Duty Free Shop – Inventory Control and Sales Requirements
Memorandum D4-3-5

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Canada Border Services Agency is currently reviewing this D-memo. It will be updated in the context of the CBSA Assessment Revenue Management (CARM) initiative and made available to stakeholders as soon as possible. Find out about CARM.

ISSN 2369-2391

Ottawa, September 22, 2015

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In Brief

1. This memorandum has been revised to reflect organizational changes resulting from the restructuring of the Canada Border Services Agency (CBSA) on , and to provide general updates resulting from the strategic review of the Duty Free Shop program.

2. In addition to the above, the Commercial Registration Unit (CRU) and Border Information Services contact information has been added.

For the regulations governing the guidelines and general information contained in this directive, refer to the Duty Free Shop Regulations.

Guidelines and General Information


Domestic goods
Domestic origin goods are goods wholly obtained or produced in Canada (e.g., mineral goods extracted in Canada, goods harvested in Canada). More information on "Made in Canada" guidelines can be found on the Competition Bureau's Web site. The goods and services tax (GST) will be collected when there are unjustified shortages in inventory. The payable amount is calculated based on the value of the missing goods. As the manufacturer will have already paid the excise duty and excise tax on domestic tobacco products they will not be owed.
Imported goods, duty and tax paid
Goods manufactured abroad and imported by a Canadian company where the duties and taxes have been paid are to be accounted for as imported goods, duty and tax paid. The GST will be collected when there are unjustified shortages in inventory. The payable amount is calculated based on the value of the missing goods. The excise duty and excise tax on tobacco products, which were paid at the time of import, will not be owed.
Imported goods, duty and tax not paid
Goods manufactured abroad and obtained from a Canadian company or a foreign supplier on which the duties and taxes were not paid and goods that were subject to a drawback claim are considered to be imported goods, duty and tax not paid. These goods are to be accounted for as imported goods, duty and tax not paid, in accordance with their country of origin. All duties and applicable taxes including the GST will be collected when there are unjustified shortages in inventory. The payable amount is calculated based on the value of the missing goods. The excise duty and excise tax on tobacco products, which were paid at the time of importation, will not be owed.


1. Duty Free Shop (DFS) licensees are required to follow basic procedures as outlined below. The DFS licensees will endeavor to promote Canadian made goods by sourcing domestic origin goods (exclusive of tobacco). Licensees must submit an outline of the inventory control system to be used in the DFS to the Commercial Registration Unit (CRU) for review. Reporting and control of inventory, including the sale or disposal of goods, must be carried out in a manner satisfactory to the CBSA for land-border and airport licensees.

Composition of Inventory: Domestic and Imported Goods

2. Currently, the DFS program recognizes the following commodity groups as part of an inventory for DFS. Any attempt to add a class of goods to inventory, that is not previously approved by the program, may result in an amendment to the DFS licence restricting the classes of goods that may be received into that shop. Goods in the "Other" category will only include low-value goods that do not fit into existing categories.

3. Commodity list (domestic and imported goods)

4. Known controlled or prohibited goods that have been identified as such under the laws of a country of destination are not to be sold unless specific exemptions are allowed for under those laws.

5. DFS licensees will not stock or sell any specimen of endangered wild flora or fauna or derivatives thereof. Refer to Memorandum D19-7-1, Interpretation of the Wild Animal and Plant Protection and Regulation of International and Interprovincial Trade Act (WAPPRIITA) and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), for listings of goods subject to export and import control and any conditions under which exceptions would be permitted.

6. Licensees are expected to provide travellers with a quality and mix of merchandise that affords travellers with a choice of brands based on the market at different price points wherever possible.

Inventory Control System

7. The operating and administrative procedures in use at a DFS should reflect normal retail business practices with appropriate emphasis given to ensuring that the physical security of the inventory is not compromised.

8. Accurate accounting and inventory control systems are to be maintained by the licensee and all related documentation is to be retained for a period of six years after the sale or disposal of the goods as specified in the Imported Goods Records Regulations. Upon request, the licensee shall make the records available within the time specified by the officer, and answer any questions asked by an officer in respect of the records.

9. The licensee of a DFS is liable for applicable taxes on domestic goods and applicable duties and taxes on imported goods that are received in the DFS unless it can be proven that the goods have been sold for export, are still in the shop, have been destroyed or have been lawfully removed. Refer to the Customs Act section 28 (1).

