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CBSA opening remarks

Mr. John Ossowski President, Canada Border Services Agency, before the Standing Committee on Public Accounts for the spring 2019 OAG report on Taxation of E-commerce on Tuesday, November 17, 2020 (11:00 am to 1:00 pm).

Introduction

Good morning (afternoon) Madame Chair and members of the public accounts committee. With me today is the Vice President of the CBSA Commercial and Trade Branch, Peter Hill.

It is my pleasure to appear before this committee today as it is an opportunity to recognize the efforts that we have taken since the spring 2019 report of the Auditor General on the Taxation of E-commerce.

We appreciate the work that was done by the Auditor General.

In regards to our Agency, the audit examined whether CBSA validated and collected the sales taxes owed to the Government of Canada on goods imported through the Courier Low Value Shipment (CLVS) program.

The audit's overall findings showed some gaps in how CBSA managed the data for the Courier Low Value Shipment program.

The Agency accepted all recommendations made in the report, and quickly established an Action Plan to address the recommendations.

To date, the CBSA has made significant progress including:

the development of an E-Commerce Strategy focused on balancing compliance with trade facilitation, safety and security, as well as revenue collection
aligning current practices with international agreements and World Customs Organization (WCO) guidelines
putting in place effective mechanisms to monitor and assess Courier Low Value Shipment program compliance

For example, the Agency co chaired, with an industry representative, the World Customs Organization Working Group that has developed a global E-Commerce "Cross Border E-Commerce Framework of Standards" that will be presented for approval at the WCO Council in December.

The Agency has leveraged this work, as well as collaboration with our Border Five partners (Australia, New Zealand, the United Kingdom and the United States), to develop a business case to advance implementation of our Customs E-Commerce Strategy.

I am pleased to report that the CBSA is moving towards full implementation of this international approach and we are on track to review and enhance the means by which goods under the CLVS programs are accounted for in order to ensure that taxes, including provincial sales taxes, are fully reflected.

The Agency has also started to implement the multi-year CBSA Assessment and Revenue Management (CARM) system. This initiative that will transform the collection of duties and taxes for goods imported into Canada.

We also are on track for examining options to further automate the CLVS program, including the ability to receive, process and analyze customs data.

The Auditor General recommended that the CBSA develop a strategy on E-Commerce, focused on trade facilitation, revenue collection, and safety and security.

Our E-Commerce Customs Strategy will enable and transform operations to better respond to the growing volumes of cross-border e-commerce shipments. It will also strengthen the CBSA's risk assessment capabilities by leveraging advanced data analytics and technological enhancements, while addressing gaps in the legal and regulatory frameworks to enhance safety and security.

Conclusion

The CBSA is one of the major stakeholders in E-Commerce in Canada. We are levelling the playing field for Canadian businesses in relation to those overseas. For example, along with our counterparts (the Canada Revenue Agency and the Department of Finance), we are working to ensure that the sales tax system for e-commerce remains neutral and protects the GST/HST tax base.

I look forward to responding to the questions the committee may have today.

Media lines: questions and answers

Topic: CBSA appearance before Standing Committee on the topic of the 2019 Auditor General's Report on Taxation of E-Commerce.
Last updated: November 12, 2020

Overview

The Canada Border Services Agency (CBSA) will be appearing (timing TBD) before the Standing Committee on Public Accounts (PACP) to discuss the report from the Office of the Auditor General regarding the Taxation of E-Commerce (2019). The 2019 Spring Reports of the Auditor General of Canada were tabled in the House of Commons on May 7, 2019. The Reports included an audit of taxation of e-commerce.

A media lines and questions and answers package was originally produced to respond to media queries following the 2019 tabling of the Reports. Of note, the CBSA received one (1) inquiry from a legal news service following the tabling of the Reports.

Background

The focus of the 2019 audit was whether, according to their respective roles and responsibilities, the Canada Revenue Agency, the Canada Border Services Agency (CBSA), and the Department of Finance Canada ensured that the sales tax system for e-commerce was neutral (that is, treated all vendors equally with regard to GST/HST) and that the GST/HST tax base (that is, everything that is taxable) was protected. Specifically for the Agency, the audit examined whether the CBSA validated and collected the sales taxes owed to the Government of Canada on goods imported through the Courier Low Value Shipment program.

