This section provides a general overview of the tax issues you’ll face as either an importer or exporter. To ensure that you comply with Canadian and foreign tax laws, however, it is imperative to obtain advice from qualified accounting and legal professionals.
Tax Compliance for Exporters
Goods and services that are normally subject to GST or HST may be untaxed when exported from Canada; in this case, they are referred to as “zero-rated” goods or services.
The simplest case is when you deliver your products to a purchaser outside Canada. In this situation, they are automatically zero-rated and you do not charge GST/HST to the purchaser. If you deliver them to a purchaser inside Canada, however, they are zero-rated only if certain conditions are met. A full list of these conditions is available on the Canada Revenue Agency (CRA) web site.
Tax Compliance for Importers
The first step in tax compliance is to determine the landed cost of your imports. This will allow you to calculate the taxes you’ll have to pay on the goods.
Determining landed cost
To determine the landed cost of imported goods, you must classify them properly according to the Harmonized System (HS) as described in the section “Classification and Valuation.” This allows you to:
- identify any most-favoured-nation duty rates that may apply to the goods;
- value the goods under the WTO Customs Valuation Agreement (see section “Valuation of goods”); and
- determine whether the goods qualify for a lower rate of duty under a preferential trade agreement that Canada has with the country of origin.
Goods and Services Tax
Most goods imported into Canada are subject to the federal GST, which is calculated at the rate of 5 per cent of the duty-paid value of the shipment. This tax must be paid at time of entry and is collected at the border, unless the goods are going directly to a bonded warehouse. In this case, the GST is collected when the goods leave the warehouse and become eligible for sale in Canada. For more details, refer to the CRA’s GST/HST Instructions for Importers and Exporters.
Harmonized Sales Tax
Several provinces have combined the GST with their provincial sales taxes on various categories of goods, thus creating a Harmonized Sales Tax (HST). If you are GST-registered, then you are automatically HST-registered and must charge accordingly when selling to a customer in a participating province. On most commercial imports, however, only the federal (GST) portion of the HST is applied to the sale.
Exemptions from GST/HST
Many imported goods are not taxed under the GST or HST. Among them are:
- Farm livestock, basic groceries, prescription drugs and medical/assistive devices. See Schedule VI of the Excise Tax Act.
- Certain goods and services used in the delivery of health care, educational, child and personal care services. See Schedule V of the Excise Tax Act.
- Medals, trophies, prizes, tourist literature, goods donated to a charity or public institution, goods used for repairs (if re-exported after the repair is completed), inputs for goods to be shipped to non-residents, warranty items and parts, and goods valued at less than $20 sent by mail or courier. See Schedule VII of the Excise Tax Act.
As described in the section “The importer of record,” non-resident importers (NRIs) are companies located outside Canada that supply goods to Canadian purchasers, but take full responsibility for the Canadian customs transactions involved in delivering those goods. This means that they pay all duties and taxes at the time the goods enter Canada, thus freeing the Canadian purchaser from these responsibilities.