Proposed changes to the value for duty rules for goods imported into Canada

The Canada Border Services Agency (“CBSA”) released a consultation paper and proposed regulations amending the Valuation for Duty Regulations on May 27, 2023, with a thirty-day consultation period that ends June 26, 2023. A copy of the proposed regulations is set out below.

The proposed regulations will, if adopted, fundamentally change how the value for duty is determined for goods imported into Canada by both resident and non-resident importers. For example, under the proposed regulations, if a Canadian distributor has reached an understanding with its customer, prior to the goods being imported, that it would sell the goods to them, the distributor would need to use its proposed selling price rather than its purchase price as the value for duty.

It follows that the proposed changes are likely to have significant implications for businesses importing goods for resale as well as others in the supply chain that purchase or sell imported goods.

Under the current legislation, most importers determine the value for duty using the transaction value method, which is based on the price paid or payable to the vendor in the “sale for export” to a “purchaser in Canada”. While “sold for export” is not defined, it has been interpreted by the Supreme Court of Canada to refer to the sale by which title passes to the importer (Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., 2001 SCC 36).

Although there is much uncertainty about how the proposed regulations will be interpreted, by way of summary, the regulations would:

• change the definitions of the terms “sold for export” and “purchaser in Canada”;
• result in changes to the value for duty for both resident and non-resident importers;
• alter the concept of what constitutes a “sale” to include non-binding arrangements such as purchase orders and possibly even expressions of interest from potential customers;
• expand the definition of “sale for export” to include domestic sales where title and risk transfers in Canada;
• change the meaning of “purchaser in Canada” to include purchasers who are not importing the goods; and
• potentially require the value for duty to be computed using the price paid by consumers to retailers if the goods are subject to an agreement, understanding or arrangement of any kind “for the purpose of being exported to Canada”.

We encourage all businesses to consider the potential implications of the proposed regulations and encourage all interested stakeholders to make representations to the CBSA before June 26, 2023.

Regulations Amending the Valuation for Duty Regulations

Amendments

1 The long title of the Valuation for Duty Regulations is replaced by the following:

Valuation for Duty Regulations

2 Section 1 of the Regulations and the heading before it are repealed.

3 The heading before section 2 and sections 2 and 2.1 of the Regulations are replaced by the following:

Definition

2 In these Regulations, Act means the Customs Act.

Definitions for the Purposes of Subsection 45(1) of the Act

2.01 (1) For the purposes of subsection 45(1) of the Act, sold for export to Canada means, in respect of goods, to be subject to an agreement, understanding or any other type of arrangement — regardless of its form — to be transferred, in exchange for payment, for the purpose of being exported to Canada, regardless of whether the transfer of ownership of the goods is completed before or after the goods are imported.

(2) If the goods are subject to two or more agreements, understandings or other types of arrangement described in subsection (1), the applicable agreement, understanding or arrangement for the purposes of that subsection is the one respecting the last transfer of the goods in the supply chain among the transfers under those agreements, understandings or arrangements, regardless of the order in which the agreements, understandings or arrangements were entered into.

2.1 For the purposes of subsection 45(1) of the Act, purchaser in Canada means, in respect of goods that are the subject of an agreement, understanding or any other type of arrangement referred to in section 2.01, the person who, under that agreement, understanding or arrangement, purchases or will purchase the goods, regardless of whether the person is the importer of the goods or when the person makes payments in respect of the goods.

Coming into Force

4 These Regulations come into force on the day on which section 212 of the Budget Implementation Act, 2021, No. 1, chapter 23 of the Statutes of Canada, 2021, comes into force, but if they are registered after that day, they come into force on the day on which they are registered.