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Standing Committee on Public Accounts: Office of the Auditor General Audit on Taxation of E-Commerce ()
Background on Courier Low Value Shipment Program

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Courier imports remission

Speaking points

The Canada Border Services Agency (CBSA) is responsible for administrating the Courier Imports Remission Order, on behalf of Finance Canada. The Courier Imports Remission Order provides for an exemption of duties and taxes for imported goods not exceeding a certain value threshold - CDN $20 at the time of the audit.

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

The Agency carries out an upfront analysis to ensure that all approved CLVS participants adhere to specific program qualification criteria, such as having a mandatory valid certification in the Partners in Protection program. Those in this program enhance the security of the supply chain.

The CBSA has demonstrated a high-level of compliance among program participants.

The exponential growth in e-commerce shipments imported through the CLVS Program is linked to the large increase in non-taxable shipments. In 2017 to 2018, an additional 4 million shipments were claimed as non-taxable shipments compared to 2016 to 2017. Canadians are increasingly ordering more day-to-day low-value products via on-line shopping.

We can attribute this growth to the increasing proportion of Courier Imports Remission Order (CIRO) shipments, which rose from 38% to 65% between fiscal year 2016 to 2017 and 2017 to 2018.

A CIRO shipment is a shipment with a value for duty below an applicable threshold and hence the benefit of non-taxable status can be claimed.

The implementation of the Canada-United States-Mexico Agreement (CUSMA) De Minimis Thresholds with Respect to Customs Duties and Taxes for Courier Imports in , has expanded the range of eligible CIRO shipments, which further contributed to the shipment growth.

The CBSA has renewed its focus on compliance activities in the CLVS Program by updating its compliance framework and the work continues to evolve. This is in result to the commitment made by the Agency in the Action Plan to this Audit.

The CBSA recognizes that enhancements are needed to allow the Agency to improve revenue collection, including the collection of taxes. Which is why we will continue developing our solutions to ensure we remain committed to establishing effective Canadian solutions for cross-border e-commerce.

Anticipated questions and answers

1. 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

2. 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.

Key statistics

Courier CLVS Fiscal year 2016 to 2017 Fiscal year 2017 to 2018
Category 1: 0 to 20$ 11,868,773 16,074,454
Category 2: 20 to 2500$ 28,217,116 29,988,936
Total 40,085,889 46,063,390

Background information

The Office of the Auditor General's (OAG) Report on the Taxation of E-Commerce focused on whether, according to their respective roles and responsibilities, the Canada Revenue Agency, the Canada Border Services Agency, and the Department of Finance Canada ensured that the sales tax system for e-commerce was neutral and that the Goods and Services Tax (GST)/Harmonized Sales (HST) base 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 (CLVS) Program.

The audit's overall findings claim that among the 46 million shipments that entered Canada under the CLVS Program in the 2017 to 2018 fiscal year, 16 million had declared values of $20 or less, which meant there were no taxes to remit. The OAG found that the number of shipments valued at $20 or less under this program increased by 4 million compared with the 2016 to 2017 fiscal year and that the Agency did not conduct any analysis to determine why there was such a large increase in non-taxable shipments.

While the Agency had conducted compliance exercises, they did not pertain specifically to matters of adherence to the Courier Import Remission Order (CIRO). CIRO shipments only represented 35% of the total Courier Low Value Shipment volumes. Furthermore, CLVS program participants must also have a valid Partners in Protection program certification. The participants are well-known to the Canada Border Services Agency and are considered to be trusted partners, a fact that has been demonstrated during past compliance exercises which have indicated a high-level of compliance.

Since the OAG Report's publication, the Agency has already taken steps to improve its capability to ensure that all taxes and duties are properly assessed, collected and accounted for. The CBSA conducted a series of compliance exercises. These exercises have further helped form the basis for the development of the CBSA Commercial Compliance Culpability Framework.

The Agency continues to:

Moving forward, the Canada Border Services Agency will continue to work collaboratively with its partners to support common interests in border security, economic prosperity, and trade facilitation. The Agency will continue to work on improving compliance.

