Regulations Amending Certain Regulations Administered and Enforced by the Canada Border Services Agency: SOR/2024-41

Canada Gazette, Part II, Volume 158, Number 6

Registration
SOR/2024-41 March 1, 2024

CUSTOMS ACT
CUSTOMS TARIFF

P.C. 2024-193 March 1, 2024

Her Excellency the Governor General in Council, on the recommendation of the Minister of Public Safety and Emergency Preparedness, makes the annexed Regulations Amending Certain Regulations Administered and Enforced by the Canada Border Services Agency under

(a) section 8.6footnote a, subsection 9(5), sections 30footnote b and 32footnote c, paragraphs 164(1)(d), (i)footnote d and (j) and subsections 166(1)footnote e and 167(1) of the Customs Act footnote f; and

(b) paragraphs 99(f)footnote g and 133(k)footnote g of the Customs Tariff footnote h.

Regulations Amending Certain Regulations Administered and Enforced by the Canada Border Services Agency

Customs Act

Special Services Regulations

1 The long title of the Special Services Regulations footnote 1 is replaced by the following:

2 Section 1 of the Regulations and the heading before it are repealed.

3 Section 4 of the Regulations is replaced by the following:

Storage of Goods Regulations

4 The long title of the Storage of Goods Regulations footnote 2 is replaced by the following:

5 Section 1 of the Regulations and the heading before it are repealed.

6 The definition place of safe-keeping in section 2 of the Regulations is replaced by the following:

place of safe-keeping
means a place designated by the Minister under section 37 of the Act for the safe-keeping of goods; (lieu du dépôt)

7 Subsection 3(3) of the Regulations is replaced by the following:

8 Subsection 5(3) of the Regulations is replaced by the following:

Special Services (Customs) Regulations

9 The long title of the Special Services (Customs) Regulations footnote 3 is replaced by the following:

10 Section 1 of the Regulations and the heading before it are repealed.

11 Section 7 of the Regulations is replaced by the following:

Accounting for Imported Goods and Payment of Duties Regulations

12 (1) The definitions billing period and chief officer of customs in section 2 of the Accounting for Imported Goods and Payment of Duties Regulations footnote 4 are repealed.

(2) The definition business number in section 2 of the Regulations is replaced by the following:

business number
means the unique number assigned to a person by the Minister of National Revenue; (numéro d’entreprise)

(3) Section 2 of the Regulations is amended by adding the following in alphabetical order:

weekday
means a Monday, Tuesday, Wednesday, Thursday or Friday, including any holiday that falls on one of those days. (jour de semaine)

13 The Regulations are amended by adding the following after section 2:

2.1 For the purposes of subsection 32.2(3) and paragraph 33.4(1)(a) of the Act, the prescribed day is the 10th weekday after the 17th day of the month following the month that includes the earlier of

14 The Regulations are amended by adding the following before section 3:

(2) Despite subsection (1), the Minister may require that goods be accounted for by any other means that is made available or specified by the Minister for that purpose if the Minister determines that

15 The portion of subsection 3(1) of the Regulations before paragraph (a) is replaced by the following:

16 Subsection 5(2) of the Regulations is repealed.

17 Paragraph 7.2(d) of the Regulations is replaced by the following:

18 Section 7.5 of the Regulations is replaced by the following:

19 Section 8.3 of the Regulations is replaced by the following:

(2) Despite subsection (1), the Canada Post Corporation may pay the duties described in that subsection by any other means that is made available or specified by the Minister for that purpose if the Minister determines that

20 Sections 10 and 10.1 of the Regulations are replaced by the following:

10.1 If commercial goods are released under section 33 of the Act in accordance with section 9 during a period beginning on the 18th day of a month and ending on the 17th day of the following month, the person required to pay duties on those goods must do so by the 10th weekday after the end of that period.

21 (1) Paragraph 10.3(1)(b) of the Regulations is replaced by the following:

(2) Subsections 10.3(2) and (3) of the Regulations are replaced by the following:

(3) A CSA importer who chooses the period set out in paragraph (1)(b) must account for goods released in that period and pay the duties on those goods by the 10th weekday after the end of that period.

22 Subsection 10.4(1) of the Regulations is repealed.

23 (1) Subsection 10.8(1) of the Regulations is replaced by the following:

(2) The portion of subsection 10.8(2) of the Regulations before paragraph (a) is replaced by the following:

24 Section 10.9 of the Regulations and the heading before it are repealed.

25 Section 11 of the Regulations is replaced by the following:

26 Paragraph 12(1)(b) of the Regulations is replaced by the following:

27 Section 13 of the Regulations is replaced by the following:

13 If commercial goods are released under paragraph 32(2)(a) of the Act in accordance with section 12, the person who made the interim accounting must account for the goods in the manner described in paragraph 32(1)(a) of the Act and pay any duties on the goods by the 10th weekday after the 17th day of the month following the month that includes the earlier of

28 (1) Paragraph 14(2)(b) of the Regulations is replaced by the following:

(2) The portion of paragraph 14(2)(c) of the Regulations before subparagraph (i) is replaced by the following:

29 Section 15 of the Regulations is replaced by the following:

30 (1) The Regulations are amended by adding the following after section 15:

(2) Section 16 of the Regulations is repealed.

31 Item 34 of Schedule 2 to the Regulations is repealed.

Transportation of Goods Regulations

32 The long title of the Transportation of Goods Regulations footnote 5 is replaced by the following:

33 Section 1 of the Regulations and the heading before it are repealed.

34 Subsection 6(2) of the Regulations is replaced by the following:

Customs Sufferance Warehouses Regulations

35 The long title of the Customs Sufferance Warehouses Regulations footnote 6 is replaced by the following:

36 Section 1 of the Regulations and the heading before it are repealed.

37 Subsections 3(1) and (2) of the Regulations are replaced by the following:

(2) An application for a licence must be submitted to the Minister in the prescribed form, together with a detailed plan of the proposed sufferance warehouse.

38 (1) Subsection 4(1) of the Regulations is replaced by the following:

(2) Subsection 4(3) of the Regulations is repealed.

39 Section 5 of the Regulations and the heading before it are repealed.

40 Subsection 15(3) of the Regulations is replaced by the following:

Customs Brokers Licensing Regulations

41 The long title of the Customs Brokers Licensing Regulations footnote 7 is replaced by the following:

42 Section 1 of the Regulations and the heading before it are repealed.

43 Sections 7 and 8 of the Regulations are replaced by the following:

44 Section 10 of the Regulations is replaced by the following:

45 Subsection 11(3) of the Regulations is replaced by the following:

46 Section 13 of the Regulations is replaced by the following:

47 The portion of paragraph 14(b) of the Regulations before subparagraph (i) is replaced by the following:

48 Subsection 15(2) of the Regulations is replaced by the following:

49 Paragraph 16(a) of the Regulations is replaced by the following:

50 (1) Paragraph 17(1)(b) of the Regulations is replaced by the following:

(2) Paragraph 17(1)(d) of the Regulations is replaced by the following:

51 Section 19 of the Regulations and the heading before it are replaced by the following:

Duty Free Shop Regulations

52 The long title of the Duty Free Shop Regulations footnote 8 is replaced by the following:

53 Section 1 of the Regulations and the heading before it are repealed.

54 Subsection 3(2) of the Regulations is replaced by the following:

55 (1) Subsection 4(1) of the Regulations is replaced by the following:

(2) Subsection 4(3) of the Regulations is repealed.

56 Subsection 16(2) of the Regulations is replaced by the following:

57 Section 17.1 of the Regulations is replaced by the following:

Designated Provisions (Customs) Regulations

58 The portion of items 1 to 6 of Part 3 of Schedule 1 to the Designated Provisions (Customs) Regulations footnote 9 in column 2 is replaced by the following:
Item

Column 2

Short-form Description
1 Failing to immediately notify the Minister in writing of a change in the address of a business office at which broker transacts business
2 Failing to immediately notify the Minister in writing of a change in the legal or business name of the partnership or corporation
3 Failing to immediately notify the Minister in writing of a change in the membership of the partnership
4 Failing to immediately notify the Minister in writing of a change in the officers or directors of the corporation
5 Failing to immediately notify the Minister in writing of a change in the ownership of the business or corporation
6 Failing to immediately notify the Minister in writing of a change in the individuals meeting the specified knowledge requirement
59 The portion of item 8 of Part 5 of Schedule 1 to the Regulations in column 2 is replaced by the following:
Item

Column 2

Short-form Description
8 Failing to present required documents to the Minister before goods are taken into a duty free shop

Customs Tariff

Temporary Importation (Excise Levies and Additional Duties) Regulations

60 The long title of the Temporary Importation (Excise Levies and Additional Duties) Regulations footnote 10 is replaced by the following:

61 Section 1 of the Regulations and the heading before it are repealed.

62 The definition duties in section 2 of the Regulations is replaced by the following:

duties
means any duty imposed under section 20 of the Act or any duty or tax imposed under the Excise Act or the Excise Tax Act, other than tax imposed under Part IX of that Act; (droits)

63 Section 6 of the Regulations is replaced by the following:

6 For the purposes of subsection 106(1) of the Act, an application for relief from the payment of duties on goods referred to in paragraph 3(a) must be accompanied by security given in accordance with the requirements of the Financial Security (Electronic Means) Regulations and in an amount fixed by the Minister of Public Safety and Emergency Preparedness

Customs Bonded Warehouses Regulations

64 The long title of the Customs Bonded Warehouses Regulations footnote 11 is replaced by the following:

65 Section 1 of the Regulations and the heading before it are repealed.

66 Subsection 3(2) of the Regulations is replaced by the following:

67 Section 4 of the Regulations is replaced by the following:

Temporary Importation (Tariff Item No. 9993.00.00) Regulations

68 (1) The portion of subsection 5(1) of the Temporary Importation (Tariff Item No. 9993.00.00) Regulations footnote 12 before paragraph (a) is replaced by the following:

(2) Subsection 5(2) of the Regulations is repealed.

Coming into Force

69 (1) These Regulations, other than subsection 30(2), come into force at 3:00:01 a.m. Eastern Daylight time on the first day on which both sections 304 and 330 of the Budget Implementation Act, 2022, No. 1, chapter 10 of the Statutes of Canada 2022, are in force, but if they are registered after that day, they come into force at 3:00:01 a.m. Eastern Daylight time on the day after the day on which they are registered.

(2) Subsection 30(2) comes into force 180 days after the day on which subsection 30(1) comes into force.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issues: The processes and systems currently in place to account for commercial goods imported into Canada, including assessing and collecting duties and taxes, are outdated. They require substantial paperwork and rely on information technology (IT) systems that are, in many cases, more than 30 years old. This approach is inefficient and costly for trade chain partners (TCPs) [e.g. importers, customs brokers, carriers, freight forwarders, customs bonded and sufferance warehouse operators, and duty free shop operators] and the Government of Canada alike, as accounting for imported goods and assessing the applicable duties and taxes involve extensive administration. Alongside the outdated processes and systems, the existing regulatory framework

  • is not well suited to support modern, electronic methods of communicating between TCPs and the Canada Border Services Agency (CBSA or Agency);
  • does not allow certain TCPs to provide or confirm financial security electronically; and
  • imposes multiple billing cycles that are complex and administratively burdensome to manage.

