It does not happen often – but, from time to time, the Canada Border Services Agency (CBSA) destroys detained goods by mistake. Goods that are being imported or that are being exported may be detained and destroyed in error.

One of our clients experienced a shock when the CBSA wrote to them to say that goods they were to release could not be released because they had been destroyed.  In this case, the goods were detained upon export and questions were asked by the CBSA about whether an export permit was required.  After it was determined that an export permit was not required, the CBSA ordered the goods to be released to the shipper.  When the CBSA went to retrieve the goods from the storage area, they shouted “OOOOPs”.  After reviewing the paperwork, it was discovered that someone had mistakenly sent the goods for destruction.

In these circumstances, an aggrieved party must act quickly. Subsections 106(1) and (2) of the Customs Act (Canada) contains a short time limit for suing a CBSA officer (or the CBSA) and provides:

“(1) No action or judicial proceeding shall be commenced against an officer for anything done in the performance of his duties under this or any other Act of Parliament or a person called on to assist an officer in the performance of such duties more than three months after the time when the cause of action or the subject matter of the proceeding arose.

(2) No action or judicial proceeding shall be commenced against the Crown, an officer or any person in possession of goods under the authority” of an officer for the recovery of anything seized, detained or held in custody or safe-keeping under this Act more than three months after the later of:

(a) the time when the cause of action or subject matter of the proceeding arose; or

(b)  the final determination or outcome of any action or proceeding taken under this Act in respect of the thing seized, detained or held in custody or safekeeping.”

The above provision starts a formal process in the courts.  The CBSA also may want to resolve the proceeding out of court.  There are unwritten procedures that permit an aggrieved party to seek compensation from the CBSA.  The informal procedure is commenced with the writing of a letter asking for compensation on the basis that goods have been destroyed by the CBSA in error.  All documentation concerning the import or export would have to be provided concerning the goods that were destroyed.  All the circumstances concerning the detention need to be provided as part of the justification for the compensation claim.  Most importantly, the amount of compensation being sought should be included. If the amounts are significant, the approval process for the compensation may be longer.  If amounts of compensation are sought that exceed the replacement value of the goods, the CBSA may dispute the additional claims.  However, there may be some justifiable damages claims (e.g. interest on financing of the destroyed goods, penalties charged by third parties for failure to deliver the goods in a timely manner, etc.).

Sometimes, it may be necessary to commence both the formal process and the informal process.  The formal court proceedings may be held in abeyance after filing.  It is important to satisfy limitation periods because failure to file an action within the 3 month limitation period may limit leverage and options should the negotaitions for compensation break down.

Many importers/exporters are familiar with End Use Certificate requirements for export transactions, which are provided to give information for export controls / economic sanctions purposes.  It is important to realize that a different form of End Use Certificate may be required for import purposes when an importer has classified goods pursuant to special duty relieving “end use” tariff items in Chapter 99 of the Customs Tariff (Canada).  Many Chapter 99 tariff items have a lower rate of duty applicable.  Some Chapter 99 tariff items contain wording that restricts or constrains the imported goods to certain uses. For example, the tariff item contains the words “for the use in”. “for use in the manufacture of”, “for the use by”, “for use on”, “for”, “to be employed”., or “which enter into the cost of manufacture of”. Simply put, if you are importing goods for a specified end use, you are able to benefit from reduced duty rate.

However, in order to benefit from the lower tariff rate, evidence of the application of the end use pre-condition is required.  An End-Use Certificate from the party who will use the goods satisfied the evidentiary burden to a certain extent.  An End Use Certificate is an attestation affirming the use of the imported goods in accordance with the provisions of the end use tariff item (see D-Memo D-11-8-5 “End Use Programs”). An End Use Certificate must be signed by the end-user of the goods and include the end user’s name, address, occupation, actual end use of the goods (a brief description of the manner in which the goods will be used), the applicable tariff item number and a description of the goods (see D-Memo D-11-8-5 and D-Memo 17-1-21 “Maintenance of Records In Canada by Importers“).