Reporting and accounting for low value commercial goods (Not exceeding CAD $2,500)

Speaking points

The Canada Border Services Agency (CBSA) remains committed to establishing an effective Canadian solutions for cross-border e-commerce and recognizes that enhancements are needed to allow the Agency to improve compliance and associated revenue collection, including the collection of taxes.

The Courier Low Value Shipment (CLVS) Program, provides streamlined customs requirements and beneficial accounting procedures to facilitate the importation of shipments. Pursuant to the Canada-United States-Mexico Agreement (CUSMA) the low value threshold was set at or below CAD $3,300 (up from $2,500).

The CBSA has managed the Courier Low Value Shipment (CLVS) Program in accordance with its associated regulations and policies. Through mitigation strategies, such as operational compliance verifications and targeting, the Agency identifies and acts on thousands of undervalued importations annually to ensure that correct revenue is collected.

As stated in the Management Response Action Plan (MRAP), the CBSA has since renewed its focus on compliance activities in the CLVS Program and is further strengthening its compliance frameworks.

To further safeguard the collection of revenue and as part of its overarching strategy, the CBSA is currently developing and implementing an E-Commerce Customs Strategy.

Part of this overarching strategy is the development of anautomated system that allows for the collection of advance electronic data. As part of the CLVS Program's redesign, we are assessing a review of the Program's legislative and regulatory frameworks to ensure that stakeholders responsibilities' are clearly defined for the collection of revenues.

The Agency has also begun implementing the multi-year CBSA Assessment and Revenue Management (CARM) initiative, which will transform and improve the collection of duties and taxes for goods imported into Canada by Spring 2022.

Anticipated questions and answers

1. 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.

2. 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.

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.

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.

3. 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 , 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.

4. 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.

Key statistics

N/A

Background information

The OAG Report on the Taxation of E-Commerce focused on whether, according to their respective roles and responsibilities, the Canada Revenue Agency, the CBSA, and the Department of Finance Canada ensured that the sales tax system for e-commerce was neutral and that the Goods and Services Tax (GST)/Harmonized Sales (HST) base 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 (CLVS) Program.

The audit's overall findings claim that:

In the fall of 2016, the Agency conducted a review of the CLVS, program post release. This was completed through analyzing a sampling of the courier(s) data submitted from various locations across Canada. The focus of this exercise was to examine compliance with the CLVS Program, specifically with proof of report (including value and description), transfer to the broker and the accounting portion to ensure accordance with the Customs Act and related regulations. It found that the value was inaccurate in 22% of sampled shipments declared as being valued between $20 and $2,500.

The above noted findings, according to the OAG, should have triggered a broad review of the CLVS Program through its E-Commerce Customs Strategy.

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.

Since the OAG Report's publication, the Agency has already taken steps to improve its capability to ensure that all taxes and duties are properly assessed, collected and accounted for. The CBSA conducted a series of compliance exercises. These exercises have further helped form the basis for the development of the CBSA Commercial Compliance Culpability Framework. Recommendations include:

  1. continue to develop the Courier Compliance Management Framework (Evergreen) based on the results of the exercises and program priorities, changes to program requirements and/or business processes
  2. continue to monitor compliance based on risk and address non-compliance through outreach and/or AMPS, where applicable
  3. pursue the need for AMPS for non-compliance issues within the CLVS program that currently do not exist

The CBSA has also made progress with respect to its E-Commerce Customs Strategy. Development of new innovative technology to collect advance data electronically is underway, including the use of predictive analysis. The review of legislative and regulatory frameworks are also underway, ensuring that appropriate data is collected and that responsibilities are clearly defined for the collection of revenue.

The CBSA is designing and implementing the CBSA Assessment and Revenue Management (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.

Moving forward, the Canada Border Services Agency will continue to work collaboratively with its partners to support common interests in border security, economic prosperity, and trade facilitation. The Agency will continue to work on improving compliance.

Accounting for the harmonized sales tax, provincial sales tax, provincial tobacco tax and alcohol markup/fee on casual importations in the courier and commercial streams

Speaking points

In order to collect provincial sales taxes on non-commercial goods entering Canada, the Canada Border Services Agency (CBSA) has entered into written collaborative agreements with certain provinces. (Refer to Appendix A).

Provincial taxes that may be collected include provincial sales tax, tobacco tax and alcohol markup fees, depending on the agreement(s) in place.

