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Canada Temporary Entry: Temporary Import Provisions

Information on temporary entry and travel to Canada. Also includes taxes and standards guides.

Canada Temporary Entry: Temporary Import Provisions

Postby bridgat » Mon Nov 17, 2008 12:22 pm

Summary: Although the North American Free Trade Agreement (NAFTA) has opened the U.S. - Canadian border to a freer flow of commercial goods and services, regulations remain in effect which govern temporary importations into Canada. By complying with Canadian regulations, U.S. companies can bring certain equipment, without duties or taxes, into Canada on a temporary basis and return to the United States on the completion of contracts, trade shows, demonstrations, after-sales-service, live performances and numerous other types of applications. However, to expedite entry and exit, U.S. companies are advised to prepare well in advance of the actual visit in order to successfully navigate through any administrative hurdles which may be encountered at Canada's ports of entry or on re-admittance to the United States.

The temporary importation of commercial goods into Canada from the United States often raises questions and concerns from U.S. exporters. This report is intended to clarify the process and address the issues U.S. exporters need to face in order to comply with Canadian regulations. However, since every importation into Canada may be subject to the interpretation of unique and specific regulations, this report must be considered to be a guideline only. The U.S. and Foreign Commercial Service (USFCS) in Canada advises all U.S. exporters to obtain professional assistance and formal rulings in writing from Revenue Canada where there are any questions or issues related to the temporary entry of their goods Into Canada. Regulations related to imports are also subject to change and revision. Further, U.S. companies should check with their nearest U.S. Customs office regarding requirements related to the certificate of registration which is completed prior to commercial goods leaving the country temporarily. This certificate will allow the goods to come back into the United States without duty or taxes, assuming that the goods have not been altered in any way while in Canada.

As for all commercial goods entering Canada, goods imported temporarily are assigned the applicable tariff classification numbers. Permanently imported commercial goods enter under the appropriate tariff number. Goods imported temporarily also receive a special classification which identifies the items as coming into Canada for a limited time.

That special classification is tariff item no. 9993.00.00. Goods will qualify for duty free entry under this tariff item number provided they are not imported for sale, lease, further manufacturing, or processing (processing does not include repair) - regardless of country of origin. For most items qualifying under 9993.00.00., the period of importation can not exceed 18 months. If the goods do not fall within one of the categories of tariff item no. 9993.00.00, then the rules applicable to thestandard tariff item will be applied.

Duty free entry does not mean that temporary imports are not Subject to Canada's Goods and Services Tax (GTS) or to a Harmonized Sales Tax (HTS - see note below). The GST is a 5 percent tax that is charged on most goods sold and services provided in Canada, regardless of country of origin (see para.7. re: exemptions). The GST is a Canadian Sales Tax on consumption, similar to the Value-Added-Tax (VAT) in many other countries. That may be collected from the importer of record for all goods imported or provided in Canada.

Note on HST: where commercial goods enter one of Canada's three provinces which have signed on to a blended, provincial-federal tax system New Brunswick, Nova Scotia and Newfoundland), only the federal portion of the HST is charged at the time of Importation. That portion is seven percent, equivalent to the GST.

The GST may affect non resident U.S. companies in two ways: (1) GST may be assessed at the time of import if the U.S. company is the importer of record; (2) GST may be required to be charged to the Canadian client if the U.S. company is registered For GST/HST. In those situations where the U.S. firm is registered for the GST/HST, the U.S. firm may be able to claim an input tax credit for the GST paid at the time of import.

Another option exists related to GST collection and payment. there is considerable precedence for a Canadian company, often the client of the U.S. firm, to act as the importer of record in situations where the goods are being temporarily used in Canada. The Canadian company already registered with a GST account, may be in a position to more efficiently address all requirements related to paying any GST owing and subsequently collect on any credits or rebates. This must be clearly addressed early on in any contract negotiations with the Canadian firm, since their financial accounts would be directly affected. Usually, the accounting staff with the Canadian company can be expected to be well versed in addressing GST/HST requirements.

For repeated temporary imports, payment of the GST is not necessary on subsequent visits. This is assuming that the exact same goods are imported by the same importer of record, and that the GST was fully paid on the first import. Where the GST has been paid, GST status code 83 should be used to account for the goods re-entering Canada. That code makes allowances for repeat visits where the GST does not have to be repaid. In order to use this code, the importer of record must provide CTAB with a copy of the appropriate accounting document, providing evidence that the tax was fully paid at the time of previous importation.

If the goods do not qualify for temporary entry, the appropriate tariff item in chapters 1 to 97 of the schedule to the Canadian Customs Tariff will determine the rate of duty applicable. The goods may qualify for duty free entry within the terms of reference for the North American Free Trade Agreement (NAFTA). However, even for NAFTA entries, there will likely be no relief available for payment of the GST/HST at the time of import, assuming that the goods do not qualify within the terms described in para. 8. (See paragraph on GST recovery.)

