Clearing the Border With Purolator International

Canadian Customs Regulations, Security Mandates, Duties, and Fees

The U.S. and Canada share the world's longest international border, and a sustained trade in goods relationship valued at almost $534 billion during 2017.  That figure amounts to almost $1.5 billion worth of goods crossing the border each day.  Despite this historically close and strong relationship, shipments between the two countries are international transactions, and subject to compliance with all customs related requirements.


While both the U.S. and Canadian governments have affirmed their desire to streamline the border clearance processes where possible, there are still numerous steps - regulatory requirements, security mandates, documentation, duties/fees - to follow in successfully moving goods across the border.  In fact, missing or incomplete paperwork and/or documentation is a top cause of border clearance delays.  Many businesses have complained the border clearance process has become more complicated in recent years, especially as each government has instituted new security regulations intended to prevent the entry of hazardous materials or contraband into their countries.

 

Learn more about the process of shipping goods to Canada by selecting a topic from the following menu:

  • ABC’s of CBSA (Overview of Canada Border Service Agency import requirements)
    Business Number
    Country of Origin
    Other Government Departments
    Tariff Classification
    Rate of Trariff
    Canadian Sales Taxes/Excise Taxes
    Value for Duty
  • CBSA Checklist
  • Border Security Initiatives
  • Facilitating the Process
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ABC's of CBSA (Navigating the Canada Border Services Agency)

The Canada Border Services Agency (CBSA) is the gatekeeper to Canada, with responsibility for monitoring and facilitating the flow of goods across the border.  Every shipment entering Canada must comply with specific CBSA regulations and mandates, as well as with requirements by other Canadian agencies - requirements that are enforced by CBSA.  Following is a brief overview of CBSA-related information and border clearance requirements:


Business Number. Most businesses or individuals importing goods to Canada must obtain a Business Number (BN) from the Canada Revenue Agency (CRA).  The unique 15-digit BN is used for several purposes including business identification, and tracking of tax payments and import/export activity.

 

Country of Origin. Every shipment must clearly list the country/countries from which its contents originated.  Country of origin does not necessarily mean the country from which the goods were shipped.  Rather, country of origin includes sources for individual parts, along with the country in which final assembly occured.  Country of origin is used to determine eligibility for free trade agreement benefits, including NAFTA.

 

Other Government Departments (OGDs). As many as 16 other government departments have authority over different aspects of the Canadian importation process, and CBSA enforces regulatory requirements on their behalf.  Goods subject to oversight by an OGD - or in some cases by multiple OGDs - must meet all applicable requirements which generally include permits, certificates or specific documentation.

 

Tariff Classification. Every item entering Canada must be assigned an appropriate tariff classification code.  Canada is among the vast majority of countries that adhere to the international Harmonized System (HS) of tariff codes.  The HS is a uniform list of codes for roughly 200,000 different commodities.  Each commodity is assigned a six-code.  Because of the Harmonized System, a product originating in one country will carry the same HS code as the same product manufactured in a different country. 

 

In Canada, the Harmonized System is the basis for the Customs Tarriff coding system, which is used to classify goods entering Canada.  Each 10-digit Customs Tariff classification has a six-digit HS code as its root, which is supplemented by a four-digit code unique to Canda.  The additional four dgits are used by the Canadian government to capture additional information about goods entering and leaving the country.

 

Improper coding can result in under-or-overpayment of duties, or in the failure to benefit from applicable trade agreement provisions.  If an improper tariff classification results in an underpayment of duties, a shipper may face interest on the underpayment , fines, and an increased liklihood of being selected for an audit.

 

Rate of Tariff. Once the correct tariff classification number has been assigned, the proper rate of tariff can be assessed.  The rate of tariff is used to determine duties.  The Customs Tariff Schedule lists two columns for possible tariff rates:  "Most Favored Nation Tariff" and "Applicable Preferential Tariffs."

 

Most Favored Nation Tariffs.  According to CBSA, goods originating from all countries (except North Korea) are entitled to use the rate of duty specified in the Most Favored Nation column.