Regulatory amendments are required to address these challenges and support the implementation of the CBSA Assessment and Revenue Management (CARM) project — a major initiative to update IT systems and modernize the collection of duties and taxes for commercial goods imported into Canada.

Description: Nine regulations made under the Customs Act (CA) and three regulations made under the Customs Tariff (CT) are being amended to (i) support electronic communication between the CBSA and TCPs by removing some requirements for in-person and paper-based communication and by adding some requirements for electronic communication (i.e. to account for goods and submit an application for a duty free shop licence); (ii) update financial security requirements; (iii) implement simplified billing cycles that will provide more consistency among billing, accounting and payment due dates for imported goods, and enable a period to make corrections to accounting documents without triggering a redetermination or a penalty; and (iv) make consequential and housekeeping amendments to update outdated references and nomenclature in several regulations to correct the wording of referenced Acts and regulations, government directives, and ministerial titles, and to reflect current program policy.

New regulations under the CA are being introduced to set out the terms and conditions for the electronic administration and confirmation of financial security to the CBSA.

Rationale: The CBSA is responsible for administering the importation of commercial goods into Canada while supporting Government of Canada priorities to protect the health, safety and security of Canadians. The amendments and new regulations will support these objectives by introducing a modernized way for the CBSA and various TCPs to communicate and interact with each other, simplifying and standardizing billing cycles, and protecting import revenues.

Cost-benefit statement: The regulatory amendments and new regulations will result in a net benefit for businesses through efficiencies achieved by eliminating paper processes for commercial registration and enrollment programs; replacing paper-based accounting processes with electronic versions, thereby reducing the costs for TCPs to visit a CBSA office in person; allowing correction of errors prior to a payment due date, thereby reducing the need for additional processes to make adjustments and facilitate the payment/return of incorrectly assessed duties and interest; and allowing customs brokers to move more of their operations to an electronic format, thereby removing the obligation to work only with a CBSA office for which they have been authorized. The benefits and costs occur over a period of 10 years and are discounted at a 7% discount rate. With the implementation of these regulations, costs to all stakeholders are expected to total $552.1 million over the forecast period (fiscal years 2024–2025 to 2033–2034), equivalent to an annualized cost of $78.6 million. Benefits to all stakeholders are expected to total $1.6 billion over 10 years, equivalent to an annualized value of $230.7 million. The benefits of the regulations outweigh the costs by $1.07 billion over the entire forecast period, or $152.1 million annually.

One-for-one rule and small business lens: The one-for-one rule applies. The regulatory amendments and new regulations will reduce the administrative burden on Canadian businesses by an estimated $34,378,200 annually (in 2012 dollars and discounted to 2012 using a 7% discount rate).

Small businesses will experience increased compliance costs related to the implementation of CARM. However, they will benefit from a significant reduction in administrative costs as manual, in-person and paper-based processes are replaced by electronic processes and simplified billing, accounting and payment processes. The net impact is expected to be a reduction of $55,969,007 in the annual burden on small businesses.

Issues

The processes and systems currently in place to support the importation of commercial goods into Canada are burdensome for the CBSA and TCPs alike. They require substantial manual processing and paperwork, and rely on an assortment of aging IT systems, some of which are more than 30 years old. The current processes are inefficient and costly for TCPs, as accounting for imported commercial goods and assessing the applicable duties and taxes involve considerable administration by importers and other TCPs.

Alongside the outdated processes and systems, the existing regulatory framework reinforces outdated methods for managing import accounting and the payment of amounts owed to the Government of Canada. Specifically, the current regulatory framework

The CARM project was also included in the 2021 Digitalization and Technology-Neutral Regulations Roadmap in the second round of the Treasury Board of Canada Secretariat’s targeted regulatory reviews. Through the review, stakeholders commented that current CBSA processes for commercial imports and assessing duties and taxes require extensive administration, rely on aging IT systems, and are inefficient and costly for importers.

These regulatory amendments support the implementation of CARM — a major initiative to update IT systems and modernize the collection of import duties and taxes. The regulatory amendments are required to support an import accounting, payment and financial security framework that is consistent with, and better aligned with, current commercial importation business practices that favour electronic communication and transactions methods and that are not bound to specific geographic locations.

Background

The CBSA’s mandate is to provide integrated border services that support national security and public safety priorities while facilitating the free flow of persons and goods that meet all requirements under its program legislation. Managing the efficient importation of commercial goods into Canada, including the accurate and effective assessment and collection of duties and taxes owed to the Government of Canada, is key to the facilitation aspect of the CBSA’s mandate. In fiscal year 2022–2023, the CBSA collected $39.7 billion in duties and taxes on imported goods.

To address the heavy administration load of the CBSA and TCPs in the duties and taxes assessment and collection process, the CARM IT system has been built. The CARM system is designed to address many issues the CBSA and TCPs face in the importation process, including (i) inefficiencies resulting from a reliance on manual and, in some instances, paper-based processes; (ii) difficulties in collecting on debts owed to the Government of Canada and in facilitating compliance with the trade rules and regulations governing the importation of commercial goods into Canada; and (iii) challenges in navigating overly complex processes and rules related to commercial accounting and payment of owed amounts, including non-harmonized payment due dates.

The CARM project will modernize and simplify the accounting process related to imported goods, providing a more efficient means for TCPs and the CBSA to interact during the importation process and when accounting for commercial goods, and when corrections to accounting documentation are required. CARM has been designed to give TCPs improved access to their import account information with the CBSA, and to make it easier for them to communicate with the CBSA and remain compliant with commercial goods accounting requirements.

Trade chain partners

In addition to the importer, there are many parties involved in the importation process that participate in the exchange of information with the CBSA with respect to the commercial importation of goods, as well as the payment of associated duties or the provision of financial security against owed amounts. The following TCPs may be affected by the regulations:

A customs broker is a person or company that obtains, prepares and submits release and accounting information or documentation on behalf of an importer. They are the only service providers granted authority under the CA to account and pay duties and taxes on behalf of importers.

A carrier is the person or company that transports commercial goods into Canada. The carrier is responsible for providing goods (cargo) and conveyance information to the CBSA.

A freight forwarder arranges for the transportation of commercial goods to Canada with a carrier and may separate a shipment of goods at a customs sufferance warehouse in Canada on behalf of an importer or the person receiving the goods. The freight forwarder is considered a secondary party in the international transportation chain. The freight forwarder is responsible for providing information to the CBSA that builds upon the information supplied by the carrier, such as the name of the person receiving the goods and the delivery address.

A duty free shop (DFS) is a qualified person licensed to acquire goods free of certain duties and taxes for sale to travellers who will immediately export the goods from Canada. The DFS operator must post financial security to protect the duties and taxes associated to the goods in the shop.

A customs bonded warehouse is a private facility that participates in the CBSA’s Customs Bonded Warehouse program. These operators provide secure facilities in which companies can store goods duty free for up to four years until they are released (when duties and taxes become payable) or are exported.

A customs sufferance warehouse is a privately owned and operated facility licensed by the Minister for the control, short-term storage and examination of imported goods until they are released by an officer or exported from Canada.

There are a number of other entities that may be impacted by these regulations, including those involved in supplying financial security to guarantee that owed duties will be paid for goods imported into Canada when those duties are not paid at the time of entry. While the importer could manage that process unilaterally, they can also employ the services of financial security providers as articulated in section 4 of the Canadian Payments Act (CPA).footnote 13 Other entities such as accountants, trade lawyers, collection agencies, and other professional service entities (such as customs trade consultants) may also be impacted by these regulations.

The CARM project history

In 2014, the CBSA began the design and implementation of the CARM project in order to update its processes and systems related to the importation of commercial goods and to facilitate international trade. The CARM project is a $526.8 million multi-year initiative designed to modernize processes for the importation of goods into Canada. CARM is also designed to be the central portal for commercial import accounting and revenue reporting and management. CARM will be the main system that TCPs use when accounting and making payment of duties and taxes for commercial importations into Canada. Through CARM, the CBSA hopes to provide modern, fair, and fiscally responsible assessment of duties and taxes owed on imports, and thereby improve revenue management processes for the Government of Canada (i.e. how the CBSA assesses, collects, refunds and remits duties and taxes paid on imported goods). The CBSA aims to ensure the accurate collection of Government of Canada revenues by establishing a more controlled and stringent process for the assessment of duties and taxes, and by providing an improved capacity to analyze TCP compliance with accounting and payment requirements.

A key component of the CARM project is the CARM Client Portal (CCP) — an innovative self-service tool that modernizes how the trade community interacts with the CBSA. The portal simplifies and secures ways to transact with the CBSA by making it easier for the trade community to account for goods that are being imported into Canada. The CCP offers online access to importers’ accounting transactions, such as viewing their statement of account with financial transactions, making payments and submitting appeals and rulings requests to the CBSA.

In addition to the use of the CCP, TCPs may decide to use Electronic Data Interchange (EDI) to communicate with and provide information to the CBSA. The EDI is a standardized way of electronically exchanging information between and within businesses, organizations, government entities and other groups. These standards specify the formats, character sets, and data elements used in the exchange of business documents and forms. The use of the EDI will not be mandatory for TCPs following full CARM implementation.

The CARM project is being released in three phases. The first two phases were released in 2021footnote 14 and the third phase, Release 2 (CARM R2), will be launched on May 13, 2024.

In order to support the implementation of CARM R2, regulatory amendments are needed for the following three broad themes: (i) electronic communication and payment; (ii) the provision of financial security electronically; and (iii) billing cycles.

Electronic communication and payment

A key objective of the CARM project is to allow TCPs to communicate electronically with the CBSA. Under existing regulations, in some instances, TCPs are required to notify or submit paper documentation to a specific person (such as the chief officer of customs) at a specific place (such as a specific port of entry), as opposed to being able to communicate and submit documentation to the CBSA electronically. It is for this reason that regulatory amendments are required.

Specifically, following the enactment of this regulatory initiative and the launch of CARM R2, the full functionalities of the CCP will be available to TCPs. The CCP allows TCPs to check the status of their financial accounts and transaction history with the CBSA, communicate directly with the CBSA on issues related to their imported goods, and to electronically access multiple reports relating to their import activity (such as statements of account, transaction history, invoices, submitted declarations, and Commercial Accounting Declaration [CAD] reports). Providing TCPs with more opportunities to communicate with the CBSA electronically will increase CBSA efficiency by reducing the administrative burden associated with paper-based processing (e.g. manually keying in information from a paper form into a CBSA system, storing paper documents). It will also allow the CBSA to make more informed decisions related to compliance, rulings, reviews and program management, since all relevant documentation will be easily accessible to CBSA officers via the CCP. Additionally, it will allow TCPs who operate nationally, such as carriers and brokers, to implement streamlined processes in all aspects of their interactions with the CBSA, rather than being obliged to deal with a specific CBSA office or officer in a specific geographic location.

Through CARM R2, the CBSA will introduce functionality to make it easier for TCPs to make electronic payments directly to the CBSA via the CCP (via credit card, online banking or pre-authorized debit), or by EDI. While the CBSA prefers electronic payments, the Agency will continue to accept payment by other means (e.g. if an importer arrives at the border to pay the duties on their imported goods, they will be permitted to pay using cash).

