On October 21, 2024, the Canada Border Services Agency (CBSA) implemented the latest phase of its CBSA Assessment and Revenue Management (CARM) project. While the CARM project is intended to modernize the accounting process for commercial imports into Canada, it also has implications for the GST system.
Under the CARM initiative, CBSA Customs Coding (B3) and Request for Adjustment (B2) forms have been replaced with a new Commercial Accounting Declaration (CAD). The CAD is a digital document to be used in accounting for goods imported into Canada. Any adjustments or corrections to an importer’s accounting of imported goods must be made using this digital document. The CBSA has also released Memorandum D17-1-10, “Coding of Customs Accounting Documents,” which provides additional guidance on using the CAD.
For GST/HST purposes, the CAD will replace the B3 to support input tax credit (ITC) claims in three situations. To ensure that imports are taxed the same way as domestic purchases, imports are subject to GST. A tax rate of 5% is collected by the CBSA, on behalf of the Canada Revenue Agency (CRA), from every person liable under the Customs Act to pay duty on commercial goods, based on the value for customs duty purposes. This GST is recoverable as an ITC where the imported goods are for use in commercial (i.e., taxable) activities. The CAD will be required to support the ITC claim as evidence that GST was paid.
In addition, a flow-through mechanism is provided under Section 180 of the Excise Tax Act (ETA) to permit a Canadian recipient who acquires goods from an unregistered non-resident for consumption, use, or supply in the course of its commercial activities to claim an ITC for the GST paid at the border by the non-resident. However, to claim an ITC under this provision, the Canadian recipient must obtain and retain evidence that the non-resident paid tax on importation. This evidence will be documented in the CAD, which identifies both the imported goods and the amount of GST paid.
Furthermore, Section 178.8 of the ETA applies in certain situations where goods are supplied outside of Canada and then subsequently imported. This provision deems the GST to have been paid by the constructive importer, regardless of who acts as the Importer of Record. The constructive importer is the last person to whom a supply of goods is made outside Canada before import for consumption, use, or re-supply. However, the constructive importer is not necessarily the person who accounted for the goods under the Customs Act (i.e., the Importer of Record) at the time of importation. Where the supplier pays the GST, as the Importer of Record, they are considered to be doing so only as an agent of the constructive importer. Under these circumstances, the ITC for the GST paid by the non-resident will only be available to the constructive importer (i.e., the Canadian recipient of the supply), which must obtain a copy of the CAD from their supplier as evidence of the amount of GST paid on importation.
If you have any questions about the impact of the CARM project on your organization, from proper accounting for imports to supporting ITC claims, please do not hesitate to contact Ryan TaxDirect® at 1.800.667.1600 or taxdirect@ryan.com.
- Topics
- Customs Duty
- Value-Added Tax
- Federal