For Canadian small businesses, importing goods can be a gateway to sustainable growth, enabling access to products, materials, and markets from around the world. However, these opportunities include the responsibility of managing costs and compliance, particularly when it comes to paying import duties and taxes.
Duties and taxes are a mandatory part of operating a small business that relies on the trade of imported goods. Understanding how charges are calculated, staying informed about relevant trade agreements, and ensuring compliance with regulations, will help manage import costs and avoid potential pitfalls.
Import duties and taxes are charges imposed by the Canada Border Services Agency (CBSA) on goods brought into the country. they protect Canadian industries, generate government revenue, and regulate the flow of goods into Canada. When importing, there are two primary types of charges you’ll encounter:
These are tariffs applied to specific goods based on their classification, country of origin, and valuation. Custom duty rates can vary greatly depending on the type of product and the country it originates from.
A 5% General Service Tax (GST) is levied on imported goods. Depending on your province, you may also be required to pay a Provincial Sales Tax (PST) or a Harmonized Sales Tax (HST).
SIMA aims to protect domestic businesses and industries against unfair trade practices, typically to protect against cheap goods flooding the market due to the dumping or subsidization of foreign goods. Duties collected under SIMA regulations are meant to even the playing field to ensure fair competition for Canadian businesses. For small businesses, this can mean higher costs when importing certain products, which must be factored into cost calculations.
This is the value of the goods as determined by the CBSA. This usually reflects the transaction value and includes the cost of the goods, transportation costs to the place of direct shipment to Canada, and any other expenses incurred in bringing the goods to Canada, such as packing costs.
The country where the goods are manufactured affects the duty rate, and products from countries with which Canada has a free trade agreement may be eligible for reduced or even zero duties.
Every imported product is classified under a specific tariff code in the Harmonized System (HS) of classification. This code determines the duty rate applicable to the product.
Another aspect to consider is Canada’s de minimis threshold, which is the minimum value of goods that can be imported without incurring duties and taxes. If your imported goods are valued below these amounts, you may not have to pay any duties or taxes. But if the value exceeds these thresholds, you’ll be required to pay the applicable charges.
Canada is part of several free trade agreements (FTAs) with other countries, such as the United States-Mexico-Canada Agreement (CUSMA) and the Comprehensive Economic and Trade Agreement (CETA) with the European Union. These agreements can greatly reduce or eliminate duties on specific goods. To take advantage of these preferential tariff treatments, your goods must meet specific rules of origin and be accompanied by the correct documentation.
Compliance is key when small businesses are importing goods into Canada. Importers are responsible for ensuring that your goods are accurately classified, valued, and documented. The CBSA has the authority to audit your import transactions and impose penalties for non-compliance. To avoid issues, it’s important to keep detailed records of all your imports, including invoices, receipts, and customs declarations, for at least six years.
Given the complexities involved in managing import duties and taxes, many small businesses opt to work with a licensed customs broker. A customs broker can help streamline the import process, ensuring that your goods are correctly classified, all necessary documentation is in order, and you’re paying the right amount of duties and taxes.
For Canadian small businesses, import duties and taxes don’t have to be a daunting challenge. With the right knowledge and support, you can make informed decisions about your imports and improve productivity.
As an experienced broker, Cole knows the best way to solve challenges. We provide valuable guidance and support for importers, ranging from customs and compliance to audits and verifications. Connect with one of our experienced leaders now.