The audit's overall findings claim that the CBSA poorly managed the data for the Courier Low Value Shipment program. The Agency relied on the good faith of courier companies to declare and remit the sales taxes they collected from consumers. The Agency only required consolidated summary information on sales taxes paid, however, participating courier companies had detailed information that could have been provided to the CBSA. In addition, the audit suggests that the Agency did not validate the amount of provincial sales taxes and the provincial portion of HST collected.

Approach

The present media lines are anticipatory only. Should the CBSA receive a media query on this topic, a tailored response will be prepared using these lines as a basis, and a separate formal approval will be sought as required.

The Auditor General recommended that the Canada Border Services Agency (CBSA) review its Courier Low Value Shipment program to improve the validation of the assessment and collection of GST, HST, and PST. As part of the review, the Agency was requested to:

identify the program variables that should be fully reflected in their systems and forms, such as provincial sales taxes
ensure it receives shipment data electronically in advance of the goods arriving at the border to facilitate compliance activities
implement a comprehensive E-Commerce Strategy to make informed risk assessment and improved revenue collection

The CBSA agreed with the audit's recommendations, recognizing that these enhancements will help the Agency to take appropriate steps and measures to monitor and validate the assessment and collection of sales taxes on imported low-value shipments sent by courier.

The retail landscape in Canada is changing as more people make purchases online. In addition to dramatically growing volumes, these transactions have increased in complexity, involve more trade-chain intermediaries, and the right advanced data is needed to perform risk and revenue assessment. As such, the CBSA is continuously making efforts to modernize the customs processes to meet the increasing volume of e-commerce.

The CBSA's Courier Low Value Shipment program is intended to help simplify the process to import low value goods. The program streamlines the customs processing of eligible shipments valued at CAD $3,300 or less and provides the courier industry with expedited release at the border.

Qualified Courier Low Value Shipments (CLVS) with a value for duty not exceeding CAD $3,300, may be accounted for according to Section 32 of the Customs Act and subsection 7.1 and 7.3 of the Accounting for Imported Goods and Payment of Duties Regulations. For details regarding the accounting requirements and procedures, refer to these Regulations and Memorandum D17-1-10, Appendix J Coding of Customs Accounting Documents.

On the specifics of the Management Response and Action Plan

In response to the audit, the CBSA committed to:

developing an E-Commerce Customs Strategy to explore process and technology improvements
aligning practices, where possible, with international agreements for express operators and WCO guidelines
having effective mechanisms in place to monitor and assess Courier Low Value Shipment (CLVS) program compliance

The CBSA accepted the findings of the Audit and put in place a comprehensive and measureable Management Response Action Plan, in collaboration with internal and external stakeholders, to be completed by 2022 to 2023.

The Agency is on track to meet its 2022 to 2023 objectives and has already reviewed and enhanced the means by which goods under the CLVS program are accounted to ensure that taxes (including provincial sales taxes) are fully reflected.

To date, the CBSA has made significant progress on the 2019 Action Plan commitments, including:

the development of an E-Commerce Strategy focused on balancing compliance with trade facilitation, safety and security, as well as revenue collection (plan completed March 31, 2020)
aligning current practices with international agreements and World Customs Organization (WCO) guidelines
putting in place effective mechanisms to monitor and assess CLVS program compliance (for example, enhanced case management data base system to monitor and assess clients with the desired outcome of improving compliance through outreach, AMPS or action plans; development and implementation of a Compliance Management Framework)

Questions and answers

1. What enhanced border measures is the CBSA implementing?

The CBSA's Courier Low Value Shipment (CLVS) program is intended to help simplify the process to import low value goods. The program streamlines the customs processing of eligible shipments valued at CAD $3,300 or less and provides the courier industry with expedited release.