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 also collects the Harmonized Sales Tax (HST) on all taxable non-commercial importations by residents of participating provinces.

The CBSA continues to assess and collect taxes in accordance with the existing Written Collaborative Agreements, legislative authorities and policies.

On a monthly basis, the Agency provides each province with a summary of provincial sales taxes collected. Once reconciled, the funds are directly deposited into the Province's bank account.

The CBSA recognizes that customs processes are complex and that is why the Agency relies upon the services of professionals, such as licensed customs brokers.

As a condition of the Courier Low Value Shipment (CLVS) Program, participants acting in lieu of the importer must meet several requirements, including mandatory valid 'Partners in Protection' certification, one of the CBSA's trusted trader programs. This provides certain customs clearance processing benefits to members who provide the CBSA with enhanced controls and scrutiny on matters such as their supply chain security.

To further safeguard the collection of revenue, including provincial sales taxes, the Agency will leverage its ongoing CBSA Assessment and Revenue Management (CARM) initiative.

The CBSA recognizes that enhancements are needed in order to allow the Agency to improve its compliance and associated revenue collection, including the collection of taxes.

The Agency remains committed to establishing effective solutions such as improvement of the data collection. In addition, the CBSA is exploring new revenue collection models, which will help facilitate the customs clearance and revenue collection processes.

Anticipated questions and answers

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

Key statistics

N/A

Background information

The Office of the Auditor General's (OAG) Report on the Taxation of E-Commerce focused on 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 and that the Goods and Services Tax (GST)/Harmonized Sales (HST) base 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 (CLVS) Program.

The audit's findings claim that the Agency could not determine whether it had collected the correct amount of Provincial Sale Tax (PST). It also indicates that the Agency could not validate the accuracy of the total amount of the Harmonized Sale Tax (HST) remitted to the government on goods imported through the CLVS Program. Lastly, it found that the Agency had poorly designed the Form B3, Canada Customs Coding Form used by courier companies to declare and remit the PST and HST. The form had no specific field to declare the rate and amount of the HST or the PST only the Goods and Services Tax (GST).

The audit however fails to acknowledge the role of the CLVS participant. The Canada Border Services Agency recognizes that customs processes are complex and therefore relies upon the services of professionals, such as licensed customs brokers. CLVS participants acting in lieu of the importer, are approved Courier Low Value Shipment participants must adhere to specific qualification criteria, such as a mandatory valid Partners in Protection certification. They are well-known to the Canada Border Services Agency and are considered to be trusted partners.

Acknowledging the CBSA's challenges and program gaps, we have taken steps to improve our capability to ensure that appropriate revenue is collected. By leveraging the CBSA Assessment and Revenue Management (CARM) initiative we will introduce the Commercial Accounting Document (CAD) that will replace the previous Form B3, Canada Customs Coding Form, and which will include fields to separate the GST, HST and PST. In addition, it will allow the Agency to identify non-commercial goods and calculate these taxes within the system. Furthermore, additional accounting data which is not capture on accounting forms may be requested, such as the province of destination.

The CBSA has also made progress with respect to its E-Commerce Strategy. The review of legislative and regulatory frameworks are also underway, ensuring that appropriate data is collected and that authorities are clearly defined for the collection of revenue.

Moving forward, the Canada Border Services Agency will continue to work collaboratively with its stakeholders and partners to support common interests in border security, economic prosperity, and trade facilitation. The Agency will continue to work on improving its assessment and collection of revenue.

Appendix A: Summary of CBSA's provincial tax agreements

Provincial tax agreements by provinces and dates implemented
Province Harmonized sales tax (HST) / Provincial sales tax (PST) Tobacco tax (Travellers stream) Liquor markup (Travellers stream) Tobacco tax (Postal/Courier/
Other streams)		 Liquor markup (Postal/Courier/
Other streams)
Newfoundland and Labrador HST: N/A N/A N/A N/A
Nova Scotia HST: N/A N/A N/A N/A
Prince Edward Island HST: N/A N/A N/A N/A
New Brunswick HST:
Québec QST: and N/A
Ontario HST: To be implemented N/A
Manitoba PST:
Saskatchewan PST: and N/A N/A
Alberta N/A N/A N/A
British Columbia PST: N/A

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