Deciding to ship to Canada is a big step, and it comes with layers of decisions. How you ship into Canada all depends on your product and your customers. But there are so many nuances with international shipping it can be daunting to figure out the best way to route your shipments into a new market.
Here are some of the common, and less common questions ecommerce merchants ask about shipping to Canada.
Should I Apply for GST?
The rule says that an ecommerce merchant needs to apply for a GST ID when products are made available or delivered to Canada. Many merchants assume that anything they are delivering to Canada requires a GST registration, which isn’t entirely the case.
Learn the difference between GST, PST, and HST.
If a merchant is selling direct-to-consumer, they don’t need to register for GST. When they do so it becomes more complex and there is no benefit for the merchant in this scenario. Filing taxes and reconciling the duties and taxes paid at the border can be a big administrative burden, when it’s not necessary in the first place.
When a merchant does need to register for GST is if they are fulfilling from Canada. If a merchant is stocking products in Canada, then that’s when GST applies.
Each of Canada’s provinces has different taxes. Depending on where your Canadian consumers are you may consider entering products into Canada in different regions. There is a provincial sales tax that is included in some provinces. If you are entering products into one of the provinces where the provincial tax is applied, but moving products to consumers in a different province, you may be paying when the tax when you don’t need to. Canadian tax officials won’t remit that tax so make sure you are entering products where you are delivering them.
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Do I Need to Apply for NRI (Non-Resident Importer)?
NRI stands for non-resident importer. It is a tax registration that distinguishes a foreign-based company that does not have a permanent residence in Canada but imports into Canada under their own name and business number.
When import laws between Canada and the US were under the NAFTA agreement, it was good advice for all merchants to register as NRI (non-resident importer). It made sense because of the de minimis levels of regulations at the time.
Now with the USMCA changes to import laws, a merchant who is shipping by courier (not by post) will likely see more duty or tax advantages if they don’t apply for NRI.
Since customs fees are applied per shipment, merchants will get a cost reduction if they send fewer large shipments. There are brokerage fees and surcharges attached to each shipment, so by sending fewer you’ll incur less.
If a merchant sets up as a non-resident importer, they still must aggregate all shipments through one customs entry, which means larger shipments will likely exceed the de minimis value. A merchant will need to consider this and how it factors into their overall shipping strategy.
Where registering as a NRI does make sense is selling high-value goods, having very large shipments or with a large percentage of B2B shipments.
Some merchants might look to Canadian tax advisors for help when setting up international shipping. But not all brands need to register for GST. A tax advisor will likely talk you into registering because that’s what they do (it would be like asking your barber if you need a haircut, of course they’re going to say yes!). While registering might be beneficial for your brand, if it’s not you’ll avoid a lot of legal complexity and administrative work that may be unnecessary.
Is it Better to Fulfill in Canada, or Fulfill in the US and Then Import?
There is no one-size-fits-all rule for international shipping. There are so many factors that come into play: where the product is manufactured, where the largest population of buyers is, etc. For some businesses it will be more cost effective to fulfill products in Canada, but for others fulfilling in the US and shipping into Canada is a better option operationally. To decide which option is best for you, weigh the following aspects of your supply chain:
- What are the import laws between the country where you manufacture and Canada?
- Do you have a larger population of customers in Canada than you do the US?
- Do you have more customers in other countries?
- What are the import laws for your particular type of product between the US and Canada?
In some cases it makes sense to bypass the US and have products shipped directly to Canada to be fulfilled there, but in some cases it’s better to ship to the US, fulfill and then ship to Canada.
Some companies might find it more profitable to begin fulfilling all products in Canada, and then shipping to the US from there. But that’s a very specific use case.
The platform you sell on will also be a big factor. If you are an Amazon seller and are getting a lot of pressure to move products into Canada to be fulfilled there to ensure two-day or same-day shipping, then you should look at setting your company up as a NRI to properly fulfill from Canada.
It’s important to note that Canada has a short list of restricted and prohibited goods. Brands should be aware of any special permits, licenses or labels they may need if their products are on these lists.
Country of origin is not the same as country of provenance, and this is a big factor when determining duties and taxes. For example, with the new USMCA regulations, anything that is manufactured in Mexico and shipped into Canada is duty free. It’s important to know how to route products to ensure the lowest possible cost.
How to Handle Canadian Returns
While some ecommerce brands still promote in-store returns, it’s often not an option for international returns.
It’s important to streamline the reverse logistics of your returns. Work with a logistics company that has a great track record with returns, specifically international ones. Good reverse logistics requires excellent tracking, great relationships with carriers, and quality assurance to get any returned merchandise processed and put back into good stock if it can be resold.
There are multiple ways to route returns to the US.
- One is to consolidate everything in that in that country, then bring it all back as a large freight shipment. The merchant can decide on a consolidation point and work with their international carrier to pick up every few weeks. This works for items that don’t need to be back in inventory in a hurry, or for customers who may not be expecting a speedy refund.
- Another is to bring back shipments individually, which works better for lighter weight items. In the case of the individual shipments, labeling becomes something to consider. Customs needs to know exactly what is in the box—if three items were shipped out and only two came back, then the label is not going to match up.
It’s also important to figure out how you’ll ask your customers to handle reclamation. Duties and taxes were paid up on import, and now that the product is going back, it’s possible (and not entirely difficult) to reclaim those import fees. There are two main ways to reclaim duties and taxes on an international return (specifically a product imported into Canada, returned by a Canadian customer, and shipped back to the US).
- The Casual Refund. This requires the customer to print out and submit a few pieces of paperwork to the Canadian Customs office. The documents state the duties and taxes that were paid, plus the validation that the returned item was shipped back to the merchant. A refund for duties and taxes will then be issued from Canadian Customs to the customer directly. It’s a fairly easy process, if the customer is willing to mail in the paperwork. This process doesn’t exist as easily for US customers buying from international companies. The challenge with a casual refund is that the customer must be able to get the right information, such as the export documents to prove that the product left the country. If the information they send doesn’t match up exactly to the records that Customs has, then no refund will be issued. To enact a casual refund with returns management from Canada, your team must be prepared to send customers the correct information, in a timely manner, and give the clear directions on how to reclaim their refund.
- Credits. This is basically the automated version, or the electronic version of a casual refund program. The processing happens because a Canadian customs broker manages the refund on behalf of the US company. The broker will submit the documents to CBSA (The Canada Border Services Agency), and the merchant will receive the refund directly. The merchant will receive all duties and taxes and then be able to pass the funds on to the customer. From the consumer’s perspective, when they get a refund, it be for the entire refund (including the price of goods, plus duties and taxes) all at once.
What is CARM and Does it Apply to my Business?
The Canada Border Services Agency (CBSA) has instituted the Assessment and Revenue Management (CARM) project to streamline the process of collecting duties and taxes and modernize how merchants imports goods into Canada.
Today when you go through a Canadian customs broker, when they clear your goods, they are released immediately because the broker has a surety bond which is acts as an assurance that the duties and taxes will be paid no matter what. The broker then submits filings monthly or so to reconcile any unpaid duties and taxes.
With CARM the broker no longer has this same power; the US shipper or Canadian importer must register with the CARM portal secure the surety bond themself and be the one to follow up with the payments of their duties and taxes.
These changes with CARM are putting the burden of paying duties and taxes on the importer of the goods. If that’s a US ecommerce brand, they’ll need to register to be the NRI in order to get a surety bond and process their taxes properly.
The full program is still waiting to be released, but it is in process and slotted to be live within the next year.
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Tags: International, Reverse Logistics Articles
