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Small Business Deductions: Duty Deferral Program

The Canadian government has a vested interest in keeping small businesses competitive, and with that in mind, the Canada Border Services Agency offers relief from duties and taxes on imported goods via its Duty Deferral Program.

This program offers businesses three different options:

  • The Customs Bonded Warehouse Program
  • Duties Relief Program
  • Drawback Program

Knowing the ins and outs of these options has the potential to save your company money, and if you may qualify for a full reimbursement if you already paid duties on some goods.

Calculating Taxes and Duties

The Canadian government provides businesses with a step-by-step guide for importing goods into the country. This requires you to get a business number, gather information on the goods you wish to import, including the country of origin, and decide whether or not to use a licensed customs broker.

Additionally, you need to determine the legality of the goods in Canada and whether or not the government has restrictions or regulations for those items or requires permits for them. After that, you determine the 10-digit tariff number for the items and check them against the Customs Tariff schedule.

Your business typically owes a 5% goods and services tax on most items it imports, though some items, including prescription drugs, basic groceries, and medical and assistive devices, have exemptions. Some items also require payments of excise duties or taxes.

To determine how much you owe, you need to perform a valuation of your goods and convert the amount to Canadian dollars by using the exchange rate at the time of direct shipment.

Customs Bonded Warehouse Program

Sometimes, no matter what you import for your business, you must pay duties and taxes on items that come into Canada. The Customs Bonded Warehouse Program lets you delay the payment of duties for up to four years by storing the goods in a bonded warehouse. A private owner holds this type of warehouse, but customs controls what goes in and out of the building.

You don’t have to pay any duties on goods in the warehouse until you release the goods on the Canadian market. The CBW program works well if your business imports goods for display purposes and then exports them again, if you label the goods as a service to another company that sells the items later, or if you unpack, repackage, and ship the goods elsewhere.

Duties Relief Program

The Duties Relief Program allows you to import goods without paying any duties if you export the goods later in the same condition as when you imported them. It also applies to items you use, expend, or consume to produce other goods.

This program option also lets you potentially avoid paying duties if you plan to use the goods to produce other products that leave the country in the future.

The Duties Relief Program works well for companies that import raw materials and then export them in a finished product, such as if you import car parts for assembling an automobile to sell in a foreign market.

Drawback Program

The Drawback Program lets you apply for a refund of duties you already paid. Though reimbursement isn’t guaranteed, it’s worth a try to apply for this program if the goods you import meet the conditions from the Duties Relief Program. For example, your company manufactures neckties and you need silk from Asia.

You export the finished neckties, but you paid duties on the silk used to make them due to time constraints. In this situation, you can apply to have the duties waived that you paid on the imported Asian silk.

When importing goods, it’s essential to keep accurate records of your expenses, supplies, accounts receivable, and accounts payable to receive these deferred duty benefits from the CBSA.

QuickBooks Online helps you organize all this information and lets you run fast, easy reports that help you gauge your business’ financial health. This helps you not only reduce the amount you owe, but also helps you maintain competitive prices on your goods by paying reduced duties.

In addition, QuickBooks can help you maximize your tax deductions. Keep more of what you earn today.

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