 

Applicable Preferential Tariffs. The Applicable Preferential Tariffs column lists reduced rates of duty for goods based on trade agreements. 

 

Free Trade agreements (FTAs) are negotiated agreements between two or more countries intended to facilitate and increase trade.  While terms of each free trade agreement are unique, in general, most FTAs allow qualified goods to trade at a reduced rate of tariff, or in some cases, for the elimination of tariffs.  Canada is currently a participant in 13 free trade agreements.

 

North American Free Trade Agreement.  The North American Free Trade Agreement (NAFTA) has been in place since 1994, and sets trade terms for goods traveling between the United States, Canada and Mexico.  Although the agreement is quite specific, a key element is the elimination of tariffs on goods moving between the three countries that meet NAFTA's requirements for domestic content.  Goods claiming NAFTA eligibility must be accompanied by a NAFTA Certificate of Origin, which provides detailed information about the origination of all component parts. 

 

In 2017, the three NAFTA signatory countries initiated a review of several NAFTA provisions.  Those discussions are expected to continue into 2019.

Canadian Sales Tax/Excise Taxes. Most products sold in Canada -- including goods imported from the United States -- are subject to a five percent federal tax, referred to as the Goods and Services Tax (GST).  The GST is administered by the Canada Revenue Agency (CRA).

  • Harmonized Tax.  While every Candaian province collects the GST, some have opted to combine it with their own provincial sales tax.  The combined tax is called the Harmonized Sales Tax (HST), and ranges from 15 percent in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island, to 13 percent in collected in Ontario. The HST is paid to the federal government, with disbursements made to each participating province.
  • Provincial Sales Tax (PST).  Certain provinces - British Columbia, Manitoba, Quebec and Saskatchewan - do not combine their local sales tax with the federal GST.  Instead a seperate provincial tax is imposed.  For shipments heading to these provinces, two separate payments must be made: The GST to the federal government and the PST to the specific province. 

    In Quebec, businesses operating in the province are required to register with Revenu Quebec and collect a 9.975 percent Quebec Sales Tax on the sale of most goods and services.

Finally, the province of Alberta, the Northwest Territories, Nunavut and the Yukon do not impose a provincial tax, so only the GST is collected.

The following chart illustrates Canada's current tax scenario:


Province GST PST HST
Alberta  5% 0 NA
British Columbia** 5% 7% NA
Manitoba 5% 8% NA
New Brunswick 5% NA 15%
Newfoundland & Labador 5% NA 15%
Northwest Territories  5% NA NA
Nova Scotia NA NA 15%
Nunavet 5%    
Onatario NA NA 13%
Prince Edward Island* NA NA 15%
Quebec 5% 9.975% (QST) NA
Saskatchewan 5% 6% NA
Yukon 5% 0 NA

Source: Canada Business Network, Governement of Canada 2018

 

In general, businesses that act as the importer of record must register with CRA and collect Canadian taxes. There are exceptions though, including:

  • Businesses with sales that do not exceed CAD$30,000 (although a business may still be required to pay PST)
  • Goods with a value of less than CAD$20
  • Items from Canada's list of "zero-rated goods" (Basic groceries, medical devices, prescription drugs and certain agricultural products, amonth other items.)

Excise Taxes. In addition to sales tax, certain categories of goods are subject to excise taxes, or excise duties.  Examples of goods subject to excise tax include:

  • Automobile air conditioners
  • Certain passenger vehicles
  • Certain fuels
  • Tobacco and certain alcohol products

 

Value for Duty.  Once the proper tariff classification and tariff treatment have been determined, a product's value for duty must be assessed.  In most cases, the value for duty is the amount paid to a vendor for the goods, and can be supported by a sales receipt or invoice.  In addition, value for duty must be set in Candadian dollars.  A proper valuation will be used to assess the amount of duties and taxes owed.


