The rate on the duty side is fixed by the government. The rate on the GST/HST side is a business decision you make and commit to.
Currency conversion for customs purposes comes into play when you import goods priced in a foreign currency. Under the customs valuation rules, the value must be converted into Canadian dollars to calculate duty and the GST collected at the border.
Separate rules apply when you report GST/HST on a taxable supply priced in foreign currency. When you need to calculate the tax payable in this situation, you may have some choice over the conversion date and rate source.
In this article, we explain where each set of rules applies and where you have flexibility.
For customs duty, you do not choose the exchange rate or the date used to determine it.
Under the Currency Exchange for Customs Valuation Regulations, you must convert the value for duty into Canadian dollars using the rate recognized by the Canada Border Services Agency (CBSA).
The rate is usually based on the latest rate provided by the Bank of Canada.
The applicable rate is tied to the date of direct shipment to Canada, which is the date the goods begin their direct and uninterrupted journey to a specific destination in Canada. It is not determined by the invoice date, payment date, arrival date, or accounting date, even if any of these dates coincide.
Goods subject to the Special Import Measures Act (SIMA) follow a different timing rule. The exchange rate is generally based on the date of sale to the Canadian importer. If that information is unavailable when the goods are released or enter a warehouse, the date of direct shipment is used instead.
The customs value also forms part of the amount used to calculate import GST. The GST calculation generally includes the customs value, applicable duties, and certain other taxes. You do not select a separate exchange rate for this calculation.
The method you use for currency conversion for customs purposes is set by regulation rather than chosen by the importer. Your role is to identify the correct date of direct shipment, apply the rate recognized by the CBSA, and keep documents that support the date reported. These may include commercial invoices, freight records, and bills of lading.
When you account for GST/HST on a taxable supply expressed in foreign currency, you have two decisions to make. You need to decide when to convert the amount and where to get the exchange rate.
Under section 159 of the Excise Tax Act, the standard conversion date is the day the tax becomes payable. CRA Memorandum 3-6 also allows you to use the day the consideration is paid, the day you acquire the foreign currency, or the average exchange rate for the month in which the tax becomes payable.
Note that you must apply your selected method consistently for a reasonable period, such as one year.
Acceptable rate sources include the Bank of Canada, a Canadian chartered bank, the source used for this transaction or the one you typically use for conversions, and the rate provided by the CBSA for customs valuation.
If you paid a premium or another cost to obtain foreign currency for a particular transaction, include that amount in the conversion. The supplier and recipient of the same supply are not required to use the same conversion method.
Make sure to keep documents that support the method, date, and rate used.
Cole International provides trade consulting and customs brokerage services to help Canadian importers understand customs valuation requirements and calculate payable duties and taxes.
Reach out to one of our trade professionals to review your currency conversion process and confirm that the correct rate is being used on your customs entries.