some NRIs are able to value imported goods based on their acquisition cost, which is often lower than their selling price to Canadian resident customers/end users. This arises when the NRI sells goods to a Canadian branch or subsidiary before they are sold to the Canadian purchaser/end user and the CBSA perceives this situation as an unfair advantage for NRIs.

The proposed amendments to the Valuation for Duty Regulations are intended to ensure that, when an importer makes arrangements to resell goods to a Canadian customer before importing the goods into Canada, the value for duty of the goods is based on the selling price to the Canadian customer/end user. The amendments will:

define the term “sold for export to Canada,” and
amend the definition “purchaser in Canada”

The changes will broaden the meaning of the term “sale” and base the value for duty of imported goods on the “sale” that caused the goods to be imported to Canada.

The amendments seek to level the playing field for domestic importers and NRIs by removing perceived "unfair advantages" enjoyed by NRIs. However, the impact of these changes extends beyond leveling the playing field. The broad scope of the amendments could result in many importers experiencing a significant increase in their customs value, leading to higher duty costs and an overall increase in the landed cost of imported goods. This may erode profit margins, potentially increase consumer pricing, and prompt importers to re-evaluate their business models in Canada.

Further, complying with the proposed changes may introduce an additional administrative burden. Identifying the relevant sale for export within complex supply chains, especially when goods are stored in Canada and abroad or sold through multiple channels, could become cumbersome. Sales that occur in Canada and do not cause the goods to be exported to Canada will not be used in the determination of the value for duty of imported goods.

The takeaway

The proposed amendments to the Valuation for Duty Regulations will significantly impact businesses that import to Canada. While the objective is to create a level playing field for all importers, the amendments have the potential to affect the vast majority of businesses importing goods for resale in Canada. Importers should anticipate increased duty costs, potential business model reassessment, and an added administrative burden. It is crucial for importers to participate in the public consultation and consider seeking specialized assistance to effectively navigate the potential implications.

^{1. Valuation for Duty Regulations, SOR/86-792

2. Regulations Amending the Valuation for Duty Regulations, Canada Gazette Part I, Vol. 157, No. 21, 1686

3. CBSA, Consultation notice, “Potential regulatory amendments to the Valuation for Duty Regulations” (updated September 28, 2023)}