A Tax Lawyer’s Guide To Canadian Duty Rates And Fuel Taxes

Canadian businesses that import goods from abroad need to be aware of Canadian duty rates and fuel taxes. These fees can represent a major expense for a business, and it is important to understand how the system works and how much to budget for these taxes. However, navigating Canada’s duty rates and fuel taxes can be complicated. At Jeremy Scott Law, our dedicated Canadian tax lawyers assist our clients with duty rates, fuel taxes, and all other Canadian tax matters. Contact us today at (902) 403-7201 to learn more about how we can help your business.

What Are Duty Rates?

A duty is a type of tax applied to certain types of goods and services that are imported or exported. According to the Canada Border Services Agency (CBSA), any item imported to Canada is subject to duty rates. This rule applies to item to intended for personal use as well as those imported for business purposes. The Canadian government levies these taxes on individuals and businesses that send or receive international shipments. Also known as customs or import duties, these taxes are a type of tariff applied to goods transported across international borders.

Canadian duty rates are calculated based on a percentage of the amount paid for the goods in the country of origin. The quality, size, and weight of the goods are not considered when calculating the duty rate. Customs duty rates in Canada are regulated in accordance with the Canada Customs Act. Customs duty enforcement is carried out by the Canada Border Services Agency (CBSA).

GST/HST for Imports and Exports in Canada

Goods that are imported into or exported out of Canada are also subject to GST/HST taxes. Services transacted across international lines are similarly subject to Canadian federal tax. These taxes are applied based on the type of goods or service, whether the importer/exporter is a resident of Canada vs. residing abroad, the importer/exporter’s province of residence or business registration, and whether the importer/exporter has been required to register, and has completed registration, for the GST/HST. There are some exceptions for items that the CRA specifically identifies as non-taxable importations.

Imports are subject to the GST or, in provinces that use HST calculations, the federal portion of the HST. These taxes are calculated based on the value of the goods in Canadian dollars, including the duty and excise taxes. According to the Canada Revenue Agency, the owner of imported goods, or their importer if distinct from the owner, is required to pay the GST/HST on imported goods at the time they are imported and at the same time as duty and excise taxes. GST/HST registrants may claim an input tax credit (ITC) for the amount of tax paid on imported goods, provided that the registrant meets the requirements established by the CRA for claiming ITCs. If you have questions about Canadian duty rates or other import matters, you can learn more by contacting Jeremy Scott Law.

What Are Non-Taxable Imports in Canada?

GST/HST taxes do not need to be paid on items that the CRA has specified as non-taxable importations. Examples of imports considered non-taxable in Canada include:

• Certain types of zero-rated goods (goods taxed at 0% in Canada), such as prescription drugs
• Prizes won in competitions in other countries, such as medals and trophies
• Tourist literature imported by governments or other organizations that will be distributed to the public for free
• Goods imported by charities or public institutions and that were donated to charities or institutions.
• Goods imported solely for maintenance, repairs, or overhaul––but only if the user of these goods does not change while in Canada and the goods are exported immediately after the services are finished
• Goods imported by manufacturing service companies, processed for non-residents, and then exported having never been used in Canada
• Parts and property used for warranty replacement
• Goods with a value of $20 or less sent to a Canadian resident through the mail, with the exceptions of beer, tobacco, wine, reading materials, and goods that were bought from a Canadian retailer and have been mailed or transported from abroad to the purchaser

New Duty Rates on Alcohol Imports Into Canada

Canada’s Minister of Finance introduced a new budget in April 2023 which included an amendment to the Excise Act of 2001. The 2023 amendment makes some changes to the duty rates for wine and spirits imported into Canada. Previously, import duties on alcoholic beverages were adjusted annually based changes to the Consumer Price Index. However, the new rules assess alcohol duty taxes at a lower rate.

The following new adjusted rates for excise duty of spirits and wine went into effect on April 1, 2023:

• $0.337 per liter of spirits for spirits containing less than 7% absolute ethyl alcohol by volume
• $13.303 per liter of absolute ethyl alcohol for spirits that contain more than 7% absolute ethyl alcohol by volume
• $0.022 per liter of wine if the wine contains less than 1.2% absolute ethyl alcohol by volume
• $0.337 per liter of wine for wines with between 1.2% and 7% absolute ethyl alcohol by volume
• $0.702 per liter of wine for wines containing over 7% absolute ethyl alcohol by volume

Is Fuel Surcharge Taxable in Canada?

Many of Canada’s imports are transported via freight transportation services. These services are subject to unique tax rules. Freight transportation services in Canada may be taxable at the province rate, but on the other hand may also be taxed at 0%, depending on the service. GST/HST registered transportation services are required to collect GST/HST taxes on amounts charged for the taxable supply of a freight transportation service. However, businesses registered for GST/HST can often claim input tax credits to recover the GST/HST paid on business-related purchases such as fuel, commercial rent, and advertising.

Freight transportation services may add fuel surcharges to their invoices, which can be used to recover a portion of or all of the increased cost of fuel, rather than adjusting the price for the freight transportation services. If the freight transportation service’s flight is taxable, then the entire charge for the service––including the fuel surcharge––is subject to the GST/HST at the same rate. For zero-rated freight transportation services, the entire charge – including the fuel surcharge––is also zero-rated.

Contact Jeremy Scott Law For More Information

If you own a Canadian business that deals with imports and exports, it is important to understand the complex tax concerns related to these imports and exports. At Jeremy Scott Law, our experienced Canada tax lawyers are prepared to answer any questions you may have regarding Canadian duty rates, fuel surcharges, or any other tax matter. Contact us today at (902) 403-7201.