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Import Penalties

Import Penalties & How to Avoid them

While it may seem like no big deal to a new company just entering the import business, Incorrectly classifying goods can cause major problems and cost you more money the you might expect. If not spotted on time, these import penalties can compound and lead to even greater loss by overpaid duty that is not recoverable or fines for underpaid Duty.

Working with a Customs Broker does not guarantee zero import penalties, however, working with someone with experience greatly reduces the chances of something going wrong; and the money paid for service is generally made back in time savings alone.

Problems arise when importers do not pay enough attention to their import’s classifications. For example, a poor translation into English cost one company that was importing gears when it incorrectly identified the items as “grease dispensers”. This mistake was never caught and resulted in a retroactive assessment of over $50,000 in import penalties (duty) plus interest.

Using the U.S Customs Database as a tool to classify goods could also cause serious problems. Although it is a good tool to use for research in classifying an import, it’s rulings are not accepted by the Canada Border Services Agency (CBSA). For example, one Canadian company used a U.S. customs ruling in order to classify parts of their items as “Duty-Free“. When Canada Customs examined the transaction, they changed the classification, resulting in a 6.5% duty rate. This was applied to 4 years worth of imports and resulted in the company owing in excess of $300,000 in import penalties plus interest.

Correctly declaring the value of your imported goods is something to think about as well and not doing so may result in import penalties just as serious as a misclassification. The selling price is generally the basis of value for duty, converting the currency paid into Canadian dollars the day of. Any costs or fees associated with the goods should be taken into consideration as well. For example, royalties, licensing fees, commissions, tooling costs should all be included in the value for Duty; freight and transportation charges, however, should be left out. 

Once your imports have been properly classified and valued, it is important to review all of your paperwork, declarations, and any required permits for accuracy and errors. If you are importing a number of different items, keeping your own database of classifications may be a good idea.

Keeping proper documentation of your transactions is paramount as well. It is important to show customs, should they require, that you are fulfilling your obligations; especially if you are importing specific targeted goods. Every year, the CBSA will choose several different types of products for audits as well as tariff classifications. These audits can result in re-assessments and can go back as far as 4 years. For 2012, the CBSA is targeting products that include light-duty automotive goods, video recording equipment, jewelry, vegetable fats & oils, pumps for liquids, and cocoa powder.

There are opportunities to reduce duties as well. For example, your imported goods may be coming from a country that has a free trade agreement with Canada; this would allow the product to come in Duty free, but proper documentation is required. Goods being imported that will later be exported may enter Duty free as well. For example, importing packaging product that will later be filled with goods and exported can generally enter Canada duty free.

Moral of the story: Work with someone who knows what they are doing; work with

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