Contact Purolator International for assistance in navigating the process for shipping to Canada.  Call 888-511-4811 today or submit an inquiry.

CBSA Import Checklist

CBSA provides a concise overview of steps an importer must follow in preparing to ship goods into Canada.  Key steps on the CBSA checklist include:

  • Obtain a business number from the Canada Revenue Agency.
  • Identify the type of goods to be imported.
  • Determine whether or not to use the services of a customs broker.
  • Determine shipment's country of origin.
  • Verify whether the goods are controlled, regulated or prohibited by CBSA.
  • Ensure the goods are marked and labelled as required.
  • Determine the 10-digit tariff classification and rate of duty using the Customs Tariff.
  • Determine whether the goods are subject to any other duties or taxes, including the GST.
  • Obtain invoices, certificates of origin and any other required documents.
  • Determine the value for duty.
  • Select shipping method, and communicate with transportation company about cross-border requirements.
  • Await notification that shipment has arrived.
  • Submit required CBSA documentation and pay any duties and taxes.

Border Security Initiatives

Border security is an integral part of CBSA's mission, and in recent years, the Agency has increased efforts to prevent dangerous materials and contraband from entering the country.  CBSA has adopted a "risk-based"approach to identify potential threats, whereby resources are targeted at shipments from unknown entities, or that have raised red flags in the pre-clearance process.

 

The Advance Commercial Information (ACI) program is the cornerstone of the CBSA's security efforts, and provides the mechanism through which shippers provide advance notfication about Canada-bound shipments.  By requiring advance notice, CBSA is able to prioritize risk, and pre-clear the vast majority of "non-threatening" shipments.


ACI was rolled out to the trade community in three phases:

  • 2004 -- Phase One:  All marine carriers are required to electronically submit cargo data to CBSA 24 hours prior to loading cargo at a foreign port.
  • 2006 -- Phase Two:  Air carriers and freight forwarders, where applicable, are required to electronically submit conveyance, cargo and supplementary cargo data to CBSA four hours prior to arrival in Canada or, if the duration of the flight to Canada is less than four hours, before the aircraft's time of departure.  Phase Two also expanded marine requirements to include shipments loaded in the United States.
  • 2015 -- Phase Three:  The third phase of ACI includes the mandatory eManifest filing system, which provides an electronic portal through which all necessary information can be transmited.  Although eManifest is not entirely complete, advance filing requirements became legally binding in 2015 for highway carriers, rail carriers and freight forwaders.  Highway carriers are required to electronically submit shipment information at least one hour before arrival in Canada.  

Trusted Trade Programs. Both the United States and Canada offer opportunities for members of the trade community to benefit from accelerated border clearance procedures, in exchange for voluntary certifications about supply chain security.

 

Customs Trade Partnership Against Terrorism (C-TPAT).  In the United States, CBP maintains the Customs Trade Partnership Against Terrorism (C-TPAT) program, whereby participants undergo a rigorous application and review process and attest to the safety of their internal supply chains, as well as the supply chains of suppliers and vendors.  In exchange, C-TPAT members receive trade facilitation benefits that include:

  • Reduction in CBP Inspections.
  • "Front of the Line" access for shipments that are chosen for inspection.
  • FAST Lane Access.  C-TPAT members enjoy enhanced stature and favorable marketing and reputation boosts.
  • Business Continuity.  In the event of a national emergency that necessitates shutting down air, land, and sea entry points, C-TPAT members will be given priority access once CBP resumes shipment processing.
  • Assigned supply chain specialist to discuss security issues.
  • Access to web-based C-TPAT portal system and "public library" of related materials, including directory of all C-TPAT members.

C-TPAT is based on the premise that if U.S. businesses agree to verify the safety of their supply chains, plus the security of all their U.S. and international suppliers' supply chains, border agents will be able to spend scarce resources on non-certified shipments arriving at the border.

