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Importer tax services: recover the border GST, capitalize the duty, defend the count
Every container that clears customs generates two tax amounts with opposite fates: the 5% GST comes back to you as an input tax credit, while duty and surtaxes never do — they belong in the cost of your inventory and only reach the T2 as goods sell. Distributors that expense duty on payment, claim ITCs off the wrong paperwork, or value inventory loosely misstate both margin and tax. We build the landed-cost discipline and file the returns on top of it.
By the AnalytIQ Accounting team · Last reviewed: August 12, 2026
The border charges two things — only one comes back
At importation, CBSA collects 5% GST on the duty-paid value — customs value plus duty — and a registered importer recovers it on the next GST34 as an input tax credit. Duty is different: it is a permanent cost of the goods. The recovery has a condition people miss: only the importer of record — the person who actually imported the goods for use in their commercial activity — can claim the ITC. Arrangements where a foreign supplier or a related company clears the goods in its own name can strand the GST with a party that cannot recover it. Since CBSA's CARM portal took over commercial accounting, your claims should reconcile to your own statements of account there, not to a broker's summary invoice.
Note what is not collected at the border on commercial imports: the provincial part of HST. Ontario buyers of goods for resale simply recover the 5% and move on — no self-assessment applies to inventory acquired for commercial use. Filing frequency is the cash-flow lever here: an importer paying five-figure GST at the border every month but filing annually finances CRA for up to a year. Electing monthly GST34 filing turns border GST around in weeks, which is usually worth the extra bookkeeping cadence.
Landed cost decides your margin and your COGS
For tax, inventory carries its laid-down cost — everything it took to get the goods to your warehouse shelf — and none of it deducts until the goods sell. USD supplier invoices convert at the rate on the transaction date, with gains or losses on settlement recognized when you actually pay.
| Cost on the file | In landed cost? |
|---|---|
| Supplier invoice price | Yes — converted at the transaction-date FX rate |
| Ocean or air freight and cargo insurance inbound | Yes — part of bringing goods to their location |
| Customs duty and any surtaxes on US-origin goods | Yes — a permanent, non-recoverable cost |
| Customs brokerage fees | Yes — attach them to the entry, not to overhead |
| GST paid at the border | No — recoverable as an ITC, never a product cost |
| Volume rebates received from the supplier | Reduce cost — they are not standalone income |
Software matters here: we set up landed-cost tracking in the inventory system so duty and freight allocate to SKUs automatically, instead of sitting in a freight expense line that flatters gross margin and misstates COGS.
Inventory valuation CRA accepts — and the writedowns it questions
Section 10 of the Income Tax Act gives you two frameworks: value each item at the lower of cost and fair market value, or value the entire inventory at fair market value. Cost flows through FIFO or weighted average — LIFO is not accepted for Canadian tax, whatever US practice suggests. The method must be applied consistently year over year, and the year-end count is the anchor: a distributor whose count discipline is weak has a COGS number CRA can challenge. Cycle counts through the year beat a single heroic December count, because they surface shrink, receiving errors, and mis-picks while the paper trail still exists. Writedowns of slow or obsolete stock are deductible, but they need evidence — aging reports, discontinued-line notices, actual clearance pricing — not a round-number haircut applied at year-end. The same file defends the writedown twice: once for tax, once for the bank covenant that keys off inventory value.
Duty planning is tax planning
Duty you legally avoid never has to flow through COGS, which makes customs work part of the tax file. Duty drawback recovers duty on imported goods you later export; the Duties Relief Program removes it upfront for goods destined to leave Canada. Classification reviews, correct treatment of assists and royalties in customs value, and USMCA origin certification each move the landed-cost number the T2 eventually inherits — and for related-party purchases, the transfer price CRA wants low is the same number CBSA wants high. That tension, with the paperwork on both sides, is the subject of our cross-border tax page for importers and distributors. The domestic returns — T2, GST34, instalments once federal tax passes $3,000 — run through our tax services on fixed fees.
Common questions.
Can I claim back the GST paid at the border?
Yes — a GST-registered business that is the importer of record recovers the 5% border GST as an input tax credit on its regular return. If the goods clear customs in someone else's name, the credit can be stranded, so the importer-of-record setup matters.
Is customs duty deductible?
Yes, but not when you pay it. Duty is part of the landed cost of inventory and reaches the tax return through cost of goods sold as the products sell — expensing it on payment overstates current deductions and misstates margin.
Can we value inventory using LIFO like a US affiliate does?
No. CRA accepts lower of cost and fair market value item by item, or full fair market value, with cost flowing on FIFO or weighted average. LIFO is not an accepted method for Canadian income tax.
Related reading
Landed costs that land correctly.
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