US Tariffs and Duties: Books and Tax for Canadian Sellers

Since de minimis ended, who pays the duties?

If you promise duty-paid delivery, your business normally bears the import charges. If the customer agrees to pay on delivery, the customer normally bears them. Check the checkout terms and carrier bill. The US has suspended the low-value duty-free entry rule, called de minimis; CBP says covered shipments face applicable duties, taxes and fees. The charge still depends on the goods and entry.

The importer of record is responsible to customs for the entry under US customs law and normally deposits estimated duty at entry under the payment rule. A sole proprietor named as importer owes that duty personally. A customer reimbursement promise does not change whose name is on the entry. Check the checkout terms, entry and broker bill together. A licensed customs broker can handle classification, USMCA preference claims, entries and bonds; qualifying goods may receive preferential duty treatment despite the de minimis suspension.

How do duties and broker fees go into the books and T2?

Classify each charge by what it pays for. Duties and broker fees incurred to acquire or import goods still held for resale generally enter inventory cost, then cost of goods sold when those goods sell. Outbound freight and broker services for a customer order may instead be selling or delivery expenses, even if title passes at delivery. Do not classify every delivery cost as inventory merely because the corporation still owns the parcel in transit.

On the T2, report these costs through the corporation's financial statements and GIFI. Duty attached to sold goods reduces gross profit through cost of goods sold; duty on unsold goods remains in closing inventory. Schedule 1 reconciles accounting income to net income for tax purposes; do not deduct the same cost twice. Reconcile entries and broker bills to orders, separating duty from service fees. For currency conversion, see recording US-dollar sales and payouts.

What if a duty is refunded or remitted later?

First check who is entitled to the refund under the customs entry and delivery agreement. If the corporation receives the refund or has a right to it, reduce the related inventory cost while goods remain unsold. If the cost was already expensed, record a recovery or reduction of that expense in the appropriate period. The CRA's GIFI guide includes an expense-recovery category.

Keep the entry, payment and refund decision together. US law requires CBP to pay an established excess-deposit refund within 30 days after liquidation or reliquidation. Whether a contested duty qualifies for a refund, and when it will be liquidated, remains uncertain. A pending claim alone does not establish a receivable; assess recognition and any earlier T2 adjustment under the corporation's accounting policy as customs decisions arrive.

Does importer-of-record status mean the corporation is doing business in the US?

Being importer of record alone does not establish a US income-tax business or a treaty permanent establishment. Customs status answers who enters the goods and accounts for duties; US income tax asks what business activity the corporation conducts in the US. The Canada-US treaty looks for a fixed place of business, certain agents with contract authority, and other specified activity. Article VII generally limits US federal tax on a qualifying Canadian resident's business profits to profits attributable to a US permanent establishment. Treaty relief also depends on the corporation meeting Article XXIX A's limitation-on-benefits rules.

This federal treaty test does not settle state income or franchise tax. State activity and filing questions are separate; see registering a Canadian corporation in a US state.

Review who closes sales, where staff work, and whether the corporation has a US place or agent. The IRS considers substantial, regular US activity relevant to a US trade or business. If the facts are close, a protective Form 1120-F may preserve deductions if the IRS later disagrees; see when a Canadian corporation files a US return.

Does title passing in the US change the income-tax answer?

For goods bought for resale, title passing to the buyer in the US can make the sale US-source: the sale's profit is treated as arising in the US for federal income-tax sourcing. That alone does not create a treaty permanent establishment or settle US tax or filing. The IRS source rule generally places a purchased-inventory sale where title passes; the IRS also notes that beneficial ownership and risk of loss can matter. A sale for US use attributable to the seller's US office or fixed place can be US-source even if title passes elsewhere. For goods the seller produced, sourcing generally follows production activity instead.

Read the sales contract and actual handoff together. Duty-paid delivery describes who handles import charges, but does not settle the title question on its own. US-source sales can strengthen the need to assess a US return or protective filing, especially if the corporation also has US business activity. Even without a US permanent establishment, document the treaty position before assuming no filing. The detailed tests belong in the US return guide.

Does the seller need an EIN or customs importer number?

The customs importer number and IRS employer identification number (EIN) serve different purposes. Under 19 CFR 24.5, Form 5106 is filed for a first formal entry or certain customs services. It uses an assigned EIN when there is one; when there is no EIN or Social Security number, customs can assign an importer identification number. Becoming importer of record therefore does not, on its own, prove an EIN is required for income tax.

If the corporation files Form 1120-F, it must apply for an EIN if it lacks one (IRS instructions). Confirm the entry identity with the broker. A customs number does not settle the US tax filing question.

Does duty-paid shipping change GST/HST zero-rating?

Duty-paid delivery does not by itself remove GST/HST zero-rating. A Canadian supplier that ships goods to an address outside Canada can generally zero-rate the sale when the export conditions are met and it keeps satisfactory proof of shipment (CRA export memorandum). The US duty bill does not replace export evidence. Match the customer order, carrier record and customs paperwork to the sale; see charging GST/HST to US customers for the proof rules.

Example

The seller switches to duty-paid delivery

Illustrative: a Canadian corporation ships US$200,000 of parcels and pays US$20,000 of US duties. Assume it owns the goods through import, delivers them afterward, and all are sold by year-end. It records the duties with the related goods in cost of goods sold, after converting to Canadian dollars for its books. The sales can remain zero-rated for GST/HST if the corporation keeps export proof. The duty-paid choice alone does not settle its US income-tax filing position.

Title passes in Ohio

Illustrative: a corporation buys goods for resale in Canada, imports them, and its contract transfers title to the buyer in Ohio. The sale may be US-source. The corporation checks its US activity and treaty position, then considers whether to file a protective Form 1120-F. If it produced the goods itself, production location also matters.

The customer pays on delivery

Illustrative: a Canadian corporation sells a parcel for US$100, and the US buyer pays the carrier's duty bill on arrival. The corporation records its sale and its own shipping costs; it does not book the buyer's duty as its expense. That payment arrangement changes the customer experience, not the corporation's US business activity or where title passes.

Different for you?

• Goods sit in a US warehouse: inventory and local activity can change the analysis; see Canadian sellers with US inventory.
• You need the US corporate filing decision: see Canadian corporation US tax returns. A protective return can matter when the facts are uncertain.
• You sell into multiple US states: sales tax has separate rules; see foreign sellers and US sales tax.
• You lack export proof: see GST/HST on sales to US customers.
• You sell as a sole proprietor: use the same inventory-versus-delivery distinction on Canadian Form T2125; unsold goods remain in closing inventory. Any US income-tax return is personal.
• Your contracts, customs entries and tax position point in different directions: gather them with broker statements and year-end inventory records for cross-border tax review.