The Canada Border Services Agency (CBSA) is responsible for reviewing imports to ensure compliance with Canada’s trade laws. In doing so, the CBSA sometimes focuses on what it deems “audit priority” areas. These are tariff classification codes where the agency believes that there is significant risk for misclassified imports under the Customs Tariff, which leads to the unlawful evasion of duties on those goods.
The CBSA recently released a new round of 2020 Trade Compliance Verifications, which dealt with a number of these priority areas.
In the report, the following “audit priority” areas had updated enforcement information, leading to several million dollars in fines and penalties for importers who misclassified their goods.
Fortunately for importers, CBSA only updated the results for existing audit priority areas and did not any new priorities to for further investigation.
Gloves – Headings 39.26 and 42.03 – CBSA has again identified a risk where imported gloves are incorrectly classified within the above headings instead of being properly classified within Chapter 61 or 62 which have duty rates of up to 18%. (This has been a priority item in the past!)
In the release, the CBSA announced that it had released a second round of verifications in October 2019 but that results were not yet available. In the first round of verifications, the CBSA had targeted 37 companies in its first round of verifications and had found a 73% non-compliance rate—leading to self adjustments of $975,047 and $38,800 in penalties.
Bags – Heading 42.02 – CBSA has identified the risk that imported goods could incorrectly be classified as bags within the above heading instead of being properly classified elsewhere in the same heading, which has duty rates of up to 11%.
In the release, the CBSA announced that it had released a second round of verifications in July 2019 but that results were not yet available. In the first round of verifications, the CBSA announced that it had targeted 20 companies in its first round of verifications and had found an 80% non-compliance rate—leading to $1,333,062 in self adjustments and $4,050 in penalties.
Air Heaters & Hot Air Distributors – Heading 73.22 – CBSA has identified the risk that imported goods could be incorrectly classified as air heaters or hot air distributors within the above heading instead of being properly classified elsewhere within the same chapter, which has duty rates of up to 7.5%.
In the release, the CBSA announced that it had released a second round of verifications in July 2019 but that results were not yet available. In the first round of verifications, the CBSA announced that it had targeted 18 companies in its first round of verifications and had found a whopping 92% non-compliance rate—leading to $221,426 in self adjustments and $6,050 in penalties.
Flashlights – Heading 85.13 – CBSA has identified the risk that imported goods could be incorrectly classified as flashlights and miners’ safety lamps within the above heading instead of being properly classified elsewhere within the same heading, which has duty rates of up to 7%.
In the release, the CBSA announced that it had released a second round of verifications in October 2019 but that results were not yet available. In the first round of verifications, the CBSA announced that it had targeted 10 companies in its first round of verifications and had found a 63% non-compliance rate—leading to $407,822 in self adjustments and $25,150 in penalties.
The takeaway point is that importers need to be cognizant of where their goods actually fit within the Customs Tariff. When the CBSA designates a tariff code as an “audit priority”, importers of those items should expect to be audited, and should be looking for pre-emptive advice!
Failure to properly classify goods can lead to big penalties—especially if your goods fall within “audit priority” areas.
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