Partner in Protection (PIP).  CBSA offers a similar voluntary program to members of the Canadian trade community, called Partners in Protection (PIP).  Participating businesses undergo a rigorous application and screening process, and if approved, agree to implement and adhere to high security standards throughout their supply chains.  In exchange, PIP members receive key benefits that include:

  • Access to CBSA security assessments, awareness sessions and expertise.
  • Recognition as a "trusted trader" upon arrival at the border, which can save time.
  • Reduced risk score, which can result in a lower examination rate at the border. 
  • Access to CBSA's Trusted Trade Portal, which allows for easy access to all membership documents.
  • Eligibility to apply to the Free and Secure Trade (FAST) program, which offers access to designated lanes at certain border crossings.
  • Eligibility to participate in the CBSA's Courier Low Value Shipment (LVS) program, which offers streamlined processing of shipments valued at no more than CAN$2500, and expedited release for couriers.
  • Mutual recognition status with similar international trusted trader programs including: The United States' C-TPAT program; Japan's Authorized Economic Operator program; Korea's Authorized Economic Operator program, and Singapore's Secure Trade Partnership (STP) program.

Facilitating the Process

As the U.S. and Canada seek to expand trade opportunities -- and address concerns the customs process has become overly complicated -- the two governments have taken steps to eliminate barriers and redundancies, and to facilitate compliance procedures.

 

Businesses that take advantage of these initiatives benefit from greater access to market opportunities, improved clearance efficiency, and in some cases, cost savings.


Non-Resident Importer.  The Canadian government offers U.S. businesses the opportunity to compete on a level playing field against Canadian businesses, by registering as a Non-Resident Importer (NRI).  As a NRI, a U.S. business is permitted to collect Canadian sales taxes at the time of sale, and may also serve as an importer of record.  Without these important capabilities, Canadian consumers could face an unexpected invoice at the time of delivery for the unpaid taxes - taxes most consumers would assume had been paid at the time of purchase.  In addition, a Canadian consumer or business manager could be forced to travel to a CBSA facility to collect their goods.  NRI status allows U.S. businesses to provide the Canadian consumers with a seamless experience, similar to their interactions with domestic Canadian businesses.

 

Single Window Initiatives. Overlapping jurisdictions and redundant documentation requests have historically been sources of great frustration for members of the trade community on either side of the border.  Traders were routinely required to submit documentation multiple times either manually or via various goverment agency databases, none of which had the capability to "talk to each other."


Fortunately, technology caught up with the customs process, and both the U.S. and Canada have implemented "Single Window" processing systems that serve as the central clearinghouse for all trade related information.  Information is entered into the Single Window once, and then automatically routed to all appropriate government agencies and departments.


In the United States, the Single Window became effective in 2017.  The system is rooted in the Automated Commercial Environment (ACE) system, which is CBP's primary system for capturing shipment information.  According to CBP: "Through ACEas the Single Window, manual processes are streamlined and automated, paper is being eliminated, and the trade community is able to more easily and efficiently comply with U.S. laws and regulations."

Canada's Single Window Initiative was implemented in 2017 and serves as the single entry point for reporting import information to CBSA.

 

Trusted Trade Programs.


Low Value Courier Shipment: Recognizing that a large volume of shipments crossing the border are relatively inexpensive consumer goods -- often e-commerce shipments -- CBSA allows for expedited clearance for packages valued at CAN $2500 or less, that enter Canada via an approved courier.

 

Duty Drawback: Business that pay import duties on goods that are subsequently exported or destroyed may be eligible to receive a refund from CBP of up to 99 percent of those import duties.  The refund is known as a duty drawback, and eligible shippers may file a drawback claim for the transactions going back as far as three years.  (Read our white paper on Duty Drawback.)


However, the process for filing a drawback claim is complicated, and requires meticulous recordkeeping and determination.  The U.S. government makes available several resources and publications to help businesses that might be interested in submitting a drawback claim. 


In addition, a business can seek drawback guidance and instruction from an experienced customs broker or logistics provider.


Contact Purolator International for assistance today.  Call 888-511-4811 or complete the web form on the Contact Us page.