he business of importing into Canada is lucrative and appealing for many. In 2020, Canada imported US$405 worth of goods. The demand for imports continues to rise year on year, and in July of 2021, the value of imports to Canada recorded an all-time high of CAD 53 billion.
But just like every other business activity, importing has challenges that you need to be aware of and regulations that you need to keep in mind. After all, the last thing you want is to face delays at the border or discover that your goods are not compliant with Canadian import rules and regulations.
It is imperative to be well-prepared before you venture into the world of trade and start your journey as an importer. Whether you are an individual or a business, this article provides a step-by-step guide to help you begin importing into Canada.
Step 1: Obtain a Business Number (BN)
To import into Canada, you will require a Business Number (BN). BNs are issued by the Canada Revenue Agency free of charge. You can register for a BN through the Canada Revenue Agency (CRA) website or by calling them on the number 1-800-959-5525.
Step 2: Know What You are Importing
Once you decide what you will be importing into Canada, you must ensure the goods are admissible. Some goods are prohibited, such as material suspected of constituting hate propaganda, sedition or treason — less obvious goods that are prohibited include used mattresses, for example. You can find more information on prohibited goods in CBSA’s Departmental Memorandum.
You should have detailed information about the good you are importing. If, for example, you are importing t-shirts, you need to know their composition and specifications. We recommend you obtain descriptive literature, schematic drawings, samples, and other details about the goods you are importing to determine the correct tariff classification of the goods.
Step 3: Other Government Agencies and Departments
CBSA is responsible for administering the requirements of the legislative import of other government departments and agencies, such as the Canadian Food Inspection Agency (CFIA) or Health Canada. These agencies are referred to as Participating Government Agencies (PGAs). A lot of imported goods are subject to PGAs. Departmental Memorandum Series D19 provides detailed information on the Acts and Regulation of Other Government Departments.
Example: Importing tires into Canada
Let us suppose you were looking to import tires into Canada, one of the goods subject to PGAs. CBSA will help administer and enforce the Motor Vehicle Safety Act and the Motor Vehicle Tire Safety Regulations on behalf of Transport Canada. Different importation requirements apply, depending on whether the tires are a business importation (for re-selling) or personal importation (for individual or fleet use).
In addition to meeting the requirements of Transport Canada, if you are importing used tires, you will have to meet the requirements of CFIA, which is the agency that administers the Plant Protection Act and the Health of Animals Act. In this case, CFIA’s role is to ensure all tires (used and retreaded) are free of soil.
Special Import Measures
As an importer, you need to know if your goods are subject to anti-dumping and countervailing duties. The Special Import Measures Act (SIMA) helps protect Canadian industry from material injury caused by the dumping and subsidizing of imported goods. Departmental Memorandum D14 addresses special measures under the Special Import Measures Act (SIMA) and covers anti-dumping and countervailing duties.
The Marking of Imported Goods
Some imported goods need to be marked with Country of Origin. These goods fall under the following seven categories:
- Goods for Personal or Household Use
- Novelties and Sporting Goods
- Paper Products
- Horticultural Products
- Products of Aluminum or Steel
Details about the marking program can be found in Section 19 of the Customs Tariff Act, which identifies the goods that require marking, appropriate country, method, manner, and time when the goods must be marked.
Step 4: Tariff Classification
Most countries use the Harmonized System to classify their goods. The first 6 digits are always the same across all countries for the same good. In Canada, classification numbers contain 10 digits. For example, if you were importing live, ornamental freshwater fish, the tariff classification would be 0301.11.00.00.
- 03 – Chapter
- 0301 – Heading
- 0301.11 – Subheading
- 0301.11.00 – Tariff Item
- 0301.11.00.00 – Tariff Classification
Not all goods are named in the Customs Tariff, nor are all of them easy to classify. We recommend that you seek guidance from your customs broker to ensure classification accuracy.
Step 5: Where do Your Goods originate?