The importer must maintain records of the End-Use Certificate. The CBSA takes the position that the End-Use Certificate must be available at the time of importation.  End Use Certificates signed after the fact may not be accepted by the CBSA despite the fact the information is accurate and correct and the information in the certificate may be verified.

In the recent decision of Docherty v. Minister of Public Safety and Emergency Preparedness, (2012 FC 723) Federal Court of Appeal judge Phelan wrote as the first line of the decision:

“This is a case of a traveller sailing too close to the legal winds. But for greed, this Applicant would not be in Court.”
Mr. Robert Malcom Docherty failed to declare cash in an amount exceeding $10,000 and it was seized pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada). Mr. Dockerty was traveling from Toronto Pearson International Airport to Costa Rica when he was stopped by the CBSA (a currency sniffer dog smelled money).  He had in his possession $USD 9880.00 and $CAD 335.00.  With the conversion of $USD into $CAD, he exceeded the $10,000 threshold.
The Bank of Canada rate made all the difference.  On that day, the conversion rate put him over the monetary threshold and the money was seized.  Mr. Docherty knew about the monetary threshold limit for reporting and had made an attempt to stay below the threshold. Unfortunately, he miscalculated.
This should be a lesson for travelers.  It was a costly lesson for Mr. Docherty.  All the cash was seized as forfeit – any he missed his flight.

Lately, a number of clients have called with incident reports involving either the Canada Border Services Agency (CBSA) or U.S. Customs and Border Protection (USCBP) confiscating NEXUS passes from business travelers because the traveler had commercial goods in the NEXUS line/lane. In all cases, the business traveler properly declared the value of the goods and/or their possession of the goods.  The infraction was being in the wrong line/lane with their commercial goods.

The CBSA and USCBP remind the business traveler of a short statement in the brochures (NEXUS Membership Guide) about NEXUS privileges that travelers cannot use the NEXUS lane when they have commercial goods. The instructions state:

“If you have any commercial goods in your possession or baggage or on board the vehicle/recreational boat upon arrival in Canada or the United States, you may not use NEXUS in the air, land or marine modes of transportation. Commercial goods are defined as goods brought into Canada or the United States for sale or for any commercial, industrial, occupational, institutional or other similar use and include samples, tools and warranty repair parts.”

Personal computers and similar items carried by NEXUS members for their own personal use while on business trips are not considered commercial goods.”

One business traveler had a sample of a ware in his briefcase and informed the border officer.  One business traveler in the jewelry business returned to Canada with a piece of jewelry and inputted information in the automated kiosk the value of that item.  One business traveler purchased business cards overseas (with certain information translated). One business traveler was returning to Canada with banners used in a trade show in the United States.  One business traveler was going to a convention in the United States with a box of brochures.  All these business travelers had their NEXUS cards confiscated.

I have heard from individuals whose NEXUS cards were confiscated at the border crossing.  Some received a letter from the NEXUS program and some do not. Other individuals do not have their NEXUS cards taken at the border and receive a warning letter in the mail.  The use of discretion is sometimes at zero tolerance and is sometimes a little more flexible.

Business travelers must be careful because their NEXUS card is a valuable time-saving asset.  When in doubt, use the long line up.  Using it once is better than having to use the long line up every trip for 7 years.  Another option is to courier commercial goods because the customs paperwork will be completed by the courier company.

 

Every year at Easter, Canadians travel to the United States and abroad to visit family and friends for the holidays. Every year, the Canada Border Services Agency (CBSA) steps up enforcement at the border because there are more travelers. Every year, some travelers fail to declare some goods purchased or acquired outside Canada. Every year, some people make real mistakes, others make honest mistakes, and others are innocently accused of violations under the Customs Act.

