February 1995
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Subject:
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Defaults by Customs Brokers, Entitlements to ITCs by the Importer
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I refer to your memorandum dated February 10, 1995, requesting the legislative authorities that provide for ITC entitlements for tax paid at time of importation.
The issue relates to the situation where an importer has paid their broker the duties and taxes owing on an importation but the broker has failed to deliver the amount to the Department to complete the entry process. The Department then invoices the importer directly for the amount owing. As a result, the importer ends up paying an amount for the duties and taxes twice. The question is whether the importer would be entitled to claim ITCs for the portion of each amount paid for the GST and the legislative references for the response.
Section 212 of the Excise Tax Act (the Act) provides the legislative authority for the imposition of GST on imported goods. Section 214 of the Act provides for the tax to be paid and collected as if it were customs duties by Customs Border Services. Subsection 169(1) of the Act provides the general conditions for a person to claim an input tax credit for the tax on importation. These conditions are as follows:
1. the property or service is imported by the person;
2. the person must be a registrant during the reporting period in which the importation occurs;
3. tax must be payable by the person in respect of the importation, or be paid by the person prior to its becoming payable;
4. the property or service must be imported by the person for the purpose of consumption, use or supply in the course of the commercial activity of the person; and
5. the person must have obtained sufficient documentary evidence to establish the eligibility for the ITC before the claim is made.
In this scenario, the only liability created at time of importation is when the goods are released by Customs under its release prior to payment procedures. This creates an amount owing and it is this amount that the Department bills to the broker on their K84 invoice statement. When the broker, as an authorized agent of the importer, fails to meet their obligations to pay the amount owing on an importation, Customs has the authority under Customs legislation to assess the importer or the owner of the goods for the outstanding amount. I refer you to subsection 17(3) of the Customs Act wherein it states that the importer of the goods that have been released or any person authorized to account for goods becomes liable under the Customs Act to pay duties thereon and that the owner is also jointly and severally liable with the importer or the person authorized.
While the importer has paid an amount in respect of duties and taxes, this amount, when paid to the broker is not duties and taxes, rather it is the amount requested by the broker to complete the entry process with Customs. Therefore, any amount paid to a broker would not create an entitlement to an ITC. When the importer is required to pay the GST directly to Customs as a result of a default by its broker, then the GST would be considered to have been paid and an ITC entitlement created.
When goods are imported, only one liability is created under section 212 of the Act and consequently, there is only one entitlement to an ITC established under subsection 169(1) for the tax payable at time of importation. The fact that an importer pays an amount to its broker in respect of the amounts payable at time of importation and when the broker defaults, also pays an amount to the Department does not create any additional liability or any additional entitlements to ITCs.
I trust this information addresses your concerns on this matter. If you require any further clarification, please contact Gwen Preston XXXXX
H.L. Jones
Director
General Tax Policy
Policy and Legislation
GTP: XXXXX
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