To allow TCPs and the CBSA to interact electronically through the CCP, including for the purpose of making electronic payments, the CA was amended to allow the Act to be administered and enforced by electronic means and to remove most requirements for paper-based communication between the CBSA and persons with whom it interacts. These amendments received royal assent via Bill C-19, Budget Implementation Act, 2022, No. 1 (2022 BIA) in June 2022 and come into force before or at the same time as this regulatory initiative, depending on the specific provision.

As the broad authority to collect electronic payments already exists, only minor regulatory adjustments are needed to support this objective (i.e. removing the requirement for the Canada Post Corporation to pay duties to the CBSA via cash or cheque and replacing it with a requirement to pay electronically).

Provision of financial security electronically

Through CARM R2, the CBSA will transition to an electronic process for TCPs to submit financial security to meet their program requirements (e.g. in order to obtain a customs broker licence or to obtain the release of goods prior to the payment of duties and taxes). Currently, the CBSA requires financial security to be provided in the form of a paper-based bond that TCPs are required to manually submit to the CBSA, or as a security deposit in the form of cash or a certified cheque.

As of CARM R2, a TCP that has an obligation to provide financial security under the CA will be required to electronically provide the CBSA with information about a valid written security agreement between the TCP and a financial security provider to confirm that they are meeting their financial security requirement with the CBSA. Alternately, TCPs will be required to post a deposit on the CCP for the purposes of financial security, eliminating the need to rely on paper-based processes to provide proof of adequate financial security to the Minister.

To enable the shift toward electronic confirmation and transmission of financial security information, as well as the ability for TCPs to post a deposit on the CCP for the purposes of financial security, regulatory amendments and the introduction of new regulations are required. The new regulations will establish the terms and conditions for financial security agreements between a TCP and a financial security provider and outline how these security agreements will be enforced. This will support the Agency in ensuring that financial security providers and TCPs understand their obligations with respect to financial security and that relevant amounts owed are recovered if a TCP does not pay by the payment due date. This will reduce the amount of uncollected debt owed to the Government of Canada, as it is currently extremely challenging to call on financial security when amounts owed under the CA or other customs-related statutes are outstanding.

To allow for the creation of these new regulations, legislative amendments were required. These amendments received royal assent via Bill C-30, Budget Implementation Act, 2021, No. 1 (2021 BIA) and the 2022 BIA, and established an authority to specify terms and conditions for other types of security, including security that is to be provided electronically. These legislative amendments will come into force concurrently with regulatory amendments at CARM R2.

Billing cycles

A billing cycle refers to a combination of three things: the billing period that captures all transactions that appear on a TCP’s statement of account; an accounting due date, which is the date by which a TCP needs to account for goods imported during the billing period; and a payment due date for amounts owing. The following billing cycles are specific to the CBSA program under which the goods are being imported:

For example, there are currently specific time frames for importers to account for high-value shipments (within five business days of release), but different time frames for them to account for low-value shipments (no later than the 24th of the month following the month when they are released). In either case, the importer has to pay owed amounts by the last business day of the month in which the billing cycle ends. CTC goods such as oil and gas, on the other hand, enter Canada in a continuous fashion via pipelines and are subject to a billing cycle that is based on monthly import volumes rather than discrete shipments crossing the border on a specific date.

Taken as a whole, the existing regime of billing periods, and accounting and payment due dates is complex, administratively burdensome to manage, and introduces unnecessary complexity for TCPs and the CBSA to ensure compliance with payment due dates and to manage corrections and the accrual of interest.

CARM R2 will introduce changes to certain aspects of the billing cycle in order to simplify matters for TCPs. These changes will be supported by changes in regulation that include the following:

To further simplify accounting for TCPs, CARM R2 will offer technical capacity to administer “versionable accounting” with a correction period (using a CAD that can have multiple versions) that will be supported by the above-noted regulatory amendments to simplify accounting and payment due dates. Currently, accounting and corrections are managed via two separate paper-based processes. TCPs are only permitted to make corrections to an accounting declaration within a billing period if it is a matter of clerical error; that is, nothing that will impact the calculation of duties. For example, if a TCP submitted an accounting declaration today and incorrectly declared the number of items they were importing, it could result in the TCP underpaying or overpaying the amount of duties owed to the CBSA. In this situation, the TCP will need to wait until after the payment due date to submit an adjustment request, and will then be required to either pay the additional amount of duties owing if there was an underpayment or be issued a refund by the CBSA in the event of an overpayment.

Once CARM R2 is fully implemented, TCPs will have the ability to make penalty-free corrections to any information on their previously submitted CAD from the time the CAD was submitted to the CBSA up until the payment due date, which will result in errors being identified and resolved prior to when TCPs are required to pay the duties on their imported goods. In the same example, the TCP who incorrectly declared the number of goods they were importing will now be permitted to make a correction to their CAD, which will result in the amount of duties owed being updated in CARM and the TCP paying the correct amount owed to the CBSA on the payment due date.

The introduction of the versionable correction period, supported by regulatory amendments to identify a “prescribed day” when payments are due, will encourage TCPs to maintain up-to-date accounting information by simplifying the process of making corrections and reducing the administrative burden associated with making corrections after the payment due date.

Objective

This regulatory initiative will accomplish three main objectives.

1. Make regulatory changes needed to enable the CBSA and TCPs to move away from costly paper-based methods of communication and payment to more modern, electronic communication and transaction methods.

The regulatory amendments will enable TCPs to communicate electronically with the CBSA via the CCP or EDI rather than only with specific individuals (e.g. the chief officer of customs) by paper means, as is currently required in many circumstances. As part of these amendments, electronic communication will be made available for certain processes (e.g. for applications for a sufferance warehouse, customs broker, or bonded warehouse licence; to notify the Minister of changes to CSA Program information) but will be required in others (e.g. when accounting for goods; for submitting duty free shop applications). The CBSA will allow for the submission of accounting information using non-electronic means in exceptional circumstances, such as in the event of a CARM system outage or natural disaster that would prevent the TCP from using CARM.

2. Make regulatory changes needed to modernize and simplify processes related to providing financial security.

The regulatory amendments will require a move from financial security being provided through a paper-based process such as a customs bond, to an electronic process. To support this move, new regulations, titled Financial Security (Electronic Means) Regulations, will establish the terms and conditions by which importers and other TCPs must abide when they are required to provide financial security under the CA or the CT. The new regulations will provide direction to importers, brokers, warehouse operators, and other TCPs about their obligations to provide an electronic deposit or electronic confirmation that financial security has been secured from a financial security provider in order to secure the release of goods prior to the payment of duties and taxes, or to obtain a licence (such as a broker’s licence or to operate a bonded warehouse).

Besides the overall benefit associated with going paperless, the new regulations will provide clarity and guidance to TCPs by clearly indicating the obligations of the debtor (i.e. the importer or other TCP) and the financial security provider in relation to a security agreement. The Agency will continue to accept payment by other means in limited circumstances (e.g. permitted to use cash at a port of entry). The new regulations are designed to simplify the process of the Minister making a claim against financial security provided electronically if a TCP defaults on payment, as all parties will have a clearer understanding of their obligations and liability to pay under the CA and the new regulations.

3. Make regulatory changes needed to enable the CBSA to introduce updated billing cycles for TCPs.

The regulatory amendments will introduce new billing periods and modified accounting due dates for certain CBSA import programs, a harmonized payment due date for all CBSA import programs, and will anchor in regulation a correction period that makes use of versionable accounting processes. This approach will reduce the administrative burden on TCPs and the CBSA by reducing the number of payments to be made and processed during the billing cycle, and by making the monthly statement of account more understandable. The introduction of a harmonized payment due date also supports a simplified process for making corrections and will reduce the administrative burden associated with making corrections after the payment due date.

Description

The regulatory changes will amend nine regulations under the CA and three regulations under the CT. It will also introduce new regulations, the Financial Security (Electronic Means) Regulations, under the CA.

The regulatory updates fall into three broad categories: (i) electronic communication and payment; (ii) the provision of financial security electronically; and (iii) billing cycles. The regulatory changes will also make housekeeping amendments to update outdated references and nomenclature, and reflect current program policy.

1. Electronic communication and payment

Electronic communication

The regulatory amendments concerning electronic communication will affect individuals or businesses who wish to enroll in a CBSA program (for example Release Prior to Payment,footnote 15 customs broker or bonded carrier); import goods into Canada; transport imported goods within Canada; operate a duty free shop or customs warehouse; or who are authorized to transact with the CBSA on behalf of clients (e.g. customs broker, trade consultant, or lawyer).

The following regulations are being amended:

These amendments can be broken down into two subcategories: (i) facilitation; and (ii) requirements.

Facilitation

The amendments to facilitate electronic communication via the CCP or EDI will remove the requirement for TCPs to notify or submit documentation to a specific person (e.g. chief officer of customs) at a specific place (e.g. customs office) and replace it with a requirement to notify or submit documentation to the Agency more broadly. This will allow TCPs to notify or submit documentation to the CBSA electronically, though it will not introduce a requirement in regulation for electronic communication.

Consequential amendments are also being made to Schedule 1, Part 3, of the Designated Provisions (Customs) Regulations. These Regulations specify the contraventions for which a person may be issued a penalty; the amendments will remove the requirement for customs brokers to notify the chief officer of customs in writing for specific changes listed in the Customs Brokers Licensing Regulations (e.g. change in the address of a business office at which a broker transacts business; change in the legal or business name of the partnership or corporation; change in the officers or directors of the corporation). Instead, customs brokers will be required to notify the Agency more broadly, and failure to do so will represent a contravention for which a penalty could apply.

Requirements

In addition to providing the option for TCPs to communicate electronically, the regulatory amendments will require electronic communication for the following:

The amendments related to duty free shop operations will ensure that the CBSA is better able to centrally monitor and administer the activities of this highly regulated industry, in which dutiable goods are permitted to enter and leave duty free shop facilities without duties having been paid under specific conditions. Required electronic transmission of licence applications and information regarding changes in the beneficial ownership documentation will ensure consistent and updated file management with respect to duty free shop ownership and operation.

The regulatory amendments related to accounting will require TCPs to account for goods using electronic means, as specified in the Electronic Commerce Client Requirements Document (ECCRD), subject to prescribed exceptions as determined by the Minister (e.g. should there be an issue with required IT systems, if there were extenuating circumstances like a natural disaster or if it is impracticable for a person, due to circumstances outside their control, to account for goods using electronic means). While TCPs will be required to account for goods electronically, TCPs who have obtained authorization from the CBSA for interim accounting (e.g. the Department of National Defence, who imports military equipment) will continue to be permitted to submit interim accounting to the CBSA using a paper-based process as per a policy decision made by the CBSA.

In practice, this means that following the coming into force of the regulations, paper-based accounting for goods will not be accepted by the CBSA except for the purposes of interim accounting or in exceptional circumstances.

Electronic payment

The regulatory amendments concerning electronic payment will affect the Canada Post Corporation, who is required to pay duties to the CBSA on goods imported as mail. The AIGPDR will be amended to remove a requirement for the Canada Post Corporation to make payments by cash or certified cheque and will instead prescribe that those payments be made via electronic means.

2. Provision of financial security electronically

The regulatory amendments concerning financial security to be provided electronically will affect individuals or businesses who are required to provide an electronic deposit or electronic confirmation that financial security has been secured from a financial security provider in order to obtain the release of imported goods prior to payment or to obtain a licence (such as a broker’s licence or to operate a bonded warehouse).