Be aware that the CBSA is looking for under-declarations.  The best way to prevent a problem is to keep organized records.  When you buy goods outside Canada, put the receipt on an organized file folder or envelop.  Do not throw out the receipts or keep then in the bags (as you may forget about a receipt or two).  Take 10 minutes before returning to Canada to prepare a written list of the goods acquired or received outside Canada and their values.  If you purchased the good, record the price on the sales receipt including taxes and shipping and delivery (if applicable).  If the goods were a gift, ask the giver to provide you with the receipt or the value.  If the gift was not recently purchased, try to locate a fair market value. If the goods are something you bought years ago (e.g., property of a family member), then get an appraisal for expensive items and/or look for a fair market value.

When preparing the list and adding the values, remember to convert the values into Canadian dollars.

When a business sells its assets by way for a sale in bulk (or the Bulk Sales Act applies), it does not do so in the normal course of its business.  Usually, one of the preconditions to closing a transaction (one of the vendor closing documents in an asset purchase) is a certification from the provincial sales tax authorities to the vendor that all provincial sales taxes have been paid or arrangement have been made by the vendor to pay the taxes. The vendor provides this certification to the purchaser.  When this certification is provided, the provincial sales tax authorities cannot pursue the purchaser for the unpaid provincial sales taxes of the vendor.  When this certification is not obtained, the provincial sales tax authorities may pursue the purchaser for the unpaid sales taxes of the vendor.

If an asset purchase transaction involves or includes assets located in British Columbia on the closing date, it may be necessary to obtain a clearance certificate from British Columbia.

The BC Ministry of Finance released FIN 447 “Application for Certification” on March 28, 2013.  Vendors use this form to submit their application for a certificate.  It may be completed to cover provincial sales taxes and other provincial indirect/commodity taxes (such as tobacco tax, motor fuel tax, carbon tax, social service tax, and hotel room tax).

What is most interesting about this form is that the lawyers for the purchaser may file the form (previously, the lawyers for the vendor were the the party who requested the clearance certificate and could not control the delivery).  While the vendor (person whose tax records are to be searched) must sign the form giving authorization for the search, the purchaser may be the submitter of the form and the party receiving the information.

When a Canadian resident purchases goods outside Canada, they must declare the goods when returning to Canada.  When the individual is over the exemption limit ($800 for stays outside Canada exceeding 48 hours, $50 for same day), they must pay applicable customs duties, GST/HST, excise taxes and other imposts and charges.

Many individuals purchase big ticket goods (such as motor vehicles, motor homes, ATVs, sailboats, motor boats, motor cycles, watercraft, etc.) by way of private sale using Craigslist and other Internet-based web-sites where people list stuff they would like to sell.  These transactions are legal and provide an opportunity to get big ticket goods for a lower ticket price. However, remember the old saying “if a deal seems too good to be true …”

Firstly, individuals MUST remember to declare these purchases. When they do not make a proper declaration to the Canada Border Services Agency (CBSA), they risk criminal charges if the value exceeds a certain threshold. it is possible for the CBSA to lay criminal charges for smuggling and for the CBSA to seize the goods.  It is costly to defend such errors in judgement.

Even when the individual does declare the purchase, the CBSA may scrutinize these declarations. Often the buyer/importer does not have any documentation from the vendor.  The buyer pays cash and does not have any evidence of the price paid or payable.  In these circumstances, the CBSA will look on web-sites for a value and it often greatly exceeds what was actually paid.

Even when the buyer/importer has a sales invoice or receipt (or transfer paperwork), the CBSA is skeptical. Many CBSA officers have seen false invoices and, as a result, do not accept private sales invoices without further supporting documentation.  What buyers/importers do not realize is that they  have the onus of proving what they paid.

I recently had a client who gave the CBSA officers the name and telephone number of the vendor to allow the officers the opportunity to corroborate the price.  However, the CBSA officers would not call the vendors based on their belief that the vendors were not a reliable source of supplemental evidence.  The CBSA refusing to make a call to the vendors does not happen every time, but it is not a guarantee either.  The CBSA officers may believe that the buyer/importer and vendor conspired to falsify the invoice/paperwork and that the vendor would inform them that the buyer/importer paid the amount of the receipt/paperwork.