A shipment may be part of the CLVS Program if:

The Agency has authorized the courier to participate in the program
The goods are worth CAD $3,300 or less
The goods are not controlled, prohibited or regulated

Any goods subject to Other Government Department (OGD) regulations, such as goods that require import permits, are not eligible for importation under this program. Instead, they are subject to normal documentation and release procedures.

Once the CBSA releases the casual goods, the CLVS Program participant is authorized to deliver the shipment to the importer. Should the importer accept delivery of the goods, the duties and taxes owing will be paid by the importer to the CLVS participant. In such cases, the CLVS Program participant or their licensed broker are then required to account for the goods on an accounting document, which is presented to the CBSA before the 24th day of the next month, with the duties and taxes payable by the end of that month.

2. How many authorized courier companies participate in the program?

Currently, the CLVS program has a total of 12 participants. Nine participants are approved for international importations of commercial and non-commercial (casual) goods, and five participants are authorized by the CBSA to import under specific conditions related to non-commercial (casual) goods from U.S. online retailers.

3. What are the requirements for payment of taxes on casual goods imported by approved courier companies in the Courier Low Value Shipment program?

Courier companies that participate in the Courier Low Value Shipment (CLVS) program may act in lieu of the importer for casual importations, therefore facilitating the collection and remittance of applicable provincial sales tax (PST) and harmonized sales tax (HST) when importing casual goods.

"Casual goods" refers to goods that are not intended to be sold commercially. Specifically, these goods will attract PST or HST, where applicable, as well as customs duties and the goods and services tax (GST) upon importation into Canada.

The Government of Canada has signed agreements with provincial governments to have the Canada Border Services Agency (CBSA) collect and remit the PST/HST on behalf of these provinces. The applicable rates for the PST, HST and provincial tobacco tax on casual goods and rates can be found in Memorandum D2-3-6, Non-commercial Provincial Tax Collection Programs.

The application of PST is based on the province of release. If the goods are released within the province in which the importer resides, the relevant PST rate for that province will be applied and collected. If the goods are released outside of the province of residency, the importer is responsible for the payment of the PST through the self-assessment process. The CBSA collects PST based on provincial authorization and agreements.

The GST (or GST portion of the HST) will be applied on all taxable casual importations regardless of the point of entry or release in Canada.

In order to account for casual goods processed through the CLVS program, importers/brokers must complete Form B3, Canada Customs Coding Form.

4. The audit findings suggest that the Agency did not validate the amount of provincial sales taxes because there is no field for it on the form. In that case, how did the Agency expect to effectively manage the accounting for provincial sales taxes?

The provincial sales tax information is entered under field 27 of Form B3, Canada Customs Coding Form. Taxes are accounted for using classification codes designated for each province and for each type of tax (for example, PST, tobacco). Further details on tax procedures are outlined in Departmental Memorandum D17-1-22.

To produce the remittances of taxes collected on behalf of the provinces, a monthly report is generated by the CBSA of all entries where provincial tax was remitted to the CBSA. Monthly letters are provided to the provinces indicating provincial taxes collected. It includes what was collected in the courier LVS stream. Once reconciled, the funds are directly deposited in the Province's bank account and the letter is sent advising them of the amount deposited.

5. The audit determined that even though the CBSA had indications that courier companies did not declare the full taxes owing to the government, officials did nothing to resolve the issue. Why?

The CBSA has collected and managed the CLVS Program in accordance with its associated regulations and policies. Through mitigation strategies, such as operational verification blitzes and targeting, the CBSA has and will continue to play a role in identifying and acting on thousands of undervalued importations annually, ensuring correct revenue is collected.

Border Services Officers (BSOs) may request physical evidence, such as invoices or a bill of sale to determine the true value of a shipment when it is suspected that a shipment is undervalued. Additionally, in accordance with the CLVS Program legislation (Customs Act, section 22(1)), and policies, the CBSA has the authority to request and obtain all records pertaining to a shipment from CLVS participants, including detailed accounting information. Past compliance verifications have also demonstrated a high-level of compliance.