The CBSA is amending the following regulations related to requiring financial security electronically:

The regulatory amendments to each of the above-noted regulations will remove the requirements for TCPs to submit paper-based forms of financial security to the Agency in order to meet their security requirement to participate in a CBSA program. The regulatory amendments will also specify that program applicants must provide financial security in accordance with the requirements of the new Financial Security (Electronic Means) Regulations. These new regulations (i) establish the obligation for TCPs to confirm or provide information concerning financial security electronically to the CBSA; and (ii) establish certain terms and conditions for the security agreement between the person required to give security (the debtor) under the CA or CT and the financial security provider.

Specifically, the new regulations will require the following to be provided to the CBSA electronically to confirm the security agreement:

In addition, the debtor or security provider will be required to electronically provide a copy of the security agreement to the CBSA when requested to do so and, when terminating a security agreement, the security provider will be obliged to electronically notify the Minister at least 30 days before the day on which the agreement is terminated. Further, the new regulations outline the process under which the CBSA would make a demand for payment when the debtor fails to pay amounts owed under the CA or the CT, and specify the obligation of the security provider to pay the amount claimed.

The new regulations will also maintain the option to provide a deposit to the CBSA. TCPs will be required to do this through approved electronic payment methods. The new regulations include specific exceptions, as determined by the Minister, in which non-electronic forms of security will be accepted (e.g. should there be an issue with required IT systems, if there are extenuating circumstances like a natural disaster, or if it is impracticable for a person, due to circumstances beyond their control, to provide proof of security by electronic means).

To support the transition from financial security being provided through the paper-based system to the provision of financial security electronically under the new regulations for goods released prior to the payment of duties, the AIGPDR will include a transition period. This amendment will permit importers to obtain release of their goods prior to the payment of duties for up to 180 days following the coming into force of the regulations without posting security, as long as the importer has registered for an account in the CBSA electronic system. The purpose of the transition period is to incent onboarding in the CCP by granting importers the time they need to shift from a paper-based customs bond to submitting financial security electronically to meet their obligations in order for their goods to be released prior to payment of duties.

Some importers are expected to already have compliant forms of financial security in place and active accounts in the CBSA electronic system when the new regulations come into force. These importers will not need to make any adjustments to be in compliance with the new regulations and, therefore, are not expected to need the transition period.

3. Changes needed to implement simplified billing

The regulatory amendments will make changes to billing periods, update accounting due dates for certain CBSA import programs, introduce a harmonized payment due date, and enable a versionable correction period. Taken as a whole, these amendments will affect individuals or businesses who participate in an import program that involves a regularized billing and payment cycle as compared to paying duties at the time goods are released. These amendments will also impact those entities authorized to transact on an importer’s behalf, such as customs brokers.

The following regulatory amendments will be made to the AIGPDR to implement simplified billing cycles:

Adjusted billing periods for some programs. Amendments will reduce the number of available billing periods from three to two. The first type of billing period is currently in place and runs from the first day of the month to the last day of the month; it applies to CLVS, CTC and importations by CSA participants who choose this billing option. The second, new billing period will run from the 18th of a month until the 17th of the following month and will apply to HVS/LVS and importations by CSA participants who choose this billing option. This change is intended to respect the unique operating realities of certain programs (such as CLVS and CTC) while allowing alignment with the harmonized payment due date for all TCPs that is described below.

A change to accounting due dates for specific CBSA import programs. Regulatory amendments will modify the accounting due dates for TCPs who import low-value shipments and for CSA importers. Specifically, TCPs who import low-value shipments will operate according to the same five-business-day accounting requirement as TCPs who account for high-value shipments. As a result, these TCPs will be required to account for all goods released during the billing period five business days after the goods are released. TCPs who participate in the CSA Program will operate according to the same accounting deadline (which will be the payment due date) regardless of which of the two CSA billing options they choose.

A harmonized payment due date for all CBSA import programs. The regulations will be amended to ensure all TCPs operate according to the same payment due date, which is 10 weekdays after the 17th of the month in which the statement of account was issued. For the purposes of the harmonized payment due date, weekdays will be calculated as any day from Monday to Friday, inclusive of holidays.

A versionable correction period. The regulatory amendments will set the above noted harmonized payment due date as the “prescribed day” for the purposes of amendments to section 33.4 of the CA, which describes that interest begins to accrue on the day after the prescribed day. The definition of the “prescribed day” also establishes the anchor for a correction period, or the outermost day in a billing cycle by which a TCP can make corrections to the origin, tariff classification of value for duty on accounting documents without triggering a redetermination process or incurring a penalty. This “versionable accounting” capacity will be enabled through technical capacity available at CARM R2, and will be further supported by amendments to subsection 32.2(3) of the CA that specifies that only corrections submitted after the prescribed day will be treated as a re-determination. These CA amendments received royal assent in the 2021 BIA and will come into force to coincide with these regulatory amendments and the launch of CARM R2.

Housekeeping

Additional amendments to the following regulations will be made to ensure they are kept up to date with the appropriate nomenclature, changes to the name and specific provisions of referenced statutes, and to formalize in regulation current CBSA program policy decisions:

Accounting for Imported Goods and Payment of Duties Regulations (AIGPDR)
Customs Brokers Licensing Regulations
Customs Sufferance Warehouses Regulations
Storage of Goods Regulations
Temporary Importation (Excise Levies and Additional Duties) Regulations

Regulatory development

Consultation

Consultations prior to prepublication in the Canada Gazette, Part I

The CBSA began consultations with stakeholders on CARM-related issues in 2013, and stakeholder input has informed the design and development of the vision for CARM and its associated regulatory initiative. In 2018, robust consultations were formalized under the direction of the CARM Change Enablement Division, a group within the CBSA tasked with overseeing all consultations in connection with the CARM project. This division created formal stakeholder forums to encourage regular engagement with the TCP community, including the CARM TCP Working Group (TCP WG) and multiple technical sub-working groups, which include representatives from across key domains (brokers, importers, etc.) and associations, representing large, medium and small businesses. These organizations have continually shared information with their members about the upcoming changes that CARM and this associated regulatory initiative introduce, and how they may impact their respective areas.

More specifically, the CBSA consulted commercial importers, customs brokers, exporters, carriers, couriers, freight forwarders, duty free shop operators, customs bonded warehouse operators, sufferance warehouse operators and security providers. Given the size of the Canadian trade community impacted by CARM implementation, the Agency was not able to consult with each individual stakeholder. However, representatives were included from many associations, federations and societies in consultation sessions and engagement events (e.g. the Canadian Association of Importers and Exporters, the Surety Association of Canada, the Canadian Federation of Independent Businesses, and the Canadian Society of Customs Brokers).

From 2018 to June 2022, the CBSA consulted with stakeholders via

The CBSA has also heard from stakeholders through the Digitalization and Technology-Neutral Regulations Roadmap.

As part of the aforementioned consultations, TCPs had the opportunity to feed into the design of the CARM system, raise concerns related to future-state processes, and discuss how the CARM system will modify key business requirements and the way they conduct business with the CBSA. Through these consultations, the CBSA was able to gather insight on stakeholder positions related to the key changes that could arise as a result of CARM R2 and the associated regulatory initiative. Key issues raised include the following.

CARM implementation approach

TCPs raised concerns about the “big bang” approach to CARM implementation, where many functionalities will be released at once upon the coming into force of these amendments and new regulations. Based on this feedback and lessons learned from other jurisdictions, the CBSA developed R0 and R1, which created the technological foundations for CARM and allowed TCPs to begin onboarding onto the CCP and to familiarize themselves with the system. In addition, the CBSA prepublished the regulatory amendments and new regulations in the Canada Gazette, Part I, on November 26, 2022, for 45 days which allowed TCPs to familiarize themselves and comment on the proposed regulations. TCPs will also have time to familiarize themselves with the regulations between publication of the final regulations and the launch of R2 in May 2024. The regulatory amendments also include a transition period to allow importers who wish to continue to have their goods released prior to the payment of duties to comply with the requirement to provide their financial security electronically. The transition period was established to decrease the risk of operational impacts and delays once CARM R2 is implemented.

While the CBSA heard from TCPs that they would appreciate an even more gradual CARM implementation approach, the CBSA is limited by the fact that CARM cannot be run in parallel with legacy systems. That means that some CARM functionalities (beyond those included in R0 and R1) cannot be released while maintaining existing legacy systems. For that reason, the coming into force of the regulatory changes aligns with CARM R2 to ensure that TCPs are able to comply fully with the regulations and that the CBSA can activate the full functionalities of the CARM system via the CCP and begin decommissioning legacy systems.

Electronic communication

Overall, TCPs responded positively to the changes that will allow for electronic communication, as TCPs will no longer be required to send the CBSA paper documents. However, TCPs from the CLVS stream raised some concerns about the requirement to create an account on the CCP to meet their new regulatory requirements. To respond to these concerns and help facilitate the transition to the use of the CCP, the CBSA has developed an alternative process that will be set out in operational policy (e.g. D-Memoranda) on an interim basis for CLVS participants.

Provision of financial security electronically

While TCPs largely supported the move to electronic transmission of information regarding their financial security, many raised concerns about making significant IT system investments and changes to meet these (and other CBSA) financial security requirements until they were made aware of their specific obligations laid out in regulations, including the terms and conditions for acceptable financial security that are included in the new Financial Security (Electronic Means) Regulations. They also indicated that they will need sufficient lead time (up to one year) to make the necessary changes to their IT systems to meet the new financial security requirements. To respond to these concerns, this regulatory initiative includes a transition period. The transition period will give additional time (180 days after the coming into force of the regulations) for importers who wish to continue to have their goods released prior to the payment of duties to onboard and prepare for the new financial security requirements.

Billing cycles

TCPs were generally supportive of the changes to introduce the updated billing cycles. The changes will establish a simplified and more streamlined process for TCPs submitting accounting to the CBSA and will eliminate complexities identified in the past when they were required to manage multiple payment due dates each month. In cases where a TCP may have an issue submitting their accounting information electronically, flexibility exists in the regulations whereby importers who are unable to comply with electronic accounting requirements in exceptional circumstances will be able to use legacy processes to meet their accounting requirements. TCPs were also supportive of the introduction of a penalty-free correction period, and the ability to make corrections and adjustments online, as it will support them in providing the CBSA with the most accurate up-to-date information possible and will not penalize them if they make changes to their accounting information.

Prepublication in the Canada Gazette, Part I

The regulatory amendments and the new regulations were prepublished in the Canada Gazette, Part I, on November 26, 2022, followed by a 30-day public comment period. Once published, the CBSA shared the publication with the TCP WG, other CBSA working groups and the Border Commercial Consultative Committee. The publication was also shared on the CBSA website and social media.

During the consultation period, stakeholders had the opportunity to view and submit comments on the regulations through the Online Regulatory Consultation System or by email. The CBSA received approximately 137 unique comments from 15 identified and 2 anonymous commenters. While many comments received by the CBSA were directly related to the regulatory amendments and new Financial Security (Electronic Means) Regulations (approximately 35% of all comments received), others were related to the CARM project as a whole and its associated processes more generally. No substantive changes to the regulations were made as a result of the consultation period. Some minor changes to the new Financial Security (Electronic Means) Regulations, the AIGPDR and the Duty Free Shop Regulations were made, as described below.

