Memorandum D8-2-26

In Brief

Ottawa, October 30, 1998

Subject

Goods re-entered after repair or alteration in the United States, Mexico, Chile, Israel, or another CIFTA beneficiary

1. This revised Memorandum reflects the implementation of the new Customs Tariff effective January 1, 1998.

2. The new Tariff Item Nos. 9971.00.00 and 9992.00.00 Accounting Regulations replaces the pre-1998 provisions of:

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Memorandum D8-2-26

Ottawa, October 30, 1998

Subject

Goods re-entered after repair or alteration in the United States, Mexico, Chile, Israel, or another CIFTA beneficiary

This memorandum outlines the conditions under which goods may be returned to Canada duty free after being exported to a free trade partner for repair or alteration under tariff item Nos. 9971.00.00 and 9992.00.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.

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GUIDELINES AND GENERAL INFORMATION

1. Tariff item No. 9992.00.00 of the schedule to the Customs Tariff provides customs duty-free importation of goods which are returned to Canada, regardless of country of origin, after having been exported for repair or alteration in the United States, Mexico, Chile, Israel, or a Canada-Israel Free Trade Agreement (CIFTA) beneficiary.

2. The provision allows customs duty-free entry on the full value (export value and the foreign value added) of the returned goods, which were temporarily exported to a free trade partner (United States, Mexico, Chile, Israel, or a CIFTA beneficiary) for repair or alteration. At the time of import no customs duty is paid on the value of the repair or alteration. However, duties under the Excise Tax Act including the goods and services tax (GST) and excise tax, if applicable, are payable on the foreign value added. Where excisable goods are repaired abroad, and the value is enhanced, excise tax is payable on the duty-paid value of the enhancement. For duty purposes, this provision applies to qualifying goods regardless of whether the repair or alteration is under warranty or not and regardless of whether the repair or alteration could have been performed in Canada.

3. Free trade partner means:

Goods and Services Tax (GST)

4. This tariff item does not provide remission from the 7% GST. However, paragraph 3(j) of the Non-Taxable Imported Goods (GST) Regulations prescribes certain goods as non-taxable, namely those imported after being exported for repair under warranty. For the goods to qualify for GST relief, the warranty must cover the full value of all parts and labour, excluding partial or conditional warranties. For non-warranty repairs, proposed amendments to the Value of Imported Goods (GST) Regulations are to provide that the GST is payable only on the value of the repair or alteration performed outside Canada.

5. The 15% harmonized sales tax (HST) for non- commercial importers, implemented on April 1, 1997, applies to goods imported by residents of a participating province, namely Nova Scotia, New Brunswick, or Newfoundland, regardless of where the resident or the goods enter Canada. This tax is paid at the time of importation of non-commercial goods by the resident in a participating province.

REFERENCES

6. The Canadian goods abroad program provides partial or full duties relief on Canadian goods returned after being exported for repair, equipment added, work done, and emergency repairs incurred outside Canada. For repairs done in countries that are not parties to free trade agreements, importers may use the repair provisions in paragraph 101(1)(a) of the Customs Tariff. If Canadian goods are exported from Canada to any country for work done involving manufacturing or assembling processes, importers must make application for the provisions in 101(1)(c) that apply regardless of a free trade agreement. These provisions are detailed in Memorandum D8-2-1, Canadian Goods Abroad.

7. Tariff item No. 9971.00.00 applies to vessels temporarily exported for repair or alteration in a country designated as a free trade partner. In subsection 87(1) of the Customs Tariff, duties are payable on the value of the repairs or alterations entitled to the Mexico Tariff (MT) or the Mexico-United States Tariff (MUST) in effect until December 31, 2002, after which the goods will be duty free. The United States Tariff (UST) and the Canada-Israel Agreement Tariff (CIAT) entitlements are duty free. See Memorandum D8-2-25, Canadian Vessels Repaired or Altered in the United States, Mexico, Chile, Israel, or Another CIFTA Beneficiary.