Notification of Arrival of Goods

10. Refer to the Duty Free Shop Regulations, section 16 (2).

Electronic Reporting and Numbering of Arriving Goods (optional)

11. The purpose of the electronic reporting system messaging (e-mail or other approved means), is to permit a better use of the holding area (in bond).

12. Although it is no longer a requirement to immediately notify the local CBSA office upon the receipt of goods, the licensee can report the arrival of goods electronically to local CBSA. These reports must be pre-numbered using the numbering convention outlined below.

13. The heading "Arrival Notification" followed by the number (see above) should be stated in the subject field of the e-mail or the other approved electronic means. Note that if the local CBSA office has limited hours of operations, the electronic transmission must be sent at least two hours before the office closes.

Transferring From the Holding Area (In-bond) to Elsewhere in the Warehouse

14. When the CBSA receives an electronic arrival notification (system retrieved), it will respond within one and a half hours as to whether the goods must be held in the holding area. However, if the CBSA does not respond within one and a half hours, the goods may be placed into the DFS warehouse inventory as temporarily released goods.

Temporary Electronic Declaration and Numbering of Form B116

15. Electronic submissions of Form B116, Canada Customs Duty Free Shop Accounting Document, to the CBSA may be sent to the local CBSA chief of operations and/or designated CBSA officer by e-mail or by other approved electronic means. Form B116 must be transmitted using the same corresponding arrival notification report number so that the CBSA can verify the Form B116 against the arrival notification report. The licensee will add to this number; an "I" to indicate "in", an "O" to indicate "out", a "T" in to indicate "transfer" in, or a "T" out to indicate "transfer" out.

System Failure

16. In the case of a system failure or messaging failure, the arrival notification and/or Form B116 will be submitted as per the documentation procedures listed below under "Documenting goods".


17. All corrections or changes to the electronic declaration or paper copy of Form B116 must be submitted when noted. The number on the "Arrival Notification" and on the original Form B116 must be indicated on the amended document as references.

Documenting Goods

18. The licensee will provide the local CBSA chief of operations and/or designated CBSA officer with an electronic declaration or paper copy of the arrival notification and/or Form B116 within five business days from the arrival of the shipment declared to the CBSA. Only when the CBSA has stamped the original Form B116 or approved the electronic version can the goods be removed from the warehouse and placed for sale in the DFS.

19. On the paper copy of the Form B116, the licensee will cross-reference the same corresponding arrival notification report number to the cargo control numbers, etc.

20. Shipments received at a DFS may be accompanied by the following documents:

21. The documentation in support of the information indicated on Form B116 — such as the shipping papers, commercial invoices, cargo control documents, sales slip and B3-3 forms do not have to be submitted with the Form B116 but must be kept on the premises and made available to the CBSA upon request.

22. All documents must accompany transfers of goods between the DFS.

Inventory Coding

23. Goods being entered into inventory can be identified in one of two ways: by specific product lines or by pre-determined product or commodity groups composed of the same or similar goods. When a licensee chooses to use the latter method, all unsubstantiated discrepancies will be calculated on the basis of the highest value item within the product grouping, unless the licensee can provide proof that the goods were of a lower value.

24. The goods must also be identified in the unit size in which they will be sold.

Examples of the two reporting methods

Product line method:
– Rum – brand X (1 litre)
– Rum – brand Y (.75 litre)
– Cigarettes – brand Z (king size, 200); or

Product or commodity group method:
– Rum – all brands (1 litre)
– Rum – all brands (.75 litre)
– Fragrance – all brands (all sizes)

25. Unique reporting codes or stock-keeping units are to be assigned to each product line carried in the DFS to allow perpetual inventory records on each item to be maintained. The stock-keeping units must also indicate whether the goods are imported duties and taxes paid (I), imported duties and taxes not paid (IF) or domestic (D).

Goods Sold and Exported — Forms B116 and B117

26. Domestic and imported goods sold and exported from a DFS are to be reported out of inventory on a monthly basis on Form B116 (out). The local CBSA chief of operations and/or designated CBSA officer may request more frequent reporting. The reporting method used must also be in accordance with that which was used at the time of initial accounting (i.e., same inventory codes, values, etc.). Sales slips or a summary report are not to be included with the form but must be made available to the CBSA upon request.

