How to Calculate the Value of your Goods

The Different Methods of Determining Valuation

Customs valuation is a significant part of the importation process. It is a procedure that is applied in determining the correct value of goods to be imported. This is the base value which the Canada Border Services Agency (CBSA) will use to calculate your duties and taxes.

For many importers, this process can be confusing as there are many rules and factors to be considered. Unfortunate consequences may apply for wrongly declared customs values. To help understand the process better, here is an overview of the different methods that are used to determine customs valuation.

Transaction Value

This is the primary method used to determine the value of goods. It is used when goods are being sold into Canada. The value of duty will then be calculated based on the value paid or payable for the imported goods. The difference between the two is:

Paid- This is the buyer’s payment in purchase of the imported goods from the seller. It also applies if the buyer makes a payment to a third party on behalf of the seller.
Payable- These, on the other hand, are payments that have not yet been paid but are owed by the purchaser to the vendor, either directly or indirectly.

This valuation method should be used by default when trying to establish the customs value of imported goods. Other valuation methods can be used only when the transaction value method cannot be used.

Transaction Value of Identical Goods

If other terms of importation have been used and there is no price paid or payable, it may be impossible to use the transaction method. In this case, a confirmed value of duty for an identical good must then be used. Goods are termed as identical if:

They are the same in every aspect, including physical characteristics, quality, and reputation.
They are produced in the same country.
They are produced by the same producer.
The goods must also be sold for exportation to the same country at or around the same time.

However, the following exceptions are allowed:

If in the country of production of the goods to be valued, there are no identical goods originating from the same producer, identical goods created by another person in the same country can be considered.
If there are only slight differences in appearance.
If more than one transaction value is found from identical goods, then the lowest one should be used. Note that for a custom value to be used to ascertain an identical good’s custom value, it must have been determined using the transaction value method.

Transaction Value of Similar Goods

When the transaction value on identical goods cannot be used, an established duty value of similar goods can then be applied. Equivalent to the transaction value for identical goods, similar goods should be sold for export to the same country at or around the same time as the item being valued. The only difference is that the goods need to be closely resembling rather than identical.

For goods to qualify as similar goods:

They should be closely similar in terms of constituent materials and characteristics;
They can be used to perform the same function;
They need to be commercially interchangeable;
They should be produced in the same country and by the same manufacturer.

The Deduction Value

The next method to consider if the former does not work is the deduction value method. This is usually based on the goods’ most common unit price, as sold to the Canadian consumers. The unit price can be for the imported goods, identical, or similar goods. They must be sold in the same condition they were in during importation. The sale should also not be between a related buyer and seller.

The price at which the goods are sold is open to the following deductions:

The commissions paid or agreed to be paid, additions made for profit, and any general expenses in regards to the sale;
The transportation, insurance, and any other related costs incurred in the country of importation;
The custom duties or taxes payable in the country in regards to the importation or sales of the goods;

For a sale to be used in the deduction value method, it must occur at or around the time of importation of the pertinent goods. If no sales occur at this time, an allowance of 90 days is given. The sale that occurs at the earliest date within this period should be used.

The Computed Value

The computed value method is used to calculate the customs value of goods utilizing the production costs, profit, and other general expenses of the imported goods. This should be realized during the sale of the same kind of goods from the country of export to Canadian importers.

Costs of Production

These include costs incurred for materials, fabrication, and any other processing that may have been applied during the imported goods’ production.

Profits and General Expenses

These constitute any other costs that may have been directly or indirectly incurred during the production and sale of the goods for exportation. They do not fall under the above-stated ones.

The Residual Method

The residual method can be resorted to in the occurrence where the above methods could not be used to determine the customs value. In such a case, the customs value can be established by using any of the other techniques which, if applied with a degree of flexibility, will be able to produce a customs value.

If in applying the residual method, more than one of the other methods are found to be useful, the normal precedence should be followed. The customs value concluded should be reasonable, fair, neutral, and depict commercial reality as much as possible.

Conclusion

Proper declaration of the value of your goods during importation is crucial. Learning about the six customs valuation methods is a great first step in achieving this. These methods should be considered sequentially in the above-stated order until a suitable one can be applied. For more information on valuation of goods, or for any other questions relating to importing into Canada, please contact us. Click here for a free quote on our services.