Goods valued under Courier Imports Remission Order value threshold (that is, duties and taxes exempt) are growing at an exponential rate in the e-commerce context, thereby challenging the current capacity of CBSA systems and operational capacities and limitations. Additionally, limitations within the Administrative Monetary Penalty System did not allow for penalties in some instances to be administered. As the retail landscape continues to evolve, the CBSA is also progressing by re-examining its role vis-à-vis compliance activities in the CLVS Program.

6. Based on the audit's findings, how will the Agency account for this discrepancy?

The Agency, in response to the audit and the changing retail landscape, has renewed its focus on compliance activities in the CLVS Program by conducting courier compliance activities based on courier data. Specifically ,an evergreen CLVS compliance framework will continue to evolve, balancing the current program requirements with the end-state compliance vision. A series of compliance exercises were conducted fiscal year 2019 to 2020, for the purpose of reviewing and assessing compliance within the courier stream, ensuring that the CLVS program participants and e-Commerce companies are compliant with CBSA legislation and regulations. The findings and recommendations will help inform a baseline for existing compliance levels within the CLVS program and inform what policy and program recommendations may be required to address any areas of concern discovered.

7. Does the CBSA have the necessary systems in place to address the audit's recommendations?

The CBSA does capture and remit revenue through its Customs Commercial System (CCS) and has the ability to request detailed accounting information from the couriers or their licensed brokers.

Going forward, the CBSA will explore additional options to regulate and receive advance data electronically in the CLVS Program, enhancing compliance activities.

8. Why did the CBSA not modernize the Courier Low Value Shipment (CLVS) Program sooner?

The CBSA's mandate is an important and complex one. Over the years, the Agency has made efforts to modernize its programs, however, due to complexity, modernization must be done in a phased approach. In addition to ensuring proper revenue collection, the Agency must simultaneously protect the health, safety and security of Canadians, while also facilitating trade.

The Agency's first priority was to modernize risk assessment, targeting and revenue management for the regular commercial stream, which primarily impacts high-value commercial importations.

These innovations will provide the foundation for modernizing the CLVS program to improve revenue collection. In the interim, the CLVS program continues to mitigate risk, through program security and trusted requirements for CLVS members as well as security bonds and advance information.

In an always changing environment, which poses new threats and challenges to the way we work at the border, the Agency will continue to work with international, government and industry partners to improve the CLVS program, and validate and collect sales taxes owed to the Government of Canada. The CBSA has developed an action plan based on the audit recommendations, expected to be completed by fiscal year 2022 to 2023.

Anticipated questions and answers

1. How does the E-Commerce Strategy help with the collection of sales and provincial taxes?

The E-Commerce Strategy lays down the building blocks of what the CBSA needs to carry out its mandate more efficiently in response to the growth of cross-border.

E-Commerce:

It seeks new authorities to mandate the transmission of advance electronic data on E-Commerce shipments to get the right data at the right time from the right party
It gives officers increased access to data that will allow for enhanced capabilities to review transactions and identify instances of non-compliance
It seeks a collaborative approach to international standards, as well as partnerships with an industry stakeholders who are often eager to do more to make sure that shipments travel smoothly
It brings in new technologies and methods, this will allow the CBSA to have a better understanding of the E-Commerce landscape, and address specific challenges linked to compliance and revenue collection

In sum, the strategy will allow the CBSA to ensure all appropriate taxes are collected.

2. How does the E-Commerce Strategy position Canada compared to other countries?

The implementation of this strategy will further enable the CBSA to work closely with international partners in gathering lessons learned and best practices. The CBSA will seek to work with our partners to develop benchmarking exercises related to risk assessment and revenue collected in E-Commerce streams.

The implementation of the E-Commerce Customs Strategy will also align Canada's requirements for courier shipments and capacity concerning in the realm of revenue collection with its B5 partners (Australia, New Zealand, the United Kingdom and the United States).

The Agency is also implementing new technologies that will augment the Agency's capacity to leverage artificial intelligence. This would position Canada to become a world leader and would provide us with the opportunity to assist other countries in their efforts in the field.

3. How does the E-Commerce Strategy support an enhanced compliance regime?

The strategy will allow the CBSA to receive advance data electronically on low value shipments. It will help the Agency to acquire the technological means to process this information. This would provide officers with a better analysis of trends and patterns within the low value shipment streams and improve compliance.