27. The CBSA is to be informed if a change in the description of a department (product line) or product code is made.

28. Form B117, Duty Free Shop Summary of Monthly Sales, is to be completed by the licensee and submitted to the local CBSA office no later than 15 days after the last day of the month in which the sales described on the form were made (stamped or date retrieved by the system). Electronic submissions of the form can also be sent directly to the Assessment and Licensing generic mailbox with a copy to their local CBSA office. Failure of the DFS licensee to submit the form on time may result in the imposition of a monetary penalty under AMPS.

Alternative Disposal Methods — Form B116 (out)

29. With the approval of the program area, goods can be removed from inventory for reasons other than that they have been sold for export:

30. Documentation procedures will vary depending upon the circumstances but in all cases a Form B116 (out) together with the applicable supporting documentation must be presented to the CBSA before the goods are physically removed from the DFS.

Transferring Goods

31. Refer to the Duty Free Shop Regulations, sections 15 and 18.

Reporting Shortages or Overages in Shipments

32. The following procedures are to be followed when accounting for shortages or overages identified in a DFS inventory.

33. Shortages or overages may have come to light during an inventory verification undertaken by the CBSA or any other person authorized by the Minister of Public Safety, or may be the result of a voluntary disclosure made by the DFS licensee.

34. When a shortage or overage in a shipment is identified fter its arrival has been reported to the CBSA, the Form B116 (in) presented by the licensee to enter that shipment into inventory should reflect the original total invoiced quantity. A notation should be added on the form indicating the type and number of items found missing or in excess. All such shipments will be subject to verification by the CBSA. If the invoice is equivalent to the goods received, but different from the goods ordered from the supplier, no adjustment is required.

35. The licensee will have 60 days from the date of accounting to produce evidence that a short shipment actually occurred (e.g., a credit memo or equivalent document from the supplier) or that the missing goods arrived at a later date. If adequate proof is not provided, duties and taxes on the shortage will be assessed as applicable.

Part one: Imported Goods — Duty and tax not Paid

36. These procedures will be followed when accounting for shortages or overages in imported goods in a DFS inventory.

Part two: Domestic Goods and Imported Goods — Duties and Taxes Paid

37. These procedures will be followed by the local CBSA office when accounting for shortages or overages in domestic goods in a DFS inventory. The CBSA is authorized to collect the GST on shortages of domestic goods in a DFS inventory under section 28 of the Customs Actand under section 296 of the Excise Tax Act. The GST will be owed for domestic goods, except on shortages of domestic jewellery, wine, watches and cigars. For these products, applicable excise duties and taxes will be owed.

Reporting Damaged or Destroyed Goods

38. When goods are damaged, a Form B116 is to be prepared by the licensee and certified by the local CBSA office. If the damaged goods are detected at the time of arrival of a shipment, the information is to be entered on the B116 (in). If the goods are damaged after having been reported into inventory, Form B116 (out) is to be used to adjust the inventory records. These damaged goods can then be sent back to the supplier, as applicable.

39. When goods have been destroyed or are to be destroyed under CBSA supervision, Form B116 (out) is to be prepared by the licensee to adjust the inventory records. All such goods are to be made available for inspection by the CBSA at the time the form is submitted. A CBSA officer stating that the goods to be destroyed were verified must sign the form before the goods are destroyed. The form must not be signed without doing the actual verification.

Reporting Samples and Display Goods

40. Samples, perfume testers or other promotional items for use in the DFS must be duty and tax paid. These goods are to be reported to the CBSA when received. A Form B3-3 must be submitted to account for imported goods that have not been duty and tax paid. For more information on completing Form B3-3, refer to Memorandum D17-1-4, Release of Commercial Goods, and Memorandum D17-1-10, Coding of Customs Accounting Documents.

Calculating the Value for Duty of Samples

41. DFS operators must pay duty and tax on all samples, perfume testers and other promotional items used in their DFS.

Calculating the Value of Imported Display Goods

42. DFS operators must pay duties and taxes on all displays for use in the DFS.

43. Goods that have been reported and accounted for as DFS inventory on a Form B116 may not be used for display purposes except within the shop. When approved by the local CBSA chief of operations and/or a designated CBSA officer, land border stores that have exterior display showcases that cannot be accessed from the outside can display goods, and airport licensees can display goods in specified locations elsewhere in a terminal building.


44. Periodic verifications to compare goods on hand with inventory records and to ensure the licensee is meeting the requirements of the DFS program will be conducted by the CBSA officials. Regardless of the compliance history at a particular DFS location, verifications should be conducted at a minimum once every five years. The licensee is to make available all inventory records that may be requested for the purpose of verification. Access to these records is also to be accorded to any other person authorized by the Minister to conduct such verifications.

