One area of confusion for many small and medium Canadian businesses is the customs treatment of goods manufactured in Canada that are sold outside Canada (and exported), but have to be returned temporarily for warranty repairs. The goods manufactured in Canada may be entirely Canadian input content or may be made partly with foreign inputs. SMEs want to be in the export market, but get caught by complex customs laws about what to do if goods are returned for one reason or another.
On September 7, 2016, the Canada Border Services Agency (“CBSA”) released D-Memo D8-2-27 “Canadian Goods, Originating in Canada or Accounted for, Temporarily Exported and Returned” to provide much needed guidance. However, the guidance is written for the knowledgeable in customs laws and not SMEs who are trying very hard to figure out what they are supposed to do.
The first thing for Canadian businesses to know is that they have an obligation to report all imported goods – if goods are outside Canada and are entering Canada, they are being imported. Pursuant to subsection 12(1) of the Customs Act, all goods imported into Canada must be reported to the nearest customs office. Subsection 12(3.1) of the Customs Act specifies that “the return of goods to Canada after they are taken out of Canada is an importation.”
The question to be asked is: Are customs duties and other import charges payable with respect to the specific goods that are being returned.? The answer to this question will be “Yes”, applicable customs duties, other duties and GST will be payable on the imported good unless a relief provision applies.
There are two relief provisions which may provide customs duty relief to goods exported from Canada and subsequently returned to Canada. There are tariff item Nos. 9813.00.00 and 9814.00.00 of the Schedule to the Customs Tariff. Goods that meet the requirements of and are classified under either tariff item No. 9813.00.00 or 9814.00.00 may be imported customs duty-free.
What goods can be subject to relief?
Goods that originated in Canada: Tariff item 9813.00.00 covers “goods, including containers or coverings filled or empty, originating in Canada, after having been exported therefrom, if the goods are returned without having been advanced in value or improved in condition by any process of manufacture or other means, or combined with any other article abroad.”
Goods previously imported into Canada and accounted for: Tariff item 9814.00.00 covers “goods, including containers or coverings filled or empty, which have once been released and accounted for under section 32 of the Customs Act and have been exported, if the goods are returned without having been advanced in value or improved in condition by any process of manufacture or other means, or combined with any other article abroad.”
Goods of tariff item No. 9813.00.00 must originate in Canada. The CBSA considers that a good originates in Canada when the good is
mineral extracted in Canada;
(b) a vegetable or other good harvested in Canada;
(c) a live animal born and raised in Canada;
(d) a good obtained from hunting, trapping or fishing in Canada;
(e) fish, shellfish or other marine life taken from the sea by a vessel registered or recorded with Canada and flying a Canadian flag;
(f) a good produced on board a factory ship from a good referred to in paragraph (e), where the factory ship is registered or recorded in Canada and flies a Canadian flag;
(g) a good taken by Canada or someone representing Canada from or beneath the seabed outside the territorial waters of Canada, where Canada has the right to exploit that seabed; or
(h) a good produced in Canada exclusively from a good referred to in any of paragraphs (a) through (g), or from the derivatives of such a good, at any stage of production.
What this means is that any good that is made from any foreign inputs will be within tariff item No 984.00.00. Goods of tariff item No. 9814.00.00 are those which were previously, wholly or partially, imported into Canada, and were released and accounted for under section 32 of the Customs Act. It is very important to be able to prove that customs duties were previously paid on the foreign inputs.
It is also critically important to note that if the goods have been advanced in value or improved in condition by any process of manufacture or other means and/or have been combined with any other article while they were outside Canada, these relief provisions are not available. Other relief provisions must be considered.
What Should Importers of Goods For Warranty Repairs Do?
Canadian businesses who act as the importer of record for Canadian goods returned for warranty repairs or accounted goods for warranty repairs should ensure that their customs brokers properly account for the returned goods and follow the administrative requirements set out in D-Memo D8-2-27. Failure to account for goods is one of the most common errors made by importers.
That being said, not all the answers are in D-Memo D8-2-27. SMEs are not provided with simple tips on completing the B3 Customs Coding Form. For example, SMEs are not informed that if H.S Code 9813 is used, the origin of the goods is “Canada” rather than the place of export. The description of the goods should be “Canadian goods returned for warranty repairs” rather than the typical description (e.g., bicycle). The GST Code should reflect the “non-taxable importation” status of the goods (such as code “66”).
The issue of value for duty is not addressed. Often, importers incorrectly state that the value for duty is nil or a nominal amount. However, it may not be correct that the good has no value – the good is still valuable – it merely needs warranty repairs.
The issue of what to do if the goods cannot be repaired (because the goods are too damaged) is not addressed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.