Comments related to CARM regulations

The comments received specific to the regulations included comments related to the costs and benefits to the CBSA and TCPs as a result of the regulatory changes; the requirement to communicate with the CBSA electronically via the CCP; the requirement for TCPs to post security or provide confirmation of security to the CBSA electronically and associated new Financial Security (Electronic Means) Regulations; the new CARM billing cycles; the role of customs brokers in trade facilitation; Canada’s international obligations; how the CBSA is monitoring the CARM Key Performance Indicators (KPIs); and, the timing of R2 and industry readiness leading up to implementation. While no substantive changes have been made to the regulations as a result of the comments received, certain provisions of the Financial Security (Electronic Means) Regulations have been clarified, as described below.

The comments received that directly relate to the CARM regulatory initiative have been grouped into the following themes:

1. Regulatory costs and benefits

The CBSA received a number of comments from stakeholders surrounding the costs and benefits to both the CBSA and TCPs following the full implementation of CARM. The assumptions and results of the cost-benefit analysis (CBA) in this Regulatory Impact Analysis Statement (RIAS) are explained in more detail in the Cost Benefit Analysis Report: Regulatory Amendments and New Regulations in support of the Canada Border Services Agency’s (CBSA) Assessment and Revenue Management (CARM) Project, which is available upon request. In the CBA, no estimates were changed as a result of comments; however, additional details on areas that received the most feedback are provided below.

There were comments to the effect that CBSA was not ready for implementation and that these costs were not included in the CBA. The CBA is predicated on the expectation that the implementation of CARM will go as planned. Since the CBSA has consulted extensively with TCPs and is heavily engaged in onboarding clients to the CCP, it is presumed that stakeholders will be well prepared for the full implementation of CARM, allowing for a smooth transition without significant trade disruptions.

Many concerns were raised about costs not reflected in the CBA, including the new calculation formula for the amount of financial security required to participate in the RPP Program and the move to importer-posted financial security. These represent policy decisions made by the CBSA, and are not a result of the regulations; therefore, they are not included in the CARM regulatory CBA.

There were also comments illustrating that TCPs already communicate electronically with the CBSA. While the CARM system will allow clients to electronically register with the CBSA, enroll in commercial programs, upload documents, and receive notifications from the CBSA, it is recognized that some of these steps may already be completed electronically even though the way the regulation is currently worded suggests that these processes are accomplished in-person or by mail. Specifically, comments from larger organizations indicated that few TCPs are required to submit any paperwork in person at a CBSA office, and that approximately 95% of transactions are already transmitted electronically, thus contributing no benefit to larger TCPs. Conversely, comments from small businesses reveal the frustration with being required to go into CBSA offices to manually sign for shipments, and so CARM will clearly benefit smaller TCPs. As a result, the CBA sought to balance the minor administrative savings for TCPs that already communicate electronically with the larger administrative savings for those still using manual processes. By considering both perspectives, the CBA monetized these administrative savings as the equivalent of a cost improvement of 1% per shipment on average for all TCPs — an estimate that takes into account that some activities are already performed electronically.

Additional concerns were raised about existing employees of TCPs becoming familiar with the CARM system. With respect to these concerns, one comment indicated that the CBA underestimates training costs and does not accurately portray the additional cost for TCPs due to training extra employees for CARM, as well as additional training for existing employees. While this may be true for some TCPs, it is important to note that the amount of training required will vary among TCPs. For importers with simple accounts, with greater technological knowledge, or who are using a service provider, required training could be minimal. For other importers with complex accounts or who are less comfortable with the technology, increased time reviewing resources or accessing training materials could be needed. For example, TCPs who need to understand CARM’s specialized functions or specific processes may require up to 30 hours to prepare to use CARM. Based on an internal CBSA assessment, the CBA estimates that, on average, TCPs will require one employee to undergo approximately 10 hours of training, which will include formal training, as well as learning processes and consulting resources.

Further concerns were raised about TCPs having the required technology to ensure that CARM functions properly with their systems. Specifically, commenters noted that cost drivers are high for updating systems as well as the design and implementation of CARM at R1 has resulted in disproportionate infrastructure costs. Additionally, a lack of digital infrastructure in rural, remote and Indigenous communities means they may not be able to reap the full benefit of digitization. To sufficiently assess the cost to all TCPs of updating internal systems, the CBSA accessed previous internal research to estimate that the upfront IT upgrade cost per business is $3,863 and the annual maintenance cost of the upgrade per business is $856, both in 2020 dollars. This cost is linked specifically to the introduction of simplified accounting due dates and billing periods, as the Agency expects that some importers and other TCPs will need to update their own accounting systems to reflect these changes. The CBSA estimates 5% will incur these costs. This may not reflect additional optional costs that TCPs may incur or have already incurred to optimize their systems for CARM R2 (e.g. establishing a new EDI connection with the CBSA) as this is not an obligation introduced by the regulations.

2. Electronic communication

The CBSA received several comments related to the electronic communication-related provisions of the regulations. Specifically, the comments noted potential limitations in access to the CCP for TCPs living in rural, remote and Indigenous communities; highlighted the need for exceptions to the requirement to account for goods by electronic means for situations such as when TCPs do not have a reliable internet connection or lack the digital infrastructure to utilize the CCP; and, requested clarification on the removal of wet ink signature requirements for bonds.

No changes were made to the regulations to address these comments. However, following the publication of the regulations in the Canada Gazette, Part I, the CBSA discovered that, in select cases, the CARM system is unable to accept document uploads electronically if the file size is too large. As such, the amendment proposed in the draft regulations that were published in the Canada Gazette, Part I, to require the electronic submission of documentation referenced in subsection 16(2) of the Duty Free Shop Regulations has been revised to remove the requirement for this documentation to be submitted electronically. However, it should be noted that the documentation referenced in subsection 16(2) of the Duty Free Shop Regulations can be uploaded electronically as long as the file size does not exceed the CARM system maximum. The requirements to submit a duty free shop licence application electronically outlined in subsection 3(2) and to notify the Agency electronically of a proposed change in the beneficial ownership of the shares of a corporation operating a duty free shop outlined in section 17.1 of the Duty Free Shop Regulations published in the Canada Gazette, Part I, have not changed as this documentation will not exceed the CARM system file size maximum.

The CBSA has taken into consideration the potential challenges in accessing the CCP and the need for exceptions to the requirement to account for goods electronically in the development of the regulations. In subsection 2.2(2) of the AIGPDR, as well as subsection 5(3) of the new Financial Security (Electronic Means) Regulations, non-electronic forms of accounting or security will be accepted if the Minister determines that

The application of these exceptions will be implemented in a consistent and fair manner.

With respect to the request for clarification surrounding the removal of the wet ink signature requirement for bonds, the new Financial Security (Electronic Means) Regulations will allow the CBSA and TCPs to move away from the current “signed, sealed and delivered” requirements set out in the D120 Customs Bond. Under CARM, information related to the security agreement that exists between a security provider and a debtor will be provided to the CBSA electronically without a requirement for wet ink signatures. However, it is important to note that the CBSA is not party to the security agreement and, therefore, wet ink signatures may still form part of the process that will take place between the security provider and the debtor.

3. Provision of financial security electronically

The CBSA received comments from some stakeholders voicing concern that 180 days is not enough time to allow importers to transition to the new financial security requirements; requesting visibility into the terms and conditions for financial security and how RPP Program enrolment will be monitored; and, requesting clarification around terminology, wording and timeframes in the new Financial Security (Electronic Means) Regulations. The CBSA also received a comment expressing support for the implementation of a transition period that will allow importers time to meet the new financial security requirements.

The CBSA has decided to maintain the 180-day transition period to allow sufficient time for importers to obtain security while managing the level of financial risk for the CBSA and the Government of Canada. Through consultations with financial security providers, the CBSA learned that, in most cases, the process for an importer to obtain security is expected to take less than a week. While the length of time it takes for the debtor and security provider to finalize a security agreement will vary based on a number of factors (e.g. level of risk of the debtor), the CBSA believes that the 180-day transition period will give importers an adequate amount of time to meet their security requirements in order to continue to obtain release of their goods prior to the payment of duties.

The CBSA will also be closely monitoring uptake and usage of the RPP Program at R2 to help manage financial risks during that period. TCPs who are not able to obtain an acceptable financial security in that time can continue to use alternate approved options such a providing a cash deposit through the CCP.

With respect to comments received requesting visibility into the terms and conditions for financial security, the terms and conditions for the security agreement between the debtor and the security provider are incorporated into section 4 of the new Financial Security (Electronic Means) Regulations. This will be communicated to stakeholders by the CARM Stakeholder Engagement team through the TCP WG and email communication.

Lastly, the CBSA has taken the requests for clarification surrounding terminology, wording and timeframes into consideration and has made changes to the new Financial Security (Electronic Means) Regulations to

4. Billing cycles

The CBSA received feedback from stakeholders questioning the rationale behind the change to the accounting due date for LVS; voicing concern surrounding whether the harmonized payment due date will simplify payment matters for TCPs in practice; requesting additional information to help stakeholders better understand the new billing cycles; and requesting information on the acceptable payment methods in CARM for all TCPs.

No changes were made to the regulations to address these comments. However, following the publication of the regulations in the Canada Gazette, Part I, it was confirmed that the billing periods in the CARM system are based on when the goods are released, not when they are accounted for. For example, the billing period for HVS and LVS includes all goods that were released from the 18th of a month and ending on the 17th of the following month. Section 10.1 of the AIGPDR was amended to ensure alignment with the CARM system.

The CBSA made the decision to align the accounting due date for LVS and HVS to 5 business days after the goods are released to streamline accounting due dates across similar programs. In an effort to simplify payment matters, the CBSA also made the decision to harmonize the payment due date for all TCPs. This will introduce a single comprehensive monthly payment due date of 10 weekdays after the 17th of the month in which the statement of account was issued.

With respect to the request for additional consultation to better understand the new billing cycles, including what information will be contained on the monthly statement of account, the CARM Stakeholder Engagement team will be engaging with stakeholders through the TCP WG and webinars for the general public in the months prior to R2. These outreach activities are intended to help TCPs better understand how the new billing cycles will impact them.

Under CARM, the CBSA will accept payment electronically on the CCP by credit card for amounts less than $5,000 or Interac Online. Payment can also be submitted to the CBSA through a Pre-Authorized Debit (PAD) agreement that allows the CBSA to take pre-authorized payments from a TCP’s bank account every month, through online banking or via EDI. Additionally, while the Agency encourages the use of electronic payments, TCPs will still be permitted to pay using non-electronic methods at the border.

The CBSA is also working, in collaboration with financial institutions, to offer Non-Resident Importers (NRIs) additional electronic payment options. The Agency is currently working to onboard new US and international financial institutions, and NRIs can continue to remit payment through their brokers transacting on their behalf. The CBSA will also continue to work with NRIs on a case-by-case basis to identify viable options for electronic payment through CARM.

5. Changes to relationship with customs brokers

The CBSA received a number of comments related to the important role of customs brokers in trade facilitation. While CARM is introducing changes to the security provision requirements for the RPP Program that will no longer allow importers to use their customs broker’s security to obtain release of their goods prior to the payment of duties, customs brokers will continue to be able to transact on behalf of importers provided that they have been delegated authority to do so within the CCP.