45. In accordance with section 28 of the Customs Act, unsubstantiated inventory shortages identified during a physical audit will be assessed all applicable duties and taxes. When a deficiency can be justified; however, as in the case of goods having been destroyed, previously duty paid, etc., an inventory adjustment may be authorized and duties and taxes would be calculated only on the resulting net shortage. The assessment of duties/taxes on shortages will be based on the value of the goods as reported on their respective B116 (in) forms.


46. It is recognized that, as a retail operation, a DFS can experience a rapid turnover in inventory resulting in a greater likelihood that clerical or recording errors will occur. A discrepancy detected during verification could, at times, be attributable to this type of error rather than being an actual shortage or overage in inventory. When reasonable evidence can be provided that such an error has occurred, a licensee may seek CBSA approval to offset (in whole or in part) a shortage with a concurrent overage in inventory. Such an inventory adjustment will not; however, be authorized between domestic and imported goods.

47. Factors considered in assessing a request for an offset include the documentary or other physical evidence produced in support of the claim, the nature and value of the goods and their respective tariff treatments, and the type of internal controls in use at the DFS. In general, the fewer the controls or the greater the discrepancy in the value, nature or tariff treatment of the goods, the more stringent the requirement to prove reasonableness.

Sale or Disposal of Inventory

48. All goods sold at a DFS are for immediate export only and must be declared to the CBSA if returned to Canada.

49. In accordance with the Duty Free Shop Regulations, personal exemption entitlements for persons departing Canada and/or returning to Canada must be applied.

50. Sales invoices or receipts used at a DFS are to be printed in a bilingual format and numbered sequentially. In addition to identifying the shop and including the statement that "Goods sold are for export only and must be declared to the CBSA if returned to Canada" on the invoice, the following information is to be recorded on the receipt at time of sale:

51. Sales invoices must be prepared in duplicate where no automated system exists. When an automated system is in use, electronic receipts will be accepted. The licensee must be capable of producing accurate sales reports that refer back to an actual receipt, of re-printing any past transactions and/or of providing a transaction history upon CBSA request. Standard operating practice is to back up all system media on a regular basis.

52. At an airport, a boarding pass or ticket showing a foreign destination must always be presented by the traveller at the time duty-free goods are sold. For flights departing from Canada on a progressive boarding basis, duty free goods may be sold to boarding passengers at each airport of embarkation, subject to the conditions outlined in Memorandum D2-5-5, Progressive Clearance at Airports.

53. Where a delivery system is in operation, the licensee is to ensure that goods are delivered to a point of no return for export (an area that ensures the immediate export of goods). At the point of delivery, the customer's copy of the sales invoice would be given to the customer, along with the goods, in exchange for the licensee's delivery copy. Where a DFS is located in an area not readily serviceable by the CBSA and it is necessary for the CBSA to verify the export of goods, the licensee may be required to pay special service charges. More information pertaining to special services can be found in Memorandum D1-2-1, Special Services.


54. Liquor and tobacco products are not to be sold to persons deemed to be minors under the laws of the province in which the DFS is located.

Record Keeping and Declaration

55. The licensee must maintain separate accounting systems and records if there are other commercial activities in operation in the DFS (e.g., snack bar, coffee shop).

Additional Information

56. Additional information may be obtained by contacting:

Commercial Registration Unit
Canada Border Services Agency
191 Laurier Avenue West, 12th Floor
Ottawa, ON K1A 0L8
CRU e-mail

57. For more information, within Canada call the Border Information Service at 1-800-461-9999. From outside Canada call 204-983-3500 or 506-636-5064. Long distance charges will apply. Agents are available Monday to Friday (08:00 – 16:00 local time/except holidays). TTY is also available within Canada: 1-866-335-3237.


Issuing office:
Trade and Anti-dumping Programs Directorate
Headquarters file:
Legislative references:
Customs Act
Excise Act
Excise Tax Act
Duty Free Shop Regulations
Imported Goods Records Regulations
Accounting for Imported Goods and Payment of Duties Regulations
Other references:
D1-2-1, D2-5-5, D17-1-4, D17-1-10, D19-7-1
Forms B116, B117, B3-3 and BSF241
Superseded memorandum D:
D4-3-5 dated
Date modified: