Businesses importing goods into Canada—whether based in Canada or non-resident importers (NRIs) located outside its borders—are experiencing a seismic change in how they conduct business. 

To modernize and streamline the process of importing commercial goods, the Government of Canada is changing how CBSA collects duties and taxes. The CBSA Assessment and Revenue Management project, better known as CARM, is a multi-year digital initiative that will require importers to adapt their systems and business practices in preparation for the May 2024 deadline when CARM becomes the official system of record.

CARM isn’t the only upheaval disrupting companies’ import operations heading into 2024. In addition to economic uncertainty, escalating geopolitical tensions, and managing compliance with evolving global trade sanctions, companies are bracing for the implications of CBSA’s proposed amendments to the Valuation for Duty (VFD) regulations. 

According to the Canadian government, the proposed revisions to the existing legislative and regulatory framework governing the methods of determining the VFD of imported goods will rectify the unfair advantage NRIs currently enjoy with respect to customs duty imposed.

While the proposed amendments are aimed at NRIs, Canadian importers also face increased duty payments, not to mention the knock-on effects on costs for retailers, wholesalers, and ecommerce merchants. The Retail Council of Canada (RCC) noted the suggested changes are “extremely likely to increase the prices paid by retailers to wholesalers as the duties become payable on their purchase prices, rather than the wholesale prices paid by their suppliers.”

Protecting the bottom line

Though CBSA’s proposed VFD amendments are currently being reassessed, if approved as is, they are likely to increase the amount of customs duty imposed on goods, spurring importers to look for ways to further reduce operational costs to shore up the bottom line against multiple assaults—not only from VFD changes but also an increasingly competitive B2C and B2B landscape, stubbornly high inflation, and the fallout from geopolitical unrest, such as fluctuating energy prices and costly supply chain disruptions. 

Taking advantage of duty recovery and optimization is a smart but often overlooked strategy for trimming costs. Specialized duty recovery practices enable importers to recoup duty overpayments and curtail the amount of duty paid in the future—and even in the past, given companies can claim transactions up to four years retroactively. Given that an estimated 80%-90% of Canadian companies overpay customs duties or miss out on available refunds—often without realizing it—focusing on duty recovery can have a big impact on reducing operating expenses and boosting future profitability.

With the Government of Canada planning to collect an extra $1B+ in customs import duties over the next four years—increasing from $6.5B in 2023-2024 to an estimated $7.7B in 2027-2028—it is in importers’ best interest to limit the amount of duty paid, when and where legally possible. 

Hidden treasures

Ninety-five percent of the duty overpayments incurred is not due to importer error but rather the result of businesses not applying the optimal tariff codes when importing goods. For importers who regularly bring in large volumes of goods or operate in an industry subject to high duty rates, using the most cost-effective tariff code can make a significant difference to the amount of customs fees paid annually. 

Unfortunately, inadvertently using suboptimal tariff codes is a common issue for importers. In fact, more than half of Canadian businesses across multiple industries—grocery, medical supplies, apparel, agriculture, consumer electronics, commodities—overpay their import duties by 10%-15% every year. 

The process of uncovering and recovering customs duty overpayments and reclassifying goods to prevent future overpayment requires both a deep visibility into Canadian customs classification schedules and the specialized expertise to interpret tariff codes for importers’ benefit.

Unlike in the U.S. where a reduction in the amount of duty charged on a specific Harmonized System (HS) code is published in the public domain—enabling all importers to benefit from a tariff reduction—the Canadian system is a bit more cloak and dagger. Any changes to tariff codes executed by an individual company remain private, leaving businesses operating without this specialized knowledge in the dark.

Adding further complexity to classification best practices, tariff codes and tariff reclassification are open to greater interpretation in Canada, based on the nuances of individual goods. This flexibility means it is possible for two companies to be importing the same product into Canada but be subject to different amounts of duty. For those importers able to take advantage of reclassification opportunities, duty recovery practices provide a distinct competitive advantage on the landing cost of imported goods.

Next steps

Against the backdrop of the shifting CBSA regulatory landscape, ongoing trade tensions, and uncertain economy, now is the time to identify where your organization is overpaying customs duties on goods you regularly import; reclassifying goods with CBSA approval enables you to take advantage of lower, unpublished rates to reduce your duty spend. At the same time, by following up on reclassification opportunities, you can recover a potentially sizable refund for past overpayments—again, up to four years retroactively. 

Specialized duty recovery programs provide a distinct competitive advantage, helping your organization reduce operating costs by avoiding duty overpayment in the near and long term—based on reclassification opportunities your competitors may not be aware of— while strengthening trade compliance practices to ensure brand reputation and profitability moving forward.