One Canadian aunt took over $30,000 worth of jewelry (spelled jewellery in Canada) to wear during a 10-day wedding in New Delhi. Her mistake was that she did not declare her jewels nor take receipts for her original purchases when she left for India. While in India, the Canadian lady had extra diamonds added to a necklace.
On return to Canada, the Canadian lady declared the diamonds added to her necklace in India. However, the CBSA charged full tariff duties on over $30,000 worth of jewelry. This was because the declarer did not have original receipts or other proof that these were returned goods that she already owned, and that the only increase in value were the extra diamonds added to the bracelet.
There are 7 specific business rules that determine whether or not tariff duties and taxes are payable on returned goods.
Returned Goods in Same Condition When Re-Imported
Goods that previously have been imported and for which customs duties were paid may be exported and then re-imported into Canada duty free and with tax exemptions provided that all items are in exactly the same condition as when they were exported.
On return, goods will clear customs under a special harmonized tariff code that starts with the following 8 digits:
- 9813.00.00 for goods originally made, grown or finished in Canada
- 98.14.00.00 for goods that originated in countries other than Canada.
To qualify for customs duty savings, importers must fill in exception code 51 under tariff code field 28 on the B3 Canada Customs Coding Form. The B3 is needed for imports worth $1,600 or more.
Returned Equipment for Testing Purposes
The above special HS codes also apply to equipment was shipped out of Canada solely for testing purposes only. When re-imported, testing equipment is both duty free and a candidate for tax exemptions.
For example, a Canadian company can export a new type of wind turbine to New York University to test the new invention’s features. As long as NYU only tests, Canada Border Services Agency (CBSA) will treat returned equipment as duty free and non-taxable when re-imported back to Canada. Goods must be returned within 5 years of export from Canada.
CBSA D8 memorandums detail the different conditions that legally qualify returned equipment for customs duty savings and tax relief under the Canadian Goods Abroad Program.
Returned Goods Repaired in Foreign Countries
CBSA will consider goods exported outside Canada for the declared purpose of repair as duty free and non-taxable. However, the duty free and non-taxable portion is limited to the value of the items when they were exported out of Canada for repair purposes.
Applicable duties and taxes must be paid on the cost of actual repairs outside Canada. Customs duty savings exclude the following cost components:
- Parts
- Labor
- Factory overhead expenses
- Normal profit markup.
Returned Goods with Emergency Repairs
Aircraft, ocean vessels or vehicles that have undergone emergency repairs outside Canada are treated as duty free tax exemptions on both the:
- Value of returned aircraft, vessels and vehicles
- Complete cost of repairs.
Emergency must be specified on the repair invoice. Otherwise, the prior rule above will apply and the CBSA will impose tariff duties and taxes on non-emergency returned goods repaired in foreign countries.
For example, a Canadian tourist drives to New York where their car battery dies. When the Canadian buys a replacement car battery, the visitor must be careful that emergency is specified on the receipt or invoice for the new battery.
Otherwise, customs officials will charge tariff duty and taxes on the new battery purchase when the driver declares the purchase on return to Canada.
Returned Goods with Added Equipment
Goods returned to Canada after equipment was added to the goods in a foreign country are allowed duty free tax exemptions on the goods only.
However, applicable tariff duties and taxes will be assessed on the:
- Value of equipment added
- Costs of installing the new equipment including labor.
Consider a vehicle exported from Windsor to Michigan to add car air conditioning. On return to Canada from the U.S., the car would be duty free but the value of the added air conditioning equipment plus incurred installation expenses would be assessed applicable tariff duties and taxes.
Returned Goods Increased in Value
Goods returned to Canada after their value has been increased in or their condition was altered in another country are allowed a full remission of tariff duties and taxes on the original items before such changes.
However, applicable duties and taxes must be paid on the value of any improvement or change to the goods performed outside Canada.
How far can this rule go? This rule can even apply to gold teeth, in an attempt to stop smugglers who travel to foreign countries for the sole purpose of smuggling gold crowns and dental implants in to Canada without paying duties and taxes.
While that example may seem extreme, the best advice is to declare the value of goods before those items are exported and also after they are returned to Canada.
Returned Goods with Repairs under Warranty
Goods returned to the US for repairs under warranty may re-enter Canada duty free under tariff classification code prefix 9820.00.00.
Any customs duty savings will not apply to repairs under warranty performed in countries other than the U.S.
Repairs must have been done under the terms of the warranty, or else duties and taxes will apply to the value of the repairs including parts and labor costs.
Sources: Canada Border Services Agency's online D memorandums and personal class notes from Dr. Harmeet S. Kohli’s lectures on Canadian Customs Procedures and Regulations.
Daniel Workman - A senior business and finance writer who also does French translations, notably international trade and insurance materials.
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