8. The Repair Abroad of Canadian Civil Aircraft, Canadian Aircraft Engines and Flight Simulators Remission Order contained in Memorandum D8-3-8 remits part of the GST on Canadian-manufactured civil aircraft, aircraft engines, or flight simulators and parts exported from Canada when returned after being repaired abroad.

9. Duty-free tariff item Nos. 9813.00.00 and 9814.00.00 refer to Canadian goods, including containers, and goods once accounted for, exported from Canada, if the goods are returned without being advanced in value or improved in condition by any process of manufacture or other means, or combined with any other article abroad.

Definitions

10. The term "repair" means the adjustment of a good to restore it to its original operating condition and includes minor changes necessary to complete the restoration including replacing parts.

11. NAFTA Article 318, "Repair or Alteration," does not include an operation or process that either destroys the essential characteristics of a good or creates a new or commercially different good.

12. Under Note N-2 (10) of NAFTA, an operation or process that is part of the production or assembly of an unfinished good into a finished good is not a repair or alteration of the unfinished good. A component of a good is a good that may be subject to repair or alteration.

13. The term "alteration" is the process of changing, modifying, or making something different without transforming it into something else. There are no restrictions on the number of steps or processes or on the cost of the processes to effect an alteration.

General

14. Further to Article 318, to determine if a good is commercially different, compare the exported good to the imported good after processing to assess the degree of change to the good’s:

15. If the good is substantially transformed outside Canada from manufacturing or assembling processes that result in a new or different commercial good, the good does not qualify for classification in tariff item No. 9992.00.00. In such cases, refer to the provisions of paragraph 101(1)(c) referred to above in relation to the Canadian goods abroad program.

16. The import accounting document (Form B3, Canada Customs Coding Form) is required to account for the goods and to pay any applicable duties. The value for duty shown on this form is the value of the repair or alteration. The GST is paid on this value unless a quoted GST code relieves the tax. The goods are classified in field 27 according to the classification number in the schedule to the Customs Tariff. Heading No. 9992, which relieves the customs duty, is shown in the tariff code field 28. Refer to related Form B3 examples in Memorandum D17-1-10, Coding of Customs Accounting Documents.

17. In addition, the importer must submit the documents according to the Tariff Item Nos. 9971.00.00 and 9992.00.00 Accounting Regulations (see the Appendix), including an invoice and proof of export. The invoice or written statement from the foreign processor must include the value of the repair or alteration. Although the goods are duty free, GST is paid (except for warranty repairs) on the foreign value added based on the value for duty. The value for duty is determined in the valuation provisions in the Customs Act and includes the price paid or payable for the work, and applicable additions under paragraph 48(5)(a) relating to transportation and associated costs up to and from the place of direct shipment of the goods to Canada.

18. Proof of export can be a customs or transportation document, an exporter declaration, or other documents set out in the Regulations that describes the goods sufficiently to establish that the re-imported goods are the same goods that were exported. Record the make, model, and serial numbers to help identify the goods.

19. If insufficient documentation to determine eligibility for importation under tariff item Nos. 9971.00.00 or 9992.00.00 is provided at the time of accounting, the goods may be assessed duties and taxes on their full value at the time of import.

Corrections and Re-Determinations

20. In accordance with subsection 32.2(2) of the Customs Act, the importer is obligated to make a correction to declarations of tariff classification, value for duty, and origin within 90 days after the importer has reason to believe that the original declaration is incorrect. For example, if the importer realizes that the goods imported under tariff item No. 9992.00.00 actually had undergone further processing, the goods are no longer in compliance with a tariff item condition and the importer is obligated to adjust the accounting declaration for the goods correctly.

21. To correct a declaration, Form B2, Canada Customs – Adjustment Request, should be submitted to the appropriate regional customs office and any customs duties and taxes owing paid. A correction shall be treated for the purposes of the Customs Act as if it were a re-determination under paragraph 59(1)(a) of the Customs Act.

22. The obligation to make a correction in respect of imported goods ends four years after the goods are accounted for under subsection 32(1), (3), or (5) of the Customs Act.