4. What are the next steps in establishing the strategy?

The CBSA is currently working on developing an implementation roadmap to support the delivery of the E-Commerce Customs Strategy. A specific example is the work underway to deploy and develop systems aiming to gather, centralize and process data. Once systems have been tested and piloted, our industry partners will be further consulted on modernizing the regulations related to low value shipments.

5. How do you anticipate industry will respond to this new regime? Have consultations on this strategy happened?

The Agency has begun consultations with the industry and there is a consensus that the CBSA's Courier and Low Value Shipments program needs modernization and digitization.

So far, the feedback we have received is positive and enthusiastic toward the modernization of the CBSA's courier program, as it will help clarify liabilities, and will make officers' decisions more focused on higher risk shipments.

The CBSA will continue to engage with our industry partners we continue to deliver on the E-Commerce Customs Strategy.

6. How will the CBSA improve the validation and collection of taxes (including provincial sales taxes) within the CLVS program to ensure they are fully reflected?

The CBSA will be implementing CARM in fall 2022, which will introduce the Commercial Accounting Document (CAD), replacing the Form B3. This document will not only have designated fields that will separate GST, HST, and PST, but the system will also allow for importations to be designated as non-commercial, thereby calculating and collecting provincial sales taxes when required, to ensure all taxes are fully reflected by the agency.

7. Now that the World Customs Organization (WCO) Working Group on E-Commerce has been concluded, how will the WCO Cross-Border E-Commerce Framework of Standards and its associated annexes be maintained?

In June 2020, the WCO's Permanent Technical Committee (PTC) agreed to maintain the Cross-Border E-Commerce Framework of Standards through ongoing maintenance starting with E-Commerce Data Elements and Revenue Collection Approaches annexes. Ongoing reviews by the WCO PTC will ensure that the information remains relevant as E-Commerce evolves with the view of the documents as being evergreen.

8. Will the Canada Border Services Agency (CBSA) implement a comprehensive E-Commerce strategy that is aligned with the WCO's Cross-Border E-Commerce Framework of Standards?

Yes, the CBSA will implement the E-Commerce Customs Strategy that is aligned (for example, automation of advance data, strengthening legislative frameworks, revenue models), to the greatest extent possible, with the WCO's global standards and those of our international partners, such as the Border Five (B5) members, including the United States Customs and Border Protection.

The CBSA's E-Commerce Strategy will focus on:

Trade facilitation
Revenue collection
Safety and security

9. As part of the CBSA's E-Commerce Customs Strategy, what changes will be implemented?

The CBSA will:

leverage new innovative technology to utilize advance electronic data for better risk assessment, including the use of predictive analytics. It will eliminate manual processes
review and align its legislative and regulatory frameworks to ensure that appropriate:
- data is collected and improve its quality to allow for informed risk assessment decision
- responsibilities are in place for the collection of revenues
continue to collaborate closely with international partners to share best practices and monitor emerging threats
continue to work in collaboration with industry partners, such as express carriers to ensure that these companies are pre-approved and trusted as well as have undergone a rigorous risk assessment in order to allow for the facilitation of goods within expedited timeframes by benefitting from streamlined customs requirements upon arrival

10. When will the CBSA's E-Commerce Customs Strategy be fully implemented?

As the E-Commerce landscape is rapidly changing, the CBSA's E-Commerce Customs Strategy needs to be nimble, adaptable, collaborative and evergreen.

The Strategy presents a phased approach, which will enable the CBSA and industry to develop IT solutions, align legislative and regulatory frameworks to current and emerging customs requirements.

The Strategy addresses a need to build critical partnerships with internal and external stakeholders to better address challenges presented by growing cross-border E-Commerce trade, in addition to exploring the use of data and image analytics (for example, artificial intelligence and non-intrusive inspection technology.

The implementation also requires significant infrastructure investment and IT developments. The CBSA is currently working on developing a business case and the implementation roadmap to support the delivery of the E-Commerce Strategy, with plans to lay foundational work by 2022 to 2023. We will communicate specific implementation milestones at a later date, once the roadmap is finalized.

