How to Take Advantage of Duty Drawback in Canada?

Understanding the duty drawback

Table of Contents

In March 2024, $64B worth of goods were imported into Canada and $60B exported. The commodities include motor vehicles, apparel and accessories, home goods, furniture, and more. The numbers are a sign that markets are rebounding. The  Duty Drawback Program is an initiative to recoup duties paid on imported goods which have later been exported from Canada. 

What is the Duty Drawback Program in Canada?

A duty drawback program is a valuable trade incentive program administered by the Canada Border Services Agency (CBSA). Through this program, businesses can apply for a refund or remission of customs duties on eligible imported goods, once they are exported out of Canada.

Note: The goods need to be exported within four years of importation.

The program is designed to support international trade, offering financial benefits to companies engaged in import-export activities. You can get a refund from the CBSA helping you recoup the cost of importing goods. 

Who can Apply for the Duty Drawback Program?

The following people can apply for a Duty Drawback for the goods that were exported from Canada and the duty was paid during importation:

  • Importer
  • Exporter
  • Processor
  • Owner 
  • Producer 

What Goods are Eligible for the Duty Drawback?

There are not many limitations on goods that qualify for the Duty Drawback program. Almost all goods are eligible.

Here are a few examples:

  • Textiles: Clothing, fabrics, and related items.
  • Glass Products: Decorative and industrial glassware.
  • Vehicles: Aircraft, automobiles (temporary use allowed before export).
  • Electronics: Consumer electronics like phones and laptops.
  • Industrial Machinery: Equipment used in industrial applications.
  • Agricultural Products: Various agricultural items.
  • Metals and Alloys: Raw and finished metal products.

Note: According to CBSA, the duty on vehicles that have not been sold in Canada can be claimed, even if they are temporarily used within the country. 

What Goods Don’t Qualify for the Duty Drawback?

  • Alcoholic Beverages: Spirits, wine, and beer.
  • Fuel
  • Plant Equipment

Note: Items with duties refunded under other acts and items damaged before export do not qualify for the Duty drawback program. 

History of the Duty Drawback Program

The concept of Duty Drawback dates back centuries, with early forms of the program emerging in Europe during the 18th century. The program was introduced to encourage exports and support domestic industries by allowing for the refund of duties paid on imported materials used in producing exported goods. The program had three major objectives: more jobs, enhancement of foreign trade, and incentivizing manufacturing. 

In Canada, the Duty Drawback Program has been in place since the early 20th century, with the current program governed by the Customs Act and the Duty Drawback Regulations. The program has undergone various revisions and updates over the years to adapt to changing trade patterns and policies.

How Does Duty Drawback Work in Canada?

There is no specific business or market that qualifies for the duty drawback program. 

However, you must be able to meet one of the three prerequisites to claim the Duty drawback:

  • Imported Goods are later exported as it is 
  • Goods imported are used to manufacture other products which are later exported.
  • Obsolete or surplus goods that are imported are subsequently destroyed rather than being sold in Canada or exported.

If you meet one of three conditions, you are eligible to get a refund of customs duties, anti-dumping and countervailing duties, or excise taxes but not the Goods and Services Tax/Harmonized Sales Tax. 

Understanding the Types of Drawback

1. Manufacturing Drawback

This is also called Direct Identification Manufacturing Drawback. This applies to imported goods that are used in the production of exported goods. For example, if a Canadian manufacturer imports raw materials and uses them to produce finished products that are then exported, they are eligible to claim a refund of the duties paid on the imported raw materials.

2. Substitution Manufacturing Drawback

This case applies when a manufacturer creates products that involve multiple raw materials that are sourced domestically and imported, and then the final product is exported. They can claim drawbacks on the items that were either exported or destroyed because of the case of surplus. This helps manufacturers ease their inventory and ensure that they use the best material possible. 

3. Unused Goods Drawback

This applies to imported goods that are exported without being used or altered. For instance, if a Canadian company imports goods for distribution but later decides to export them to another market, they may be eligible for a refund of the duties paid on those imported goods.

4. Rejected Merchandise Drawback

The case is valid when the importer gets the wrong goods or goods that are not in suitable condition for sale. If the item is rejected or destroyed, then the importer can apply for a duty drawback against these products. 

