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Application of Surtax Orders – Processing, Repairs, and Alterations

CBSA has provided clarification of previous information provided regarding the application of surtax to goods that were processed, repaired, or altered outside of Canada.

Following is more detailed explanation to clarify the legislative and administrative distinctions regarding processing, repairs and alterations, to provide further information on the previous responses:

  1. Any goods listed in the surtax orders (regardless of  origin) which are exported and are not eligible for relief when they return to Canada (such as not being authorized under the Canadian Goods Abroad Program or not eligible under tariff item No. 9992.00.00) are required to report their full value for duty (which is the value of the good, including the value of any repairs or alterations) under the Customs Act when the goods are accounted for.  This value is subject to the applicable customs duties as well as any applicable surtax.
  2. a. Normally, any goods listed in the surtax orders which are exported and repaired or altered outside Canada (i.e. the U.S.) and are eligible for relief under tariff item No. 9992.00.00 when they return to Canada are required to report the value of the repair or alteration, not the value of the good itself, under legislation when the goods are accounted for.  This value is subject to the applicable customs duties, GST/HST, and surtax.
    b. Similarly, non-U.S. origin goods listed in the surtax orders and which are exported and repaired or altered in the U.S. and are eligible for relief under tariff item No. 9992.00.00 when they return to Canada will have subparagraph 2a above apply, i.e., surtax will be applied on the value of the repair or alteration upon importation. However, if the importer has the necessary supporting documentation that the goods do not meet the surtax orders’ definition of “goods that originate in the United States”, they may then file a Form B2 post-importation requesting a refund of the surtax on the basis that the goods are not eligible to be marked as goods of the U.S. in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations.
  3. Goods which are exported and processed outside of Canada (including in the U.S.) and are eligible for relief under the Canadian Goods Abroad Program (CGAP) when they are returned to Canada are required to report the value of the processing as well as the Canadian value (Canadian value under the CGAP is generally defined as the value for duty as would be determined under the Customs Act less the value of the processing). The Canadian value is free of customs duty and surtax, and generally free of GST/HST (however, GST/HST may apply in certain conditions). The value of the processing is subject to applicable customs duties, GST/HST, and surtax. For clarification, upon return to Canada, if the good is of U.S. origin (maintained or changed once processed) and the good is listed in the surtax orders, surtax will apply on the value of the processing.

As previously conveyed, eligibility under tariff item No. 9992.00.00 does not permit processing. Therefore, paragraph 2 above would be applicable for goods which are exported for repair or alterations in the U.S., but not for goods that are processed in the U.S. which would have paragraph 3 apply.  For paragraph 3, “processed” is defined as an operation or process that is part of the production or assembly of an unfinished good into a finished good or an operation or process that either destroys the essential characteristics of a good or creates a new or commercially different good.