This is an unfortunate situation for honest individuals who like a good private sale deal.  The question is: what can they do to differentiate themselves from the bad guys who lied to the CBSA?  This is a hard question to answer.

The CBSA often asks to examine an iPhone or Blackberry or PDA or computer.  They do this looking for email exchanges with the vendors about the price. If they find emails concerning a price that is different than what was paid, this will raise red flags.  On the other hand, if there an email trail concerning the negotiation of the price, that is helpful.  I would recommend that all emails with the vendors be printed and bring a folder to the border. Also include the original listing / offer for sale even though it often is unrealistically high.  If you have that information organized and the CBSA does not have to look for it, the CBSA may accept your evidence.  That being said, the CBSA may also view an emails as self-serving.

Supporting documentation could come in the form of independent blue book values.  Some of these big ticket items are listed in blue books by make and model and year.  These third party businesses often include retail prices and values for the goods in good condition.  This evidence can be helpful.

Whether goods are in a good condition or in need of repair affects the price.  If the goods are not in prestine condition, documentation of the damage is necessary (not that the CBSA will always agree with you on the appropriate discount). I recommend writing a list of deficiencies in the goods/repairs suspected prior to reaching the border.  If the vendor will agree to sign the list, then it will demonstrate a mutual recognition.  The vendor may wish to indicate that sale is taking place on an “as is” basis so that any new problems do not become their problem. In any event, the list may be more complete if you take a moment before reaching the border.  Also, if there is a disagreement, you can leave a copy of your list and obtain an independent third party in Canada to corroborate after importation (such as an appraiser or repair shop).

Where possible, do not pay cash.  I say “where possible” because the final negotiation often is based on a face-to-face meeting and a visual inspection of the goods for damage. As a result, it is not always possible to bring a money order or bank draft.  Vendors often do not accept cheques because once the goods are gone, it is difficult to get paid if the cheque is bad. I recommend asking if the vendor uses PayPal because the transfer can be verified. That being said, the CBSA may also believe that a cash top-up was given.  The fact that these transactions re often cash transactions is the problem with private sales.

There is no magic information that the CBSA will accept with respect to private sales of big ticket items.  The more information you have, the better.  If you are an honest traveler and run into difficulties with a CBSA officer, ask to speak with the supervisor. Show how you have attempted to bring adequate documentation. Be prepared to give the vendor’s information to the CBSA. Be prepared to answer the hard questions.  Do not get angry if the CBSA asks questions. Be prepared to agree to disagree, pay the penalty and then appeal after more information can be gathered.

The Canada Border Services Agency (CBSA) takes the position that the Customs Act (Canada) grants them wide search and examination powers.  Section 98 of the Customs Act deals with search powers of the person. Section 99 of the Customs Act deals with examination powers respecting goods.  The CBSA draws a distinction between “search” powers in Section 98 and “examination” powers in Section 99.

The CBSA takes the position that NO GROUNDS are required to examine goods on a traveller.  There is no “reasonable grounds” requirement in Section 99.  The normal control covering examinations are:

1) The examination must be conducted in good faith to fulfill the obligations of the Customs Act; and

2) The CBSA cannot search on constitutionally impermissible grounds – manner of search.

It is important to note that the Section 99 of the Customs Act refers to “goods”.  The term “goods” is defined in Section 2 of the Customs Act to include “documents of any kind”.  An electronic document would be covered by that broad language.

Subsection 115(1) of the Customs Act provides:

“If any record is examined or seized under this Act, the Minister, or the officer by whom it is examined or seized, may make or cause to be made one or more copies of it …”

Subsection 115(2) of the Customs Act provides that no record that has been seized as evidence under this Act shall be detained for a period of more than 3 months unless before the expiration of that period:

“(a) the person from whom it was seized agrees to its further detention for a specified period;

(b) a justice of the peace is satisfied on application that, having regard to the circumstances, its further detention for a specified period is warranted and he or she so orders; or

(c) judicial proceedings are instituted in which the seized record may be required.”

