Some confuse duty drawbacks and duty refunds by thinking that they're essentially the same thing. However, both of these customs processes function differently and serve different purposes.
Knowing how and when to claim duty drawbacks versus duty refunds will have a positive impact on your bottom line. Understanding how each process works can help importers recover costs and improve cash flow.
A duty drawback is a refund of customs duties that were originally paid on imported goods. You can qualify for this type of benefit for goods that will be exported, will be destroyed, and other, specific qualifying factors. The primary purpose of this customs mechanism revolves around businesses that engage in global trade by ensuring that they aren’t penalized with duties on goods that don’t remain in the domestic market.
The duty drawback system is part of the Canada Border Security Agency’s (CBSA) duty deferral program. Importers can apply for a refund of duties under several scenarios, including:
These rules are outlined in the CBSA D7 Memoranda, which provides detailed guidance on documentation and time limits.
A duty refund is issued when an importer recovers duties that were paid in error or overpaid. Unlike a drawback, a refund isn’t connected to the export or destruction of goods. Duty refunds intend to correct mistakes and claim benefits that were missed during the initial import entry.
Importers may qualify for refunds in several cases, such as:
Goods that qualify for a duty-free use, such as industrial inputs for specific manufacturing processes, may be eligible for a refund if proper certificates are provided. Canadian importers can file a Customs Adjustment Request with the CBSA to recover overpaid duties.
A duty drawback is triggered when goods are exported, destroyed, or used for a specific qualifying purpose. A duty refund occurs when an importer discovers an overpayment or makes a correction to previous import accounting.
In terms of timing, a duty drawback claim is typically made after the goods have been exported or destroyed, while a duty refund claim is filed after the importer identifies and confirms an overpayment.
Structurally, the duty drawback system operates under a formal program: the CBSA Duty Deferral Program. Duty refunds, however, are handled on a case-by-case basis and generally involve submitting a correction or adjustment to customs records.
The purpose of each program also differs: duty drawbacks are designed to encourage exports and global trade by refunding duties on goods that don’t remain in the domestic market, while duty refunds aim to correct import errors and recover overpaid duties.
Many importers miss out on significant potential duty recoveries simply because they don’t take advantage of these programs. Understanding and applying for duty refunds and drawbacks can:
Failing to apply for duty drawbacks or duty refunds is a lost opportunity. After all, both of these customs processes exist to support businesses and ensure a fair application of duties.
Partnering with an experienced customs broker can help to identify refund opportunities, ensure claims are filed accurately, and documentation is compliant, and refund opportunities are fully maximized.
Let an experienced professional handle the details and identify cost saving opportunities. Contact one of our customs brokers to learn more.