Importing Tangible Goods into Canada
Gone are the days when businesses operate without ‘dipping their feet’ or ‘jumping right in’ to our ever-expanding global economy. With companies looking to manage their production costs or expand their customer base, importing and exporting goods across borders is becoming a prominent component of doing business.
It is important to be aware of the GST/HST implications of importing tangible goods into Canada to ensure you are in compliance with the Excise Tax Act and are that you are not leaving unclaimed GST/HST Input Tax Credits (ITCs) on the table.
When commercial goods are purchased within Canada, they are subject to GST/HST at the applicable provincial rate. Many of the provinces have harmonized excise taxes, whereby the GST and the respective provincial excise tax rate are combined. When importing tangible goods into Canada, the rate charged and payable at the time of entry is lower than a harmonized system such as Ontario would charge.
The commercial goods imported into Canada are normally only subject to the 5% federal GST portion of the excise tax, provided the tangible goods imported are not non-taxable imports. In addition, under section 220.07(2a) of the Excise Tax Act, provided the commercial goods (other than specified motor vehicles) imported are brought into an HST participating province from outside Canada by a company registered for HST, for consumption, use or supply exclusively in the course of the registrant’s commercial activities, no self-assessment of the provincial portion of HST is required on these imports.
Not for commercial use goods
If the goods are not for exclusive commercial use by the registrant, there may be a requirement to self-assess the provincial component of the HST if the company is in a participating province.
The federal portion of the HST on imported goods that are being imported into a harmonized province is required to are to be paid at the time of entry into Canada, and is based on the value of the goods in Canadian dollars, including duties and foreign tax. The payment of this excise tax is the responsibility of the importer of record. The importer of record may or may not be the owner of the commercial goods, but will be the one who is bringing the goods into Canada and having the goods cleared through customs. The GST paid can be claimed as an ITC if the importer of record is a registrant and satisfies the other criteria for claiming ITCs. This is normally structured in one of the following ways:
1. Where the importer of record and the owner of the commercial goods are the same (i.e. the owner purchases items out of the country and transports goods over the border). The owner/Canadian customer will be entitled to claim the 5% GST paid with appropriate documentation as an HST ITC on their next HST return.
2. Where the owner retains/designates their own customs broker to act as the importer of record (separate from the non-resident vendor), the 5% GST would be paid by the customs broker and the taxes and duty would be charged to the Canadian customer in addition to any service fee from the broker. The invoice will be heavily weighted with GST/HST as a portion of the invoice will relate directly to GST paid at customs. The Canadian customer is eligible to claim an HST ITC on the flat GST amount included in the invoice that was paid at customs, as well as the HST on any individual services invoiced by the customs broker.
3. Where the importer of record and the owner are separate with the non-resident delivering the goods to Canada, the non-resident will be required to pay the 5% federal portion of HST at the border. If the non-resident is not registered for HST, this HST will be non-recoverable and will become part of the cost of the goods being sold and will likely result in a higher price being charged to the Canadian customer and in this instance, the HST cannot be transferred or claimed as an HST ITC by the Canadian customer and the foreign supplier will not charge HST on the sale.
If the non-resident is an HST registrant, they are required to charge HST on the sale to the Canadian customer and will be entitled to claim the 5% GST as an ITC on their HST return. With a sale between a registered non-registrant and a registered resident, aside from any cost to compliance and timing of cash flows, there should not be an overall cost to this transaction for either party.
No matter the structure of the importer of record, it is important to maintain complete documentation to be eligible to claim the GST ITCs and to ensure the company is claiming all GST ITCs included on the invoice as ITCs are often included as a cost instead of a recoverable item when the importer of record is a customs broker.