Canadian GST and the US Exporter

Many customs services around the world collect not only customs duties from importers, but also collect various other national taxes on behalf of their country’s tax agencies, as part of the customs import process.  The US is no exception: US Customs collects various types of Federal excise tax on specific types of imported products, including alcoholic beverages, on behalf of other US Federal government agencies including the Internal Revenue Service.

Canada has a very similar process for collection of the national Goods and Services Tax (GST) on imports, as part of the Canadian customs import process.  The details (and the amount of GST collected) can come as a shock to US exporters who sell to Canadian customers on a “landed, duty paid” or similar basis. 

Because most products of the US (and Mexico) are duty-free when imported into Canada, most US exporters expect (correctly) that Canadian customs duty on products of the three NAFTA countries will be zero for most commodities, and minimal for the rest.  GST, however is another matter . . .

In one recent case, a Transmark export client, selling on a “landed, duty paid” basis to a Canadian customer, received a bill for Canadian customs clearance that included charges (in Canadian dollars) of:

·         $10.63 in Canadian customs duty, but

·         Over $25,500 in Canadian Federal GST

In practice, the Canadian GST system is similar to a national "sales tax" or "value added tax" (VAT).  GST applies to imports into Canada, as well as to sales within Canada.  The current federal GST rate is 5% of the value of the goods being taxed. 

Several (but not all) Canadian provinces also have a Provincial Sales Tax (PST) as their provincial-level equivalent of the national-level GST.  In these provinces, GST and PST are usually collected together, on domestic sales, as a combined Harmonized Sales Tax (HST) which is administered at the provincial level.  However, since customs duty and GST on imports is collected by a Federal-level Canadian government agency (Canada Border Services Agency, or CBSA), the PST or provincial-level portion of the HST is not collected by CBSA.

Since provincial-level PST / HST varies from zero to ten percent, the total of national GST + provincial PST / HST charged on shipments into Canada varies from five to fifteen percent of the value of the shipment.

Under Canadian law, various credits, rebates, exemptions, and exceptions to the general GST / HST rates can apply.  Some general guidelines are posted at the Canada Revenue Agency website, but it is always a good idea to check out the details that may apply to your product or shipment before quoting prices to a Canadian customer on a “landed, duty paid” or similar basis.