23. For more information on the filing of corrections, refer to Memorandum D11-6-6, Self-Adjustments to Declarations of Origin, Tariff Classification, Value for Duty, and Diversion of Goods.

Audit, Examination, or Verification

24. If as a result of an audit, examination, or verification by the Department, goods are found to have been declared incorrectly, the goods will be subject to a re-determination or further re-determination under paragraph 59(1)(a)  or (b) of the Customs Act, whichever is applicable.

Interest and Penalties

25. In accordance with subsection 33.4(1) of the Customs Act, the importer is liable to pay interest against any outstanding amount owed to the Department, until the amount is paid in full. The interest will be calculated at the specified rate beginning on the first day after the date the importer became liable to pay the customs duties and taxes. For example, where it is determined that the goods imported incorrectly under tariff item No. 9992.00.00 actually had undergone further processing, the importer is obligated to pay interest on the amount owing from the day following the original date of accounting until the amount owing is paid.

26. As per subsection 109.11(2) of the Customs Act, every person who fails to comply with subsection 32.2 of the Customs Act, is liable to pay a penalty of 5% of the duties owing plus an amount equal to 1 % of the duties owing multiplied by the number of complete months, not exceeding 12 months, until the amount is paid in full. Continuing the example in paragraph 20, if the importer submits Form B2 to adjust the accounting declaration for the goods and pay the duty and taxes and interest owing within 90 days of the original date of accounting, no penalty will be applied. If the importer does not submit Form B2 until four months after the original date of accounting, the importer may be subject to a penalty of 5% of the duties owing plus 1% of the duties owing multiplied by four months.

27. Furthermore, where the importer again fails within three years of the original infraction under subsection 109.11(2) to comply with subsection 32.2 of the Customs Act, as per subsection 109.11(3) of the Customs Act, the penalty owing will be 10% of the duties owing plus an amount equal to 2% of the duties owing multiplied by the number of complete months, not exceeding 20 months, until the amount is paid in full.

28. Memorandum D11-6-5, Interest and Penalty Provisions: Determinations/Re-Determinations, Appraisals/Re-Appraisals, and Duty Relief, provides additional information on interest and penalty provisions.

Appendix

Legislation

Customs Tariff

Tariff item No. 9992.00.00 reads as follows:

9992.00.00 Goods, regardless of country of origin or tariff treatment, other than the goods of tariff item No. 9971.00.00, returned to Canada after having been exported to the United States, Mexico, Chile, or Israel or another CIFTA beneficiary for repair or alteration.

Statutory Instrument

TARIFF ITEM NOS. 9971.00.00 AND 992.00.00 ACCOUNTING REGULATIONS

Interpretation

1. In these Regulations, "goods" means goods of tariff item No. 9971.00.00 or 9992.00.00 in the List of Tariff Provisions set out in the Schedule to the Customs Tariff.

Accounting for Goods

2. An importer or owner of goods, or any person authorized to account for goods under paragraph 32(6)(a) or under subsection 32(7) of the Customs Act, shall, when accounting for the goods under section 32 of that Act, submit:

Repeals

3. The NAFTA Tariff Item Nos. 9821.00.00 and 9822.00.00 Accounting Regulations are repealed.

4. The CIFTA and CCFTA Tariff Item No. 9827.00.00 Accounting Regulations are repealed.

Coming Into Force

5. These Regulations come into force on January 1, 1998.

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References

ISSUING OFFICE –

Customs and Trade Administration Branch
Trade Policy and Interpretation Directorate
Trade Incentives Program

LEGISLATIVE REFERENCES –

Customs Tariff – sections 2, 87, and 101 to 105; heading Nos. 9813 and 9814
Customs Act – sections 32, 33, 42, 45 to 56, and 109.11
Excise Tax Act – Section 8 of Schedule VIII
Non-Taxable Imported Goods (GST) Regulations

HEADQUARTERS FILE –

9992.00.00

SUPERSEDED MEMORANDA "D" –

D8-2-26, January 1, 1994

OTHER REFERENCES –

D8-2-1, D8-2-25, D8-3-8, D11-6-5, D11-6-6, D17-1-10, D17-2-1