11. What is the interim solution?

The Courier Analytics Portal (CAP) was developed as an interim solution to evaluate feasibility, study design and provide functional guidance in support of the CBSA's E-Commerce Strategy. It enables Low Value Shipment (LVS) data to be imported, risk assessed and displayed to border services officers (BSO) in a handheld simple device in a onscreen format that is consistent regardless of the courier.

12. Who is using the interim solution?

Three regional ports of entry and two industry courier participants are currently using the interim solution. Expansion will continue to additional regions, and will continue to add courier participants.

13. What work has been done on the upcoming LVS platform?

The CBSA has made a moderate investment of $7.4 million within the current Courier Low Value stream to move away from use of couriers' proprietary systems. The upcoming LVS platform will be scalable, iterative and support use on mobile devices. The system will interface directly with the couriers systems' for the purposes of selecting items for referral and/or seeking more information. This project is currently in the planning phase. The Agency is seeking funding for a full solution. Subject to this funding, the project is expected to be completed by Projection completion is currently estimated in (fiscal year 2023 to 2024).

14. Does the interim system or the upcoming LVS platform better position the CBSA to collect trade revenues owed?

Yes, it is developing the framework and increasing the Agency's ability to link compliance activities to any single transaction to ensure accurate reporting and revenue collection.

15. What is the industry's response to these platforms?

Industry reaction has thus far been positive and enthusiastic toward the modernization of the CBSA's courier program. Consultations are underway and there is a consensus that the CBSA's Courier and Low Value Shipments program is in need of modernization and digitalization. Benefits include clarifications around liability and focusing CBSA efforts on higher risk shipments. Industry participants will continue to be engaged as the Agency evolves the platforms.

16. What are the next steps in automation for the (Courier Low Value Shipment) CLVS program?

The CBSA is currently working on deploying and developing systems to gather, centralize and process data. Review of the data will be ongoing and will inform further iterations of the system design and the general approach to the automation of the CLVS program.

17. What actions can be taken for non-compliance?

There are currently only a few Administrative Penalties applicable in the CLVS Program, primarily for late accounting (C292). The final courier compliance report for 2019 to 2020 fiscal year addressed findings and generic recommendations from a national perspective, including the need for AMPS for non-compliance issues within the CLVS program (for example, Non-eligible goods being reported on the Cargo Release List (CRL) and late presentation of CRL to CBSA for review). A more thorough and robust AMP regime will contribute to an enhanced CLVS Compliance Management Framework/Strategy. The CBSA is also developing enhanced program compliance options in CLVS other than penalties. These include outreach activity and the development of action plans.

18. Were the results of the exercises shared with the participants?

The results of the non-compliance were shared with each courier participant, along with specific examples, recommendations for improving compliance and links to CBSA Legislation and Regulations.

19. Will there be enhanced compliance activities as e-commerce continues to grow?

CBSA will advance new and improved compliance management activities to enable the postal and courier programs to improve revenue collection and compliance rates for E-Commerce. Compliance exercises are planned with a focus on the remaining CLVS program participants in other locations. Enhanced case management data base will be developed to monitor and assess clients with a desired outcome of improving compliance through outreach, AMPS or action plan. CBSA is also developing a system for assessing and risking CLVS shipments prior to importation. This approach aims to increase enforcement at time of entry and the collection of required data for national compliance verifications.

20. What has the Agency been doing to ensure compliance with respect to undervaluation since the audit's Report?

The Agency has renewed its focus on compliance activities in the Courier Low Value Shipment (CLVS) Program by conducting compliance verifications based on courier data. A series of compliance exercises in the regions were conducted. The findings will help to inform and set the baseline for the development of a Commercial Compliance Culpability Framework, including its associated compliance levels.

A three-phase national courier compliance exercise was initiated during the 4th quarter of 2018 to 2019. The purpose was to conduct a review and assess compliance within the courier program, ensuring that the CLVS program participants and E-Commerce companies are compliant with CBSA legislation and regulations. Findings and recommendations were compiled in three reports in order to establish baselines and further develop strategies for national compliance management in this program moving forward.

