Many importers are uncertain of how to properly declare the value of their goods when importing into Canada, partly due to the many rules and factors to be considered when determining valuation. With an expectation to be compliant, valuation is one of the three main targets for a CBSA audit. Unfortunately, importers spend the least amount of attention to this area. Valuation can be an intricate area to navigate if your foreign purchases involve situations which could change the declared value to Canada Border Services Agency.
What is valuation?
Valuation is the determination of the correct value of goods being imported and declared to the Canada Border Services Agency. CBSA requires all goods imported into Canada have a value for duty which is the base figure on which an importer calculates the duty and taxes he/she may owe the CBSA on their goods.
Irrespective of circumstances in which duties and taxes may not be owed, for example, in the importation of samples, replacements, warranty items, short-shipped goods, etc., an importer is still required to declare a fair market value of the goods based on one of the six methods of valuation.
Methods of valuation
There are six methods of customs valuation identified in the Customs Act. An importer has to consider these methods in sequence.The requirements of each of these methods are based on the rules in the World Trade Organization’s Valuation Agreement. These rules ensure imported goods are valued in accordance with commercial reality, and they prohibit the use of arbitrary or fictitious customs values.
The transaction value method is the most commonly used valuation method. It applies when goods are sold for export to Canada to a purchaser in Canada. Under this method, value for duty is based on the price paid or payable for imported goods with consideration to certain adjustments.
- Price paid - is the total of all payments made directly or indirectly by the purchaser to the vendor.
- Price payable - is the total of all payments that are owed and will be made directly or indirectly by the purchaser to the vendor.
You have to use the first of the six methods, the transaction value method, whenever possible to determine the customs value of imported goods.
- Transaction Value of Identical Goods
Identical goods are the same in all respects as the goods being appraised, except for minor differences in appearance that do not affect the value of the goods. In order to qualify, the goods would have to be produced in the same country as the goods being appraised.
- Transaction Value of Similar Goods
Using this method, the value is based on goods which closely resemble the goods being appraised. In order to qualify, these goods must be capable of performing the same function, be commercially interchangeable, and be produced in the same country and by the same manufacturer as the goods being appraised.
- Deductive Method of Valuation
If none of the above methods apply, the deductive value method is the next method to consider. This method is based on the Canadian importers most common selling price per unit of the goods to Canadian customers of the goods being appraised.
- Computed Method of Valuation
The computed value is the cost of production of the imported goods, plus an amount for profit and general expenses realized by producers in the exporting country when selling the same type of goods to Canadian importers.
- Residual Method of Valuation
The residual method does not identify specific requirements for determining value for duty. Instead it is value based on one of the other methods (considered in sequence) and requires the least amount of adjustment. The value must be fair market, and reflect commercial reality.
In the end, the final value for duty can also be influenced by:
- The relation between the parties involved.( i.e. a related buyer and seller)
- Condition where the goods were provided to the Canadian consignee at no charge (i.e. consignment)
- Allowable additions or deductions to the value of the goods
- Used goods
- Goods that were not sold into Canada (ie. for rent or for lease)
If you have reason to believe that you have valuation situations which have the potential to raise flags during an audit, please give us a call to discuss this further.
Interested in learning more about about the methods of valuation and why it’s important to get it right? Join us for our upcoming webinar on Importing for the Beginner-Canada [Part 2]. Our in-house seminar on Canadian Customs Compliance is another great way to understand valuation.
Have questions about valuation? Use the comments section below to leave us your thoughts or email Ask Your Broker.