Understanding the difference between value for duty and value for tax

When you import goods into Canada, customs duties and taxes may apply.

Value for duty and value for tax are used to assess the amounts due on your shipment.

And, while these two values are often confused, they serve different purposes and are calculated differently.

In this article, we outline what value for tax is and how it differs from value for duty.

We also explain how value for tax is calculated to help you estimate your import costs. 

What is value for tax?

While value for duty is the amount used to assess your duties, value for tax is the amount used to calculate the sales tax on imported goods when they enter Canada, except for items specified as non-taxable importations.

For commercial goods, only the Goods and Services Tax (GST) is payable at the time of importation and is the responsibility of the importer of record.

After the goods are imported into a participating province, the provincial component of the Harmonized Sales Tax (HST) may need to be self-assessed, if applicable.

The main difference between value for duty and value for tax

Both value for duty and value for tax are assessed at the time of import, but they apply at different stages of the assessment process.

Value for duty is used first to determine whether duty applies.

Value for tax is applied after that step, once duties have been calculated.

How value for tax is calculated

Value for tax always builds on the value for duty. Here’s how it’s calculated:

1. Determine the value for duty

This is the customs value of the goods used to calculate duties.

2. Add customs and duties payable

Add the customs duties payable on the goods, in addition to any excise duties and taxes or anti-dumping/countervailing duties (SIMA) that apply.

The total of these amounts becomes the value for tax.

Once you determine the value for tax, you can apply the 5% GST to estimate the total amount due on your shipment at the time of import.

Common misunderstandings about value for tax

The following misunderstandings may lead to inaccurate cost estimates and confusion when duties and taxes are assessed:

Expecting “duty-free” to mean “tax-free”

Even when no customs duty is payable, sales tax generally still applies. 

Confusing value for duty with value for tax

Although both values are assessed at the time of import, each serves a different purpose. Value for duty determines your tariff liability, while value for tax determines your GST liability. 

Assuming sales tax is calculated on the invoice price

Value for tax is not limited to the purchase price shown on the commercial invoice. Because it includes customs duties and other levies, the final taxable amount is often higher than the price you paid for the goods.

How we can help

At Cole International, we offer trade consulting and customs brokerage services to help Canadian businesses understand how duties and taxes are applied at the time of importation.

Our team works with importers every day to help them:

• Understand how sales tax is applied to their shipment
• Calculate the correct value for tax for their imported goods
• Review their documents to ensure value for tax was reported correctly

We don’t believe in guesswork. We get it right the first time.

Reach out to one of our trade professionals for more information or if you need support assessing the value for tax on your imports.