Some of the recommendations for moving forward are:

Continue to develop the Courier Compliance Management Framework (Evergreen) based on the results of all three exercises
Put in place effective mechanisms to monitor and assess CLVS program compliance. For example, enhanced case management data base system to monitor and assess clients with the desired outcome of improving compliance through outreach, AMPS or action plans
Pursue the need for additional AMPS for non-compliance issues within the CLVS program. For example, non-eligible goods being reported on the Cargo Release List (CRL) and late presentation of CRL for review by CBSA

21. The audit determined that even though the Canada Border Services Agency had indications that courier companies did not declare the full taxes owing to the government, officials did nothing to resolve the issue. Why?

Although the audit had indications of non-compliance, the Agency respectfully submits that, in fact, it took actions to resolve issues, as appropriate. The Agency takes a risk-based approach to the full breadth of its compliance activities in revenue management, Health Safety and Security, as well as in the area of trade facilitation. Enforcement resources are focused on areas that present the greatest risk to Canadians.

In the area of revenue integrity, the CBSA has collected and managed the Courier Low Value Shipment (CLVS) Program in accordance with its associated regulations and policies. Through mitigation strategies, such as operational verification and targeting, the CBSA identifies and acts on thousands of undervalued importations annually, ensuring correct revenue is collected.

Border Services Officers may request physical evidence, such as invoices or a bill of sale to determine the true value of a shipment when it is suspected that a shipment is undervalued. Additionally, in accordance with the CLVS Program legislation (Customs Act, section 22(1)), and policies, the CBSA has the authority to request and obtain all records pertaining to a shipment from CLVS participants, including detailed accounting information. Past compliance verifications have also demonstrated a high-level of compliance.

Goods valued under Courier Imports Remission Order value threshold are growing at an exponential rate in the E-Commerce context, thereby challenging the current capacity of CBSA systems and operational capacities and limitations. Additionally, due to the nature of the program and its requirement to be a trusted partner, the Administrative Monetary Penalty System limitations were put in place as a counter balance measure to this requirement.

22. What has the Agency been doing to ensure compliance with respect to undervaluation since the audit's Report?

The Agency has renewed its focus on compliance activities in the CLVS Program by conducting compliance verifications based on courier data. A series of compliance exercises in the regions were conducted to review and assess compliance within the courier program, ensuring that the CLVS program participants and e-commerce companies are compliant with CBSA legislation and regulations. The findings will help to inform and set the baseline for the development of a Commercial Compliance Culpability Framework, and further develop strategies for national compliance management in this stream moving forward including its associated compliance levels.

The CBSA is designing and implementing the CARM system which integrates the requirements of the E-Commerce Customs Strategy. CARM and the Commercial and Trade Branch will continue to work collaboratively in system design and implementation that will facilitate future integration and further customization as the E-Commerce Customs Strategy is further defined. The implementation of CARM will strengthen the Agency's revenue management and accounting of e-commerce goods.

23. The audit determined that even though the Canada Border Services Agency had indications that courier companies did not declare the full taxes owing to the government, officials did nothing to resolve the issue. Why?

Although the audit had indications of non-compliance and omitted contrary information, the Agency respectfully submits that, in fact, it took actions to resolve issues whenever possible. The CBSA has collected and managed the CLVS Program in accordance with its associated regulations and policies. Through mitigation strategies, such as operational verification and targeting, the CBSA identifies and acts on thousands of undervalued importations annually, ensuring correct revenue is collected.

Contrary to the Audit's findings the Agency did conduct compliance exercises which have indicated a high-level of compliance. For example, in 2017, the Agency conducted a CLVS Provincial Sales Tax (PST)/HST Compliance Exercise whereby results indicated 100% compliance for description and value of goods.

24. The Canada Border Services Agency has been developing its E-Commerce Customs Strategy since 2016, when will it be completed, what progress has been made since the Audit's Report?

Since the Office of the Auditor General's Report, the CBSA has made positive progress towards the implementation of its E-Commerce Customs Strategy and in turn the CLVS Program's redesign.