To claim duty drawback, importers must follow specific procedures and requirements set forth by the CBSA. This includes maintaining accurate records, filing claims within the prescribed time frame, and providing supporting documentation to substantiate the claim.

Impact of USMCA on Trade Between Canada, Mexico, and the US

The implementation of the United States-Mexico-Canada Agreement (USMCA) in 2020 has had significant implications for duty drawback programs among the three North American countries.

Under the USMCA, importers can claim up to 99% reimbursement of duties paid on non-USMCA originating goods that are subsequently exported or used in the production of exported goods. However, certain limitations and requirements must be met, such as adhering to specific rules of origin and record-keeping obligations.

The USMCA has also introduced new provisions related to duty drawback, such as the elimination of the “double drawback” rule, which previously allowed for the refund of duties on goods that had already benefited from a duty drawback claim. These changes aim to harmonize and simplify the duty drawback process among the three countries, facilitating trade and reducing administrative burdens.

How to Apply for the Duty Drawback Program in Canada?

To apply for duty drawback in Canada, importers must file a claim with the CBSA within four years from the date of importation. The claim process involves submitting the necessary documentation, including proof of importation, exportation, and any relevant manufacturing records.

Here are the general steps to apply for duty drawback in Canada:

1. Determine eligibility

Evaluate whether your imported goods and subsequent export or manufacturing activities qualify for duty drawback.

2. Gather documentation

Collect all relevant documentation, including import and export records, invoices, bills of lading, and manufacturing records (if applicable).

3. Complete the claim form

Fill out the appropriate claim form provided by the CBSA, such as the K32-Drawback Claim Form

You need to have proof of export while filling out the form along with the following:

  1. A description of the imported goods eligible for drawback.
  2. The three-digit customs office transaction number from Form B3, along with the 14-digit transaction number.
  3. The date when customs released the goods.
  4. The total quantity of goods for which a drawback is claimed.
  5. The unit price of the imported goods.
  6. The exchange rate, value for duty, and duty rate for all relevant goods.

Note: You need to fill out Form E15-Certificate of Destruction/Exportation in case the products were destroyed as they were obsolete or surplus. 

4. Submit the claim

Submit the completed claim form and supporting documentation to the CBSA office responsible for processing duty drawback claims in your region.

5. Wait for processing

The CBSA will review your claim and supporting documentation. If approved, you will receive a refund for the eligible duties paid. The full-approved claim payments are usually processed within in 90 days. However, if it takes longer, the CBSA pays you interest on any outstanding balance owed. 

Note: There is no guarantee that you will get a full refund. 

Importers must maintain accurate and complete records, as the CBSA may conduct audits to verify the accuracy of claims. Failure to comply with the program’s requirements can result in penalties or the denial of claims.

How ShipTop Can Help You?

Did you know that despite this highly valuable program, 78% of eligible trade transactions for duties claims go unclaimed? And the reason is the unawareness of this program. Other than that navigating the complexities of the Duty Drawback Program can be challenging, especially for businesses new to international trade or those with limited resources. That’s where ShipTop, a leading logistics company business based in Canada, can help.

ShipTop’s team of experts can assist you in determining your eligibility for the Duty Drawback Program, preparing and filing claims, and ensuring compliance with all relevant regulations and requirements. With ShipTop’s expertise, you can streamline the process, minimize errors, and maximize your duty recovery.

Get in touch with the experts at ShipTop to learn about Canada’s Duty Drawback Program and how we can assist you in utilizing this trade incentive. 

Final Words

The Duty Drawback Program in Canada offers significant financial benefits to importers and exporters, helping to enhance their competitiveness in the global marketplace. By understanding the program’s requirements, maintaining accurate records, and filing claims on time, businesses can recover duties paid on imported goods, optimizing their cash flow and profitability.

With the support of ShipTop, a trusted partner in the fulfillment industry, you can navigate the complexities of the Duty Drawback Program and other trade facilitation initiatives, ensuring compliance and maximizing your duty recovery potential.

Don’t miss out on the opportunity to take advantage of this valuable government incentive. Contact ShipTop today to learn more about how we can assist you in getting the benefits of the Duty Drawback Program and enhancing your international trade operations.

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