When importing, you will need to identify the country where your goods originate, referred to as Country of Origin. The Country of Origin might not always be the country from which the goods were exported.
Canada has entered into numerous trade agreements with other countries affording you preferential tariff rates if your imported goods meet the requirements and you have Proof of Origin by means of a certificate or certification.
CBSA’s Memorandum D11-4-2 provides details of Proof of Origin guidelines and requirements.
Step 6: Value of Your Goods
For all goods imported into Canada, you will need to declare a value for duty, as stipulated in the valuation provisions of the Customs Act. The value for duty on your imported goods is the total amount paid to the vendor, which will be the basis for calculating duty.
You will need to support the value declared to CBSA with purchase orders, receipts or sales invoices from the vendor, and proof of payment. Documentation must also include a description of the goods, selling price, and terms and conditions of the sale.
Methods of Determining Value for Duty
The Customs Act outlines six valuation methods, applied in sequential order except for the computed and deductive methods, which can be applied in reverse order upon request. These methods are:
- The transaction value method (Section 48)
- The transaction value method of identical goods (Section 49)
- The transaction value method of similar goods (Section 50)
- The deductive method of valuation (Section 51)
- The computed method of valuation (Section 52)
- The residual method of valuation (Section 53)
The application of these methods can be confusing and often require expert opinion to decipher.
Even if you do not owe duty, you will still need to establish value for duty on imported goods to enable the assessment and calculation of GST, provincial sales tax, or harmonized sales tax.
Step 7: Calculating Duty and Taxes
Origin determines the tariff treatment of your goods, and along with tariff classification, the duty rate is determined. Most imported goods are subject to a Goods and Services Tax (GST) rate of 5%. The GST is calculated on duty paid value of goods being imported (value plus duty) and is paid by the importer when goods enter Canada unless they are going directly to a bonded warehouse. Some exceptions to GST include basic groceries, fishing odds, agricultural goods, prescription drugs, and medical devices.
When GST was introduced, several indirect taxes, such as the Excise Tax, were incorporated within it. However, as outlined in the Excise Tax Act (ETA), Excise Tax is still imposed on certain imported goods such as fuel, tobacco, and alcohol.
Excise Tax is applicable on:
- Automobile air conditioners
- Certain vehicles
- Certain fuels
Excise Duty, imposed under Excise Act, 2001, is applicable on:
- Certain alcohol products
More details about duty and taxes can be found in Schedule VI and Schedule VII of the Excise Tax Act.
It is important to note that the value of goods must be expressed in Canadian dollars. To determine the exchange rate and convert foreign currency to Canadian funds, you must first determine your imported goods’ date of direct shipment. CBSA defines the date of direct shipment as the date the goods began their uninterrupted journey to Canada.
To demonstrate this, let us look at an example of how you can calculate your duty and taxes on imported goods.
You place an order for goods valued at US$200 from the United States. Based on the date of direct shipment, you determine that the US$ to CAD$ exchange rate is 1.2. The origin of your imported goods is Vietnam, the rate of duty is 6%, and the GST is 5%.
- Determine the value of goods in Canadian dollars:
US$200 x 1.2 = CAD$240.00
- Calculate the duty owing (6%):
CAD$240 x 6% = CAD$14.40
- Determine the value for tax (value of good + duty):
CAD$240.00+ CAD$14.40 =CAD$254.40
- Calculate the GST owing (5%):
CAD$254.40 x 5% =CAD$12.72
- Determine the total amount payable to CBSA:
CAD$14.40 + CAD$12.72 =CAD$27.12
Importing into Canada can be a daunting endeavour for the unprepared. Being successful requires a great deal of understanding of the process, the regulations, and the exceptions. By following the steps in this article, you will be fully prepared to venture into the world of trade and start importing goods into Canada without any hurdles. Moreover, our Global Trade Services team is here to guide you throughout the entire import process.
Check out our Ultimate Guide on Importing into Canada