6. International obligations

The CBSA received comments from stakeholders surrounding Canada’s international obligations under the World Customs Organization (WCO), World Trade Organization (WTO) and the Canada-United States-Mexico Agreement (CUSMA). Specifically, stakeholders raised concerns related to the CBSA’s move to importer-posted financial security for the RPP Program that will no longer allow importers to use their customs broker’s bond as the WCO encourages the use of customs brokers to facilitate trade; the billing cycle changes falling short of Canada’s WTO obligations related to the simplification and facilitation of trade; and CARM being in tension with articles of CUSMA related to customs procedures that facilitate trade and the efficient release of goods, as well as expedited customs procedures for express shipments (specifically articles 7.1, 7.7 and 7.8 of CUSMA).

While the WCO encourages the use of customs brokers to help facilitate trade, there are currently no WCO obligations that require customs administrations to allow customs brokers to secure duties and taxes on behalf of importers. As mentioned above, under CARM, customs brokers will continue to be able to transact on behalf of importers with the exception of allowing importers to utilize their bond for participation in the RPP Program. Similarly, the billing cycle changes, including the harmonized payment due date, are intended to simplify processes for TCPs and contribute to processes that aid in the facilitation of trade. There are no WTO obligations that do not allow for the simplification of matters related to billing and payment.

As designed, the CARM system meets each of the following provisions of Chapter 7 of CUSMA:

Though there may be initial costs to TCPs associated with CARM implementation as articulated in the regulatory CBA, in the long-run it is anticipated that TCPs will benefit from simplified and modernized electronic processes.

7. Performance measurement

The CBSA received several comments from stakeholders requesting more visibility into the KPIs the CARM project is using to monitor the progress of CARM to ensure that desired benefits are being realized as planned. The KPIs that the CBSA is tracking are as follows:

8. Timing and industry readiness

The CBSA received several comments expressing concerns about the timing of R2 implementation that was initially planned for October 2023 as October is often a very busy time for TCPs leading up to the holiday season. The comments also expressed concerns surrounding TCP readiness for an R2 go-live in October 2023, including lack of time to onboard to the CCP and set appropriate delegation in the portal.

With respect to the timing of R2 implementation, due to concerns surrounding readiness for an October 2023 R2 date, the CBSA has made the decision to move CARM R2 to May 2024. This is expected to allow adequate time for the CBSA and TCPs to prepare for R2. The CBSA understands that adapting to a new IT system, at the same time as introducing new regulatory requirements, creates additional pressure for TCPs. Delaying the implementation of R2 until May 2024 will also allow more time for TCPs to onboard and set up appropriate delegation in the CCP. The CBSA is committed to engaging in detailed consultation with industry stakeholders to ensure a successful R2 implementation in May 2024.

The CBSA also continues to support TCPs to set up their CCP accounts using a comprehensive engagement strategy including presentations and webinar series for TCPs, tailored outreach to associations to support them in sharing information with their members, and enhanced presence at Ports of Entry. Based on lessons learned following R1 launch, the CBSA has also implemented changes to simplify the registration process for importers to support successful onboarding.

The CBSA is closely monitoring importer and broker onboarding to the CCP. The Agency has set onboarding targets (for all importers and brokers and for the largest importers by value and volume) to ensure that there is sufficient registration for R2. While broker onboarding targets are on track, the Agency continues to work hard to reach importer onboarding targets and is increasing engagement efforts to ensure there is sufficient onboarding to facilitate a smooth R2 implementation in May 2024.

As part of CARM’s onboarding engagement strategy, the CBSA is also encouraging importers to set appropriate delegation in the CCP. The CBSA is working closely with the Canadian Society of Customs Brokers to ensure that brokers have been delegated authority in their clients’ accounts to facilitate a smooth transition at go-live.

Comments related to CARM (non-regulatory)

The comments received related to the CARM project and its associated processes more generally included comments related to: CARM system functionality and processes, as well as the timing of R2 implementation; TCP onboarding and readiness; the requirement for importers to post security to obtain release of their goods prior to the payment of duties; the financial security calculation formula for the RPP Program; CLVS-specific questions and concerns; and requesting additional information regarding the processes for NRIs.

The comments received that relate to CARM but do not relate directly to the regulatory initiative have been grouped into the following themes:

1. CARM system functionality, processes and implementation concerns

The CBSA received a number of comments outlining concerns about, lack of clarity around specific CARM processes, and the “big bang” implementation approach whereby CARM’s remaining functionality will be released without continuing to run legacy systems concurrently. The CBSA also received comments highlighting possible functionalities that could be introduced in CARM to increase benefits to the TCP community.

The CBSA has conducted a robust assessment of readiness for R2. The CARM system will be prepared for full implementation in May 2024. To support this assessment of readiness, the CBSA has conducted robust system testing, and made changes to improve system processes and resolve issues along the way. In addition, the CBSA conducted a CARM Experience Simulation (CES) from February to June 2023, where volunteer TCPs ran through simulations of CARM business processes and interactions in a non-production environment. This activity was helpful in building participant readiness for CARM R2; however, the simulation identified some issues with certain complex business processes in CARM which have been resolved for R2 in May 2024. Following R2 implementation, the Agency will also conduct a “hypercare” period where the system will be closely monitored and any unanticipated issues will be dealt with in a priority manner.

To further support CBSA and TCP readiness in advance of CARM becoming the system of record in May 2024, the CBSA commenced the second iteration of CES (CES 2.0) on October 16, 2023, upon migrating R2 functionality into a pre-production environment. Through CES 2.0, representatives from the CBSA and a sample of TCPs have the opportunity to simulate business processes and prepare for the transition to CARM R2. CBSA participants in CES 2.0 include representatives from program areas and regional operations as part of the “Model CBSA” structure who are able to interact with the system in the same manner they would expect when CARM goes into production in May 2024. Additional CBSA employees are also participating to engage with CARM R2 functionality to assist their respective program areas in completing business readiness activities. TCPs will begin participating in CES 2.0 in early 2024 and represent a cross-section of the types of TCPs that will interact with CARM upon R2 go-live, including customs brokers, importers and financial security providers.

Additionally, the CBSA will continue to engage with TCPs through existing forums such as the TCP WG, targeted engagement with associations, and via tailored sessions on CARM that can be planned for organizations upon request. Further, relevant operational policy documents (D-Memoranda) will be updated prior to go-live to help TCPs understand how operational processes will change after implementation.

With respect to the implementation approach and timeline, the CBSA is aware of concerns raised by the TCP community surrounding the “big bang” implementation approach at R2. However, the CBSA has conducted an analysis and determined that it is not feasible to run CARM in parallel with legacy systems, meaning that remaining core CARM functionalities must be released concurrently at R2. CARM R2 will introduce a new data model that is incompatible with existing legacy systems, so any attempts to run parallel systems would be extremely costly to develop and would impact the Agency’s ability to go-live with R2 as planned. In addition, the CBSA’s aging technology is fragile; therefore, keeping legacy systems running could also present risks to the Agency as the systems could experience issues causing significant operational impacts.

Recommendations for changes or additions to system functionality have been sent to the CARM Project Team for consideration as CARM is implemented and possible enhancements are identified in the future.

2. Importer obligation to provide financial security

The CBSA received a number of comments expressing concern surrounding the move to importer-posted financial security for participation in the RPP Program and recommending that the CBSA continue to accept customs broker’s bonds as doing so would simplify trade and reduce costs for importers. While the CBSA is aware that moving to importer-posted financial security is a big change for importers who currently use their customs broker’s bond, there is a desire to move away from this practice to eliminate the challenges the CBSA has faced in the past when attempting to claim against a broker’s bond. This policy decision will allow the CBSA to collect on security, which is aligned to CARM’s goal to improve security of tax revenue for the benefit of Canadians.

Through the use of the CCP, importers who are now required to post financial security will be able to monitor their financial security utilization and will receive notifications or “nudges” if they are approaching their security limit. This will simplify the process for importers and give them increased visibility into their security account information rather than having to rely on their customs broker to obtain it.

To facilitate the transition to the new financial security requirements for the RPP Program whereby importers who currently use their customs broker’s bond to obtain release of their goods prior to the payment of duties will be required to obtain their own security, the regulations are providing a 180-day transition period to give importers time to obtain security from a security provider or post a deposit on the CCP.

3. RPP Program – Financial security requirements and calculations

The CBSA received several comments voicing concerns and making recommendations related to the financial security calculation formula for the RPP Program. Specifically, stakeholders highlighted concerns surrounding the inclusion of GST/HST in the calculation formula, and recommended that the security requirement be calculated based on the nine-digit business number (legal entity level), rather than the import/export account level, and that the minimum bond threshold be lowered.

The calculation for financial security requirements and the minimum bond threshold will be set out in CBSA operational policy (e.g. D-Memoranda) and were designed in consultation with representatives from the TCP community. The calculation is designed to ensure that it is feasible for all importers to post financial security that meets their needs and is not overly burdensome, while also offering sufficient protection against payment default for the Government of Canada. The decision to include GST was made to improve security on important tax revenue, benefiting Canadians and better representing total debt owed to the Crown. Following R2 implementation, the CBSA will be monitoring the impacts of these policy decisions closely to determine if they are effective and to be aware of any potential unintended consequences that could be introduced.

4. CLVS-specific concerns

The CBSA received a number of comments related to the CLVS Program, including concerns surrounding potential competitive disadvantages for CLVS participants and the moratorium on the CLVS Program; questions related to outstanding policy and procedural questions; and recommendations for an off-ramp relative to commercial importations under the CLVS Program or a deferral of requiring CLVS Program participants to utilize CARM until future phased releases.

In response to this feedback, it should be highlighted that the CBSA decision to place a moratorium on applications to the CLVS Program was intended as a temporary stopgap measure while the Agency modernizes the CLVS Program. The CBSA has also developed an alternative process that will be set out in operational policy (e.g. D-Memoranda) on an interim basis to facilitate the transition to the use of the CCP for CLVS participants. Once finalized, the process will be communicated to TCPs through the CLVS/CARM Working Group prior to R2. The CBSA is also holding targeted engagement sessions with CLVS stakeholders to clarify outstanding policy and procedural questions around CARM R2 to increase TCP readiness for go-live.

5. Non-resident importers (NRIs)

In response to the comments received asking for more detail surrounding the processes for NRIs in CARM, especially around electronic payment, the CBSA is working closely with its US and Mexican counterparts where a large percentage of NRIs are based, to plan targeted webinars for NRIs to help them understand how CARM will impact them as of R2.

Modern treaty obligations and Indigenous engagement and consultation

As required by the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, an assessment of modern treaty implications was conducted. The assessment examined the geographical scope and subject matter of the initiative in relation to modern treaties in effect and did not identify any potential modern treaty impacts or obligations. The Agency will continue to assess potential impacts as new modern treaties are implemented.

Instrument choice

Regulatory amendments were required to allow for electronic communication and payments. This is because the CBSA’s existing regulatory framework establishes specific communications and payment requirements, in some cases requiring TCPs to use legacy processes (e.g. laying out a requirement to submit paper documentation). The CBSA billing cycles and payment due dates are also currently laid out in regulation, meaning that changes are required in regulation to move towards the desired model.

