Valuation of Goods Imported Into Canada that are not in Accordance with the ContractMemorandum D13-2-4

Ottawa,August 8, 2013Updated :July 17, 2025 This memorandum outlines and explains the application of the valuation provisions of theCustoms Actto import goods that are not in accordance with the contract.

This memorandum has been amended to: revise the information regarding the valuation of replacement goodsclarify and provide examples for the information on overage and shortage goods

1. Goods not in accordance with the contract are goods that: have been damaged in transit;are of an inferior quality;are defective;are not of the class or description of the goods ordered;are of a quantity in excess of the goods ordered; orare of a quantity less than the goods ordered. 2. Different results may occur when goods not in accordance with the contract are received by an importer, including: the goods are retained by the importer and they subsequently receive a refund or credit for a portion of the original price;the goods are exported from Canada or disposed of in a manner acceptable to the Minister (e.g., destroyed under Canada Border Services Agency (CBSA) supervision);an overage occurs and the importer pays an additional amount for the quantity of over-shipped goods, or alternatively, the vendor demands no additional payment. 3. Regardless of the circumstances of an importation, the value for duty of the imported goods must be determined in accordance with one of the methods of valuation specified in sections 48 to 53 of theCustoms Act, based on the value of the goods as if they were in accordance with the contract. 4. The possibility of a refund of duties resulting from a refund or credit given to a purchaser, by a vendor, because the goods are not in accordance with the contract is addressed inMemorandum D6-2-3, Refund of Duties.

5. The value for duty of replacement goods is the value for duty of the originally-shipped goods, provided that the importer supplies sufficient evidence to demonstrate that the replacement goods are identical in all respects to the goods that should have been shipped under the terms of the original contract. 6. For instance, a purchaser in Canada entered into a contract with a foreign vendor to purchase 100 units of goods at $5/unit, with the payment of $500 due upon shipment of the goods to Canada. However, upon arrival of the goods at the purchaser’s place of business in Canada, the purchaser notices that 10 units were damaged in transit. As a result of the goods damaged in transit, the vendor ships 10 new identical units free of additional charge to the purchaser. 7. At the time of importation, the value for duty of the original shipment can be determined under the transaction value method outlined in section 48 of theCustoms Act. As no further adjustments to the price paid or payable pursuant to paragraphs 48(5)(a) or (b) are required, the value for duty is determined based on the price of $500 paid by the purchaser in Canada to the foreign vendor for the goods. Nevertheless, the purchaser may be eligible to obtain a refund of duties on the original shipment of the goods, where the goods are not in accordance with the contract; for instance on an adjusted value for duty of $450 rather than the $500 originally declared at the time of importation. As noted above, more information on possible refund of duties is available inMemorandum D6-2-3, Refund of Duties.

8. With regards to the importation of the replacement goods, as they were sent free of additional charge, no sale occurred and the transaction value method is not applicable. The sequential order of methods outlined in subsection 47(2) of theCustoms Actis then followed, and as the replacement goods are identical to those of the original shipment, section 49 of theCustoms Act, the transaction value of identical goods, applies on the basis of the transaction value of the original shipment. As the original identical goods were imported at a unit price of $5/unit, the value for duty of the 10 replacement goods is determined to be $50.

9. An overage occurs when more goods have been received than were ordered. In such circumstances, a value for duty must be established for the overage, and the quantity of goods over-shipped must be accounted for to the CBSA as directed inMemorandum D17-1-10, Coding of Customs Accounting Documents. For instance, a purchaser in Canada entered into a contract with a foreign vendor to purchase 100 units of goods at $5/unit, with the payment of $500 due upon shipment of the goods to Canada. However, upon arrival of the goods in Canada, the purchaser notices that 110 units were shipped, resulting in an overage of 10 units. 10. If the vendor charges the purchaser an additional amount for the over-shipped goods, this amount is the basis for calculating their value for duty. For example, if the vendor provides the over-shipped goods to the purchaser at a discounted rate of 50% off the regular price, the value for duty of the over-shipped goods will be $25 (i.e. 10 units at $2.50/unit) and the total value of the importation would be $525. 11. If, on the other hand, the vendor makes no additional charge, effectively providing the goods for "free", then as the over-shipped goods were sent free of additional charge, no sale occurred in respect of those goods and the transaction value method is not applicable. The sequential order of methods is then followed, and as the over-shipped goods are identical to those of the ordered goods for which payment is being made, section 49 of theCustoms Actapplies on the basis of the transaction value of the identical ordered goods, namely $500 (i.e. 100 units at $5/unit). As the identical ordered goods were imported at a unit price of $5/unit, the value for duty of the 10 over-shipped goods is determined to be $50.

12. A shortage occurs when fewer goods were received than were ordered. In such circumstances, the value for duty of the imported goods is based on the price paid or payable demanded by the vendor for the shipment.Memorandum D17-1-4, Release of Commercial Goodsprovides information on the options for accounting for the short-shipped goods. 13. If the importer does not expect the goods to be delivered at a later date and the purchaser and vendor agree to reduce the price paid or payable for the goods actually received or provide the purchaser with a credit note, a refund may be requested (refer toMemorandum D6-2-3, Refund of Duties) based on the reduced price paid or payable. The refund request is the appropriate mechanism to use when a credit note is issued as the credit cannot be used to reduce the price paid or payable of a subsequent shipment. For example, if the purchaser receives a credit note of $75 to address a shortage on a previous shipment and applies this credit amount to a subsequent order of 50 units of another good invoiced at $250, the credit note cannot be used to reduce the value for duty to $175 ($250, less the $75 credit). The value for duty of the new shipment of 50 units will remain at $250, consisting of the $175 payment plus the $75 credit received in respect of the earlier sale for which a shortage occurred (note: for further information, refer to the “Credits in Respect of Earlier Transactions” section inMemorandum D13-4-10, Price Reductions).

Sections 48 to 53 of theCustoms Act

Memorandum D6-2-3, Refund of DutiesMemorandum D13-4-10, Price ReductionsMemorandum D17-1-4, Release of Commercial GoodsMemorandum D17-1-10, Coding of Customs Accounting Documents

Trade Policy DivisionTrade and Anti-dumping Programs DirectorateCommercial and Trade Branch

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