 

Under Canada’s customs laws, the importer of record is responsible to provide the correct tariff classification of the commercial invoice and the B3 “Canada Customs Coding Form”.  While importers often rely on information provided by the exporter, they must do so understanding that they will have to pay the price for errors.  The Canada Border Services Agency (CBSA) may conduct a verification and determine that the tariff classification was incorrect.  If a tariff classification is incorrect, the duty rate may be incorrect and additional duties may be payable.  Whether or not additional duties are payable, the importer may be subject to an administrative monetary penalty.

We have created for clients a Tariff Classification Checklist, which are the documents/things we require in order to assist with the tariff classification of the goods:

1. The invoice, the purchase order & the contract – we need this to see how the goods are described in these documents because the tariff classification should be consistent with the description (and if the description is incorrect, it should be changed);

2. Promotional materials (e.g., product catalogues, brochures, web-based materials, etc.) – see 1 above;

3. A sample – a sample is always helpful;

4. If a sample cannot be provided, the packaging;

5. The technical drawings and/or a listing of the bill or materials (a list of the parts/components);

6. The ingredient listing;

7. Documents filed with foreign government agencies where approvals are required (e.g., FDA filings);

8. A description of the manufacturing process – how the good is assembled/manufactured

9. Information from the inventor, R&D department, engineers concerning the use and purpose of the goods; and

10. Market analysis regarding buyers – who is the target market and how will they use the goods.

Depending on the specifics of a particular case, there may be other pertinent documents.

It is important to recognize that if the CBSA disagrees with the tariff classification selected and an appeal is filed with the Canadian International Trade Tribunal, this information will have to be filed as evidence to assist the Tribunal in classifying the goods.  For this reason, all documents relating to the tariff classification of the goods (including legal opinions and legal instruments used in the tariff classification process) should be maintained in a record, such as a binder or an electronic folder.  You never know when you will need the information and it takes a lot of time to reconstruct the documentation years later.

Non-resident exporters/importers often are not aware of Canada’s many different sales taxes and sales tax rates (quite frankly, many Canadian companies cannot keep up with the changes). So, we put together a chart.

Canadian Sales Tax Rates Chart
As at March 1, 2013

Province/Territory

Provincial Sales Tax GST/HST Rate GST Included in PST Tax Base Combined Rate
British Columbia N/A[1] 12%[2] N/A 12%
Alberta Nil 5% N/A 5%
Saskatchewan 5% 5% No 10%
Manitoba 7% 5% No 12%
Ontario N/A 13% N/A 13%
Quebec 9.975%[3] 5% N/A 14.975%
New Brunswick N/A 13% N/A 13%
Nova Scotia N/A 15% N/A 15%
Newfoundland/Labrador N/A 13% N/A 13%
Prince Edward Island 10%[6] 5%[7] Yes[8] 15.5%[9]
Northwest Territories Nil 5% N/A 5%
Yukon Nil 5% N/A 5%
Nunavut Nil 5% N/A 5%

[1] British Columbia will reinstate provincial sales tax on April 1, 2013 at a rate of 7%

[2] On April 1, 2013, the GST/HST rate will decrease to 5% because British Columbia is de-harmonizing

[3] Quebec harmonized with GST on January 1, 2013.

[4] On January 1, 2013, the Amended QST, GST rate will be 14.975%

[5] Starting January 1, 2013 there will no longer be tax on tax

[6] Prince Edward Island will harmonize with GST on April 1, 2013. The proposed rate will be 14%.

[7] Prince Edward Island will harmonize with the GST on April 1, 2013 and impose HST at the rate of 14%

[8] Starting on April 1, 2013, there will no longer be tax on tax

[9] Will reduce to 14% on April 1, 2013