The new Financial Security (Electronic Means) Regulations lay out obligations for TCPs to provide proof of financial security electronically to the Agency, and set out terms and conditions for the security agreement between the debtor and the security provider. It was decided that the Agency will set out the requirements in regulation, rather than relying only on operational procedures or allowing the industry to set their own requirements. The regulatory approach was selected to allow the CBSA to (i) be certain that financial security provided is sufficient to release an importer’s goods or meet program requirements; (ii) ensure that the security agreement is legitimate (e.g. from an approved security provider); and (iii) to put the CBSA in a better position to successfully claim against the security if applicable debts are not paid.

Regulatory analysis

Benefits and costs

Summary

The full cost-benefit analysis report measures the costs and benefits attributed to stakeholders that will be using CARM once it is rolled out. The estimates included in this document represent the impact of the regulations to the Government of Canada and trade chain partners, specifically importers, customs brokers, and security providers. The CARM regulations will result in efficiencies for both the Government and TCPs and, while switching to the new requirements will lead to transition costs, it is anticipated that the benefits will more than offset these costs.

The benefits and costs occur over a period of 10 years, and are discounted at a 7% discount rate. With the full implementation of CARM, costs to all stakeholders will total $552.1 million over the entire forecast period (fiscal years 2024–2025 to 2033–2034), equivalent to an annualized cost of $78.6 million. Benefits to all stakeholders are expected to total $1.6 billion over 10 years, equivalent to an annualized value of $230.7 million. The benefits of the regulations outweigh the costs by $1.07 billion over the entire forecast period, or $152.1 million annually.

The analytical framework
The baseline scenario

The baseline scenario refers to the situation which would transpire in the absence of any regulatory action and the status quo would be maintained. In the absence of the regulatory amendments and new regulations, the CBSA would be unable to launch CARM, and the CBSA would be required to continue using legacy processes consistent with the current regulations involving extensive administration by both the CBSA and TCPs. In the baseline, CBSA would

CARM would not lead to the realization of any anticipated benefits for the CBSA or TCPs.

The baseline scenario also assumes the CBSA policy decision to require RPP Program participants to secure their own security rather than using that of their customs brokers would be implemented regardless of whether regulatory changes are made.

The regulatory scenario

Under the regulatory scenario, the CARM system will be fully implemented with the regulatory amendments and new regulations in place. TCPs will be required to update their internal accounting systems, as well as undergo personnel training on the CCP and/or EDI.

In particular, the regulatory changes will permit

The difference between the baseline scenario and the regulatory scenario is the incremental impact (costs and benefits) from the CBSA moving to an electronic system.

Requirements of the regulations: Comparing the baseline and regulatory scenarios

Table 1: Requirements contained in the baseline scenario compared to those in the regulatory scenario. The following table outlines the requirements contained in the baseline scenario compared to the regulatory scenario.

Requirement Baseline scenario Regulatory scenario
Subsection 5(1): All security must be given by means of the electronic system specified by the Minister The process is entirely paper based. Electronic transactions are not allowed. Only electronic transactions are allowed except under specific conditions.
Subsection 5(2): Information requirements This is information, provided using manual processes, that needs to appear in a D120 customs bond, and are already required in the current regulations:
  • Indicating the bond number, if applicable.
  • Stating the specific bonded activity that will be secured.
  • Identifying the relevant authority by writing in the appropriate legislation.
  • Writing the amount of security in words.
  • Writing the amount of security in figures.
  • Consulting the applicable D-Memorandum for completion instructions, as the period of validity of a bond varies depending on the program and purpose for which it is issued.
  • Stating the CBSA office where the activities are to be conducted.
  • Stating the principal’s name and address, along with the principal’s business number.
  • Affixing the signatures of two duly authorized officers of the principal indicating their names and titles and impressing with the corporate seal.
  • Stating the surety’s name and address.
  • Affixing the signature of authorized individuals of the surety company, indicating their names and titles and impressing with the corporate seal.
  • Affixing the signature of witnesses, if required.
  • Stating the date the bond was signed and sealed.
 Under the new regulations, the information will be provided electronically thus leading to a cost savings.
Section 6: Copy of the security agreement The CBSA receives a copy of the agreement by default. In the regulatory scenario, the CBSA will request a copy by exception, thus removing the requirement for TCPs to provide copies of agreements unless requested.
Section 7: Termination of the security agreement The provision provides the surety to give 30 days’ notice of the termination date of the security agreement. This provision will continue under the regulatory scenario but is now possible by electronic means.
Subsection 8(2): Demand The CBSA may send the surety a notice of claim, with any other document or information to substantiate the claim, if the debtor has failed to pay an amount that they owe by the day the amount is payable. This enforcement process provision will continue and the CBSA will enforce the terms and conditions of the security agreement in the regulatory scenario.
Subsection 8(3): Limitation period or prescription The CBSA must send the notice of claim within one year after the date of the agreement’s expiry or termination. This limitation period provision will continue in the regulatory scenario, and claims can still be made by the CBSA for the D120 Customs Bond.
Subsection 9(2): Determination by Minister If the surety provides information rebutting the notice of claim, the CBSA must review the information, make a decision, and notify the surety of its decision. This determination provision will continue in the regulatory scenario. It is operational practice, and failure to notify the security provider of the CBSA’s determination means that the demand is never concluded.
Information update If a debtor makes a change to a customs bond, they need to obtain a rider or endorsement from the surety provider to register the change, and then send a copy to the physical CBSA office. There is no regulatory requirement for the importer or security provider to provide the CBSA with updated information should there be a change in the security agreement. While there is no regulatory requirement, the CBSA will strongly encourage importers and security providers to provide the Agency with updated information to ensure that the importer can continue benefitting from obtaining the release of their goods prior to the payment of duties.
Stakeholder engagement

Impacted stakeholders have been engaged on CARM and its associated regulatory changes since 2018, including the TCP working and sub-working groups and CARM engagement events. Through these consultations, TCPs had the opportunity to discuss how CARM will modify key business requirements and the way they conduct business with the CBSA, and the costs and benefits associated with these changes.

The new interfaces, functionalities, services and solutions enabled by CARM are aimed at addressing the needs of various stakeholder groups by changing the way importers account for goods being imported into Canada. However, most stakeholders will need time to prepare, and to comply and understand their new obligations. The COVID pandemic and uncertain general economic outlook has made stakeholders more concerned than ever with the costs that they will bear with CARM implementation, and they are concerned about finding the correct balance.

Government of Canada / Canada Border Services Agency

Many branches and operational groups within the CBSA are involved in the adoption of new CARM processes and the use of new solutions and tools supported by the regulatory changes. These contributions put the CBSA in a position to improve its ability to provide services for commercial importation through increased efficiency and productivity, resulting in cost savings and increased revenue for the Government of Canada.

Trade chain partners (TCPs)

Impacted trade chain partners (TCPs) have been involved in significant consultation throughout the development and design of CARM, most notably

Importers and customs brokers

Importers will be able to follow a simpler process to submit their accounting electronically through using the CCP or EDI. Through the ability to interact with the CBSA electronically, importers will benefit from cost savings as a result of simplified and electronic processes. Importers will also benefit from simplified billing and payment matters through the introduction of new billing cycles and a harmonized payment due date, as well as a simplified electronic process to post financial security for participation in the RPP Program. Similarly, these efficiencies and simplified processes will also benefit customs brokers, as they are often hired by importers to conduct business on their behalf.

Other TCPs

Other TCPs, such as duty free shop operators, will also benefit from cost savings as a result of simplified and electronic processes. Additionally, those who are required to post financial security with the CBSA to meet their program requirements will benefit from the ability to do so electronically.

Security providers

The security provision requirements for the RPP Program will no longer allow importers to utilize their customs broker’s bond, which will reduce potential Government of Canada revenue leakage. In its place, security providers will be required to assume responsibility for unpaid duties owed by importers that they agree to guarantee through a security agreement.

Estimated benefits and costs

The regulatory amendments and new regulations will primarily benefit the Government of Canada through higher efficiency gains and increased revenue from the switch to electronic communications with TCPs. The switch to electronic communication between the CBSA and TCPs is expected to significantly decrease administrative costs for all stakeholders, and will ensure that the CBSA can spend more time verifying transactions. The costs associated with implementing the regulatory amendments will primarily fall on the CBSA, from upfront costs due to implementation, and recurring costs from maintaining the CARM system. TCPs (specifically importers) are also expected to incur some costs once CARM is fully implemented, as they will require IT updates and training to familiarize themselves with the CARM system.

Table 2: Benefits and affected stakeholders
Benefit Explanation of the benefit Affected stakeholders
Reduced administrative costs Once CARM is implemented, the majority of paper forms will be eliminated and many activities will be simplified. It is expected that administrative costs (e.g. the cost of submitting a paper form to the CBSA) will be reduced. TCPs
Revenue from additional verifications completed The process to gather and analyze data for verifications is currently paper based. By moving to an electronic system, these tasks will be streamlined as CARM will automatically gather and analyze verifications data, boosting the CBSA’s revenues. Government of Canada
Revenue from higher yields per verification CARM’s method of targeting verifications based on advanced analytic techniques will optimize verification yields and shorten the time spent by officers on lower yield verifications. It will also increase the yield of targeted verifications by automatically adjusting all non-compliant transactions for a given importer based on the findings from the verification, generating higher revenues. Government of Canada
Cost savings associated with new verification approaches The CBSA will be able to verify more cases due to advanced analytics and systems checks expected with CARM. Government of Canada
Revenue attributed to increased compliance The CBSA relies on importers to assess their own duties and taxes owed based on their interpretation of customs tariffs. CARM enables TCPs to properly assess their own taxes and duties owed. Government of Canada
Revenue from improved collection of bad debt Through a paper-based system, the CBSA is unable to recover all duties and taxes owning. CARM will utilize an early warning signal to identify companies that are at a high risk of default, instigating quicker collection efforts. Government of Canada
Reduced cost of clerical work The switch to CARM will eliminate the majority of paper forms and manual tasks, automate routine and labour-intensive activities and transfer ownership of certain activities to clients through the online
self-service portal.		 Government of Canada
Reduced maintenance cost of trade and revenue management IT systems There are currently 33 systems that support commercial processes at the CBSA, many of which are outdated and not able to support current needs. CARM will replace 15 of these systems, significantly reducing maintenance and technical support costs. Government of Canada
Reduced costs from posting financial security electronically Following CARM implementation, TCP groups will be required to post security by electronic means. TCPs
Table 3: Costs and affected stakeholders
Cost Explanation of the cost Affected stakeholders
Delivery of CARM Annual CARM operating costs, including ongoing maintenance. Government of Canada
Update internal systems CARM will introduce new accounting due dates, billing periods, a penalty-free correction period, and a harmonized payment due date in order to simplify billing and payment processes. This will require importers and TCPs to update their IT and accounting systems. TCPs
Transition and learning costs

The CARM program will require personnel training or hiring, especially those who have experience with IT systems and the electronic submission of data.

CARM is an entirely new system, and while the cost of training is not expected to be significant, it will be carried by numerous stakeholders.

This cost is attributable to regulations, since without the regulations there would be no CARM.

 Security providers
Implementation, communication, and outreach Updating CBSA departmental memoranda and work instruments, as well as responding to functional guidance requests. Government of Canada
Results

The benefits and costs of the CARM program are estimated over a period of 10 years and are discounted at a 7% discount rate. With the full implementation, costs to all stakeholders will total $552.1 million over the entire forecast period (fiscal years 2024–2025 to 2033–2034), which is equivalent to an annualized cost of $78.6 million.

