Trade Regulations

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 9-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 occurred.  Country of origin is used to determine eligibility for free trade agreement benefits, including USMCA.

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-digit 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 Tariff 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 Canada.  The additional four digits 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 free trade agreements.  If an improper tariff classification results in an underpayment of duties, a shipper may face interest on the underpayment, fines, and an increased likelihood 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 arrangements 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 which include:

• North American Free Trade Agreement
• Canada-Chile Free Trade Agreement
• Canada-Israel Agreement Tariff
• Canada-Costa Rica Tariff
• Canada-European Free Trade Association Free Trade Agreement
• Canada-European Union Comprehensive Economic and Trade Agreement
• Canada-Peru Free Trade Agreement
• Canada-Columbia Free Trade Agreement
• Canada-Jordan Free Trade Agreement
• Canada-Panama Free Trade Agreement
• Canada-Honduras Free Trade Agreement
• Canada-Korea Free Trade Agreement
• Canada-Ukraine Free Trade Agreement

North American Free Trade Agreement (USMCA).  The North American Free Trade Agreement (USMCA) took effect in 1994 and sets trade practices for shipments between the United States, Mexico and Canada.  A key USMCA provision is the elimination of tariffs on virtually all originating goods traveling between the three countries. But determining whether or not a product fits within USMCA’s terms for “origination” can be tricky.  Origination is not restricted only to goods wholly produced within the U.S., Canada, or Mexico. Instead, the agreement makes allowances for products to include percentages of non-USMCA materials and still qualify for preferential benefits.  To determine if a product is eligible for USMCA benefits, it is necessary to consult USMCA’s rules of origin, which specify content requirements for all products.  Once a product is determined to qualify for benefits, a USMCA Certificate of Origin must be completed along with all other import documentation.

Canadian Sales Taxes/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 Canadian 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 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 separate 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:

Source:  Canada Business Network, Government of Canada

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 liable 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, among 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 Canadian dollars. A proper valuation will be used to assess the amount of duties and taxes owed.

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 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.

Advance Commercial Information (ACI) program.  The Advance Commercial Information program is the cornerstone of CBSA’s border security initiatives.  ACI requires submission of electronic pre-arrival information for all shipments heading for the Canadian border.  

CBSA uses this advance information to evaluate shipment risk.  Low-risk shipments are generally pre-cleared for entry while resources are allocated to shipments determined to be high-risk.

Shipment information must be transmitted based on the specific mode of transport, as follows:

Trusted Trader Programs.  The United States and Canadian governments maintain a number of “trusted trader” programs whereby qualified businesses are granted certain benefits in exchange for their commitment to certify the safety of their supply chains, as well as the supply chains of their vendors and suppliers.  Participation in trusted trader programs has become an important part of ensuring a hassle-free border clearance process.

For U.S. businesses, the Customs-Trade Partnership Against Terrorism (C-TPAT) is the key trusted trader program.  Businesses that successfully meet program requirements are entitled to benefits including:

• Reduced number border inspections
• “Front of the Line” access for shipments that are chosen for inspection
• Access to Free and Secure Trade (FAST) lanes at land crossings
• Access to database of other C-TPAT benefits.

Canada maintains a program known as Partners in Protection (PIP) that is similar to C-TPAT.  Qualified PIP members are entitled to benefits including:

• Recognition as a “trusted trader,” which can save time
• Reduced likelihood of inspection
• Access to CBSA’s Trusted Trader Portal, which provides easy access to all membership documents.
• Eligibility for the FAST program, which offers access to designated lanes at certain land border crossings
• Eligibility to participate in CBSA’s Courier Low Value Shipment (LVS) program, which offers streamlined processing of shipments valued at less than CAN$2,500
• Mutual recognition status with similar international trusted trader programs.

Fortunately for the trade community, the two programs are harmonized.  A C-TPAT member can join PIP, and vice versa.

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 time of delivery for the unpaid taxes — taxes most consumers would assume had been paid at 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 their 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 government 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 ACE as 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$2,500 or less, that enter Canada via an approved courier.

Duty Drawback.  Businesses that pay import duties, taxes or fees 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 costs.  The refund is known as a duty drawback, and eligible shippers may file a drawback claim for transactions going back as far as five years.

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.  These resources include:

• Drawback:  A Refund for Certain Exports publication
• Regional Duty Drawback offices, located in Chicago, Houston, Newark/New York and San Francisco.

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