To benefit from the preferential tariff treatment (duty free entry) provided under the NAFTA, the U.S. (or other NAFTA country) supplier must be prepared to provide a certificate of origin (CO) either directly to CTAB or via their customs broker. The CO certifies that the goods in question meet the applicable rules of origin for NAFTA qualification. The CO should accompany the invoice for the goods in question or there must be a declaration indicating that the CO is in the importer's possession and will be presented upon request. A certificate of origin and the terms of reference for correct completion can be obtained at the nearest U.S. customs office.

To ensure that the goods temporarily imported will be subsequently exported from Canada, CTAB may require a security deposit. The amount of security required will not exceed the duties (including the GST/HST) that would be payable if the goods were being permanently imported. Where the goods are originating under the terms of the NAFTA, and the importer presents a certificate of origin, a security deposit shall not be taken. In addition, a security deposit is not required for goods that will be displayed or demonstrated at a convention or exhibition held in Canada by any level of Government of Canada (GOC) or of a foreign state, where the applicable customs duties are equal to or less than CDNDOLS 100; or on commercial samples and advertising films imported from the United States. The refundable security deposit shall be in the form of: cash; a certified check; a transferable bond issued by the GOC; or a surety bond. In addition, where the security deposit is less than CDNDOLS 500, it may also be posted against a Visa or Mastercard credit card. Importers documenting their goods on an A.T.A. Carnet do not require additional security.

To recover the GST paid at the time of entry, the U.S. company would have to be a GST/HST registrant within the terms of reference defined by Revenue Canada. GST/HST paid or owed on operating expenses incurred, or on purchases acquired for use, to complete commercial activities in Canada can be fully recovered. A U.S. company can become a GST/HST registrant in one of two ways. First, the U.S. company must apply if it is providing taxable goods or services in Canada in the course of carrying on business in Canada, assuming a taxable annual corporate income of CDOL 30,000. Second, registration is permitted under section 240(3) of the excise tax act where the non-resident company must make application to the Minister of Revenue Canada.

The specific requirements and terms of reference for GST/HST registration under the these two conditions can be obtained by contacting the Revenue Canada Tax Services Office assigned to each particular U.S. state (see Regional Contacts). Direct contact with the appropriate GST office via written inquiries as to status in Canada is highly recommended by USFCS Canada.

Since the detailed terms of reference associated with the above two conditions are subject to interpretation as determined by each case, this report will not attempt to elaborate further. Companies filing for GST rebates can do so on either a monthly or quarterly system, depending on the volume of business activity in Canada. Rebate checks are normally issued within 15 business days of filing.

Although a U.S. company may be eligible for GST/HST registration, they could be also required to post a security deposit with Revenue Canada as part of setting up their GST/HST account. Again, that determination is best obtained via a written request for details of a company's status on temporary entry. The amount of the security deposit is 50 percent of the estimated net GST to be remitted or refunded during the 12 month period after registration. For subsequent years, the deposit may be adjusted depending on actual net tax remitted or refunded in the preceding 12 month period.

The maximum security deposit that may be required for GST registration is CDNDOLS 1 million, and the minimum is CDOLS 5,000. This can be paid in either cash, certified check, money order or a qualified bond in Canadian dollars. The only exception to this is if the estimated taxable goods and services provided in Canada is not more than CDOLS 100,000 annually and net GST remittance or refund will not be more than CDOLS 3,000annually. Once again, contact with Revenue Canada is recommended in order to fully and correctly ascertain a firm's GST/HST status in a temporary import situation.

When preparing to export goods to Canada, the U.S. company should prepare an invoice of the goods for CTAB review. This invoice should contain a detailed list of all items being exported with assigned values in either U.S. or Canadian dollars. As well as having the name and address of the U.S. exporter and the name and address of the importer of record, the document should state what the goods will be used for while in Canada. Customs brokers are very familiar with these documents and what CTAB will accept for processing.

Implications for US business: If questions arise as to the status of the U.S. company's shipment to Canada, the exporter or the importer of record is encouraged to contact CTAB in writing well in advance of shipping (see Regional Contacts). The letter should describe the goods in question, the purpose of the visit, and clearly request clarification of what temporary importation provisions might be applicable.

As well, U.S. companies should consider using a qualified Canadian customs broker to facilitate the customs clearance process, especially for the first entry. A Canadian customs broker will complete the CTAB paperwork, post any security deposit required and/or pay any GST/HST owing and properly cancel the temporary entry when the goods are exported back to the United States. If a U.S. customs broker is used, that broker should have a formal, recognized alliance with a Canadian broker to ensure an expedited shipping process.

Although certain aspects of Canada's temporary import process may appear to be an impediment to getting on with business, many U.S. companies and organizations enter and leave Canada on a daily basis, taking with them commercial goods which enter into the country within the temporary import provisions. The first experience is potentially the most time consuming with subsequent entries becoming more routine. The process will require some preparation by the U.S. firm, however, with due diligence, the process can usually be managed with reasonable expedience.

References are made throughout this report to a variety of Canadian Government contacts including Revenue Canada, CTAB Offices by region, GST information and registration locations, and to Canadian customs brokers (see Regional Contacts).
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