In July 2020, the CBSA internally approved the framework of an end-to-end integrated E-Commerce Customs Strategy.

The Strategy will improve the CBSA's management of E-Commerce by strengthening the regulatory framework around low value shipments, enable our operations to better deal with the increasing volumes, improve our partnerships, and enable us to leverage technology to increase our capacity.

25. How does the CBSA process goods that exceed the low value threshold?

Shipments that do not qualify for the CLVS Program, including those exceeding the low value threshold of $2,500 (now $3,300 as a result of the Canada – Unites States – Mexico Agreement implemented on July , 2020) will be processed through the Agency's regular commercial program.

26. What is the Agency's role with respect to the collection of provincial taxes?

The Canada Border Services Agency has entered into written collaborative agreements with certain provinces to collect provincial taxes on non-commercial goods entering Canada. Provincial taxes that may be collected include provincial sales tax, tobacco tax and alcohol markup fees. All taxes are collected in accordance with the existing written collaborative agreements, legislative authorities and policies.

27. What are the requirements for payment of taxes on casual goods imported by approved courier companies in the Courier Low Value Shipment program?

The GST (or GST portion of the HST) will be applied on all taxable casual importations regardless of the point of entry or release in Canada.

In order to account for casual goods processed through the CLVS program, importers/brokers must complete Form B3, Canada Customs Coding Form.

28. The audit findings suggest that the Agency did not validate the amount of provincial sales taxes because there is no field for it on the form. In that case, how did the Agency expect to effectively manage the accounting for provincial sales taxes?

29. The audit findings claim that the Form B3, Canada Customs Coding Form, had no specific field to declare the rate and amount of the Harmonized Sales Tax or the Provincial Sales Tax to remit to the Canada Border Services Agency and therefore have recommended that the Form B3 be amended. Will the CBSA amend the Form?

The CBSA Assessment and Revenue Management (CARM) project is a multi-year initiative that will transform the collection of duties and taxes for goods imported into Canada. Through CARM, the CBSA will modernize and streamline the process for accounting of importing commercial goods. CARM will introduce the Commercial Accounting Document (CAD) that will replace the previous Form B3, Canada Customs Coding Form, and will not include fields to separate the Goods and Services Tax (GST), Harmonized Sale Tax (HST) and Provincial Sale Tax (PST). In addition, it will allow the Agency to identify non-commercial goods, and calculate these taxes within the system.

30. Quebec has raised concerns regarding the CBSA practices for collecting the QST, in particular, on goods released into other provinces, and commercial goods.

The CBSA collects taxes on non-commercial goods entering Canada in accordance with existing written collaborative agreements and legislative authorities.

Refer to Appendix A for a complete list of agreements in place.

The application of the Provincial Sales Tax (PST) is based on the province in which the goods are released into Canada. If the goods are released within the province in which the importer resides, the relevant PST rate for that province will be applied and collected. The CBSA collects taxes in accordance with the respective written collaborative agreements with each province and the Excise Tax Act. The Agency does not have a mechanism in place to remit PST or HST on casual importations in instances where the CBSA has not entered into reciprocal taxation agreement with a provincial or territorial government.

To illustrate, casual importations destined to a consumer in Quebec, but released in Alberta, are not subject to provincial taxes, because Alberta does not have a provincial or harmonized sales tax. Moreover, there is no reciprocal taxation agreement between the CBSA and Alberta to collect taxes on behalf of the province (Refer to Appendix A). Therefore, in this instance, only GST and duties would apply. It is the casual importer's responsibility to self-assess and remit the QST due to the province of Quebec.

The CBSA is not responsible for collecting PST on commercial importations. Commercial importers are required to remit provincial taxes directly to the responsible province.

Commercial goods are defined as goods imported into Canada for sale or for any commercial, industrial, occupational, institutional or other like use, as defined in the Accounting for Imported Goods and Payment of Duties Regulations.

Note: This definition may not align with Quebec's position of what constitutes commercial goods.

Document navigation for PACP: OAG Audit on Taxation of E-Commerce"

Date modified:: 2021-03-17