Benefits to all stakeholders are expected to total $1.6 billion over 10 years, or an annualized value of about $230.7 million. Overall, the benefits of the project outweigh the costs by $1.07 billion, which is equivalent to an annualized value of $152.1 million.

Breaking down the results further, costs to industry will total $207.5 million over 10 years ($29.5 million annualized), while benefits will total $612.2 million over 10 years ($87.2 million annualized). For the Government of Canada, costs will come in at $344.6 million ($49.1 million annualized) and benefits will total $1.01 billion ($143.5 million annualized) over the next 10 years.

Distributional analysis and sensitivity analysis

While the overall objective of the regulatory amendments and new Financial Security (Electronic Means) Regulations is to make the processes associated with the assessment and collection of duties and taxes on imported goods simpler and more efficient, the impact of these improvements on TCPs may vary. Data from Statistics Canada indicates that approximately 97% of businesses operating in industries that trade goods (NAICSfootnote 19 31-33, 41, 44) are considered small businesses; and 98% of businesses of TCPs (NAICS 48-49) are considered small businesses, while approximately 96% of sureties are considered small businesses. Using that proportion generates about 221 160 importers, 36 598 other TCPs, and 1 633 sureties who are small businesses that are expected to be impacted by CARM.

A small number of TCPs may not access the CCP because of geographic location (e.g. limited Internet access) or religious reasons, among others. These TCPs will be permitted to continue to use paper-based processes to meet their regulatory requirements with the CBSA if it is determined that they meet the exceptional circumstances for being unable to comply with the electronic requirements outlined in regulation. In addition, any TCP may decide to use a service provider to submit documentation to the CBSA electronically via CARM on their behalf to ensure they remain compliant with their obligations, and not necessarily use the CCP themselves.

The benefits and costs of the regulatory amendments are very likely sensitive to assumptions underlying the analysis. A sensitivity analysis was performed to assess the impact of a 10% increase in the number of shipments expected over the forecast period, a 10% increase in the number of verifications performed by the Government, and a 10% rise in CARM maintenance and operating costs.

This sensitivity analysis implies that the benefits of CARM will be $1.73 billion over 10 years, while costs will come in at $583.6 million. The benefits of CARM will continue to outweigh the costs, with the total impact being $1.15 billion in 2020 present value dollars over 10 years, or $163.3 million annually.

Cost-benefit statement (mandatory for significant-cost-impact proposals)
Table 4: Monetized benefits
Impacted stakeholder Description of benefit First year Year 5 Year 10 Total (PV) Annualized value
Importers and other TCPs Reduced administrative costs for Canadian importers and other TCPs $49,749,829 $39,791,560 $30,098,184 $391,955,621 $55,805,662
Government Revenue from additional verifications completed $28,342,531 $23,313,112 $18,262,166 $229,752,172 $32,711,541
Revenue from higher yields per verification $10,607,464 $8,725,155 $6,834,407 $85,985,742 $12,242,435
Cost savings associated with new verification approaches $26,484,111 $26,455,935 $18,862,649 $252,421,296 $35,939,114
Revenue attributed to increased compliance $11,123,798 $29,247,101 $21,979,611 $250,670,814 $35,689,884
Revenue from improved collection of bad debt $2,448,266 $3,409,375 $2,723,542 $31,202,287 $4,442,504
Reduced cost of clerical work $12,402,625 $10,738,153 $9,039,868 $106,101,886 $15,106,522
Reduced maintenance cost of trade and revenue management IT systems $3,495,314 $6,013,268 $4,733,611 $51,870,864 $7,385,244
Importers and other TCPs Posting financial security electronically $29,303,066 $22,355,169 $15,938,926 $220,219,348 $31,354,281
All stakeholders Total benefits $173,957,003 $170,048,828 $128,472,965 $1,620,180,029 $230,677,187
Table 5: Monetized costs
Impacted stakeholder Description of cost First year Year 5 Year 10 Total (PV) Annualized value
Government Delivery of CARM $38,690,385 $31,949,835 $25,150,730 $314,899,340 $44,834,582
Importers and other TCPs Update internal systems $55,412,063 $7,750,117 $5,525,727 $121,599,153 $17,312,984
Importers, other TCPs and sureties Transition and learning costs $85,898,837 $0 $0 $85,898,837 $12,230,062
Government Implementation, communication and outreach $29,719,626 $0 $0 $29,719,626 $4,231,406
All stakeholders Total costs $209,720,910 $39,699,953 $30,676,456 $552,116,955 $78,609,033
Table 6: Summary of monetized costs and benefits
Impacts Year 1 Year 5 Year 10 Total (PV) Annualized value
Total benefits $173,957,003 $170,048,828 $128,472,965 $1,620,180,029 $230,677,187
Total costs $209,720,910 $39,699,953 $30,676,456 $552,116,955 $78,609,033
NET IMPACT -$35,763,907 $130,348,876 $97,796,508 $1,068,063,074 $152,068,153
Qualitative impacts

While there are numerous quantified costs and benefits associated with the full implementation of CARM, there are also qualitative impacts associated with the project and associated regulatory changes. These are detailed in Table 7:

Table 7: Qualitative impacts
Qualitative impacts
TCPs

Section 6: Copy of the security agreement

Under the current paper-based process, the CBSA receives a copy of the security agreement by default. Under the new scenario, the CBSA will request a copy by exception, thus removing the requirement for TCPs to provide copies of agreements unless requested. This may lead to only minor cost savings for TCPs, and thus is not monetized in this report.

Small business lens

There will be significant benefits of the CARM program for small businesses, especially since many activities will be simplified for TCPs with CARM, such that costs associated with the CBSA’s administrative requirements and clerical work will be reduced. However, there are some administration and compliance costs that they will need to absorb in order to successfully interact with the CBSA after transitioning to CARM. For instance, importers and TCPs will be required to update their internal IT systems in order to communicate electronically with the CBSA. Moreover, importers, TCPs and security providers will need to undergo training on the new systems in order to familiarize themselves with CARM. Although these tasks represent a cost to stakeholders, the CBSA expects that there will be large productivity gains by moving to an electronic system. Once CARM is fully implemented, it is anticipated that small businesses will benefit from these efficiency gains.

The CBSA will provide some flexibility for small business to mitigate the new compliance costs. For example, TCPs will experience reduced administration costs from certifying financial security electronically, which will provide a time savings compared with the paper-based format. Still, importers that are unable to comply with the electronic requirements will be able to use legacy processes to meet their accounting requirements in exceptional circumstances. In addition, a transition period will be established to allow importers who wish to have their goods released prior to the payment once CARM R2 is implemented.

While the CBSA collects data on the total number of importers (228 000), currently there is no reliable data outlining the number of people employed at importers that deal with the CBSA. Additionally, it is challenging to establish the proportion of these that are small, medium-sized or large businesses. Therefore, data from Statistics Canada was used to determine the number of small businesses that will be impacted by the regulations.

Data from Statistics Canada indicates that in 2021, the top three industries (in terms of value of imports of goods into Canada) were those companies involved in wholesale trade (NAICS 41), manufacturing (NAICS 31-33), and retail trade (NAICS 44-45).footnote 20

Table 8: Top three industries (in terms of imports of goods into Canada)
  Small business (0-99) Medium business (100+)
Wholesale trade (41) table c7 note a 56 661 1 229
Manufacturing (31-33) 47 132 3 455
Retail trade (44-45) 140 207 2 896
Total 244 000 7 580
Percent 97 3

Table c7 note(s)

Table c7 note a

Source: Statistics Canada Table (Canadian Business Counts, with employees, June 2018): 33-10-0092-01: June 2018

Return to table c7 note a referrer

These estimates indicate that approximately 97% of Canadian businesses are classified as small business (having fewer than 100 employees). This proportion does not significantly vary by industry. By applying this percentage to the total number of importers (228 000), the CBSA estimates that the number of small businesses who import into Canada to total approximately 221 160.

Similarly, the CBSA keeps track of the total number of TCPs impacted by the regulations (36 598), but it does not distinguish between small, medium or large TCPs. Using Statistics Canada data, it is estimated that the majority of TCPs that will be impacted by the regulations operate in the transportation and warehousing industries (NAICS 48-49), where 98% are considered small businesses.

Table 9: Transportation and warehousing TCPs
  Small business (0-99) Medium business (100+)
Transportation and warehousing (48-49) table c8 note b 66 586 1 237
Percent 98 2

Table c8 note(s)

Table c8 note b

Source: Statistics Canada Table (Canadian Business Counts, with employees, June 2018): 33-10-0092-01: June 2018

Return to table c8 note b referrer

The CBSA does not collect data on the number of security providers but the number of small businesses that will be impacted by the regulations is estimated to be 1 633 (from a total of 1 702 security providers).

Small business lens summary

To estimate impact on small businesses, the total estimated costs and benefits have been multiplied by the share of small businesses in the total number of businesses by affected sector.

Table 10: Compliance costs
Activity  Annualized value  Present value 
Update internal systems (Importers) $14,491,412 $101,781,616
Update internal systems (TCPs) $2,326,126 $16,337,735
CARM system training (Importers) $10,170,651 $71,434,398
CARM system training (TCPs) $1,632,568 $11,466,474
CARM system training (Security provider) $75,923 $533,252
Total compliance cost $28,696,680 $201,553,474
Table 11: Administrative costs
Activity Annualized value Present value
Administrative savings from electronic submission (Importers) ($46,710,773) ($328,076,926)
Administrative savings from electronic submission (TCPs) ($7,497,899) ($52,662,102)
Administrative savings for providing proof of security based on agreements between debtor and TCP (Importers) ($26,244,339) ($184,329,253)
Administrative savings for providing proof of security based on agreements between debtor and TCP (TCPs) ($4,212,677) ($29,588,079)
Total administrative cost ($84,665,687) ($594,656,360)
Table 12: Total compliance and administrative costs
Totals Annualized value Present value
Total cost (all impacted small businesses) ($55,969,007) ($393,102,885)
Cost per impacted small business ($210) ($1,520)

One-for-one rule

The one-for-one rule applies to this regulatory initiative, since there is an overall incremental decrease in administrative burden on business. Though one new regulatory title will be created, this will not be counted as a title in for the purposes of the one-for-one rule. It is expected that the annualized average reduction in administration costs will be $34,378,200 in 2012 dollars and discounted to 2012 using a 7% discount rate.

The following paragraphs describe the analysis and the application of the one-for-one rule for each of the two regulatory instruments in this initiative.

Regulations Amending Certain Regulations Administered and Enforced by the Canada Border Services Agency

The one-for-one rule applies, since there is an incremental decrease in administrative burden on business, and the proposal is considered burden out under the rule. No regulatory titles are repealed or introduced. The average annualized decrease in administrative burden is $22,011,238 in 2012 dollars and discounted to 2012 using a 7% discount rate.

Currently, TCPs use paper forms to submit requests to the CBSA for advance rulings, assessments, and adjustments, among other requests or communications. Though the majority of these documents are submitted by importers or a service provider on an importer’s behalf, other TCPs (e.g. customs brokers and warehouse operators) are also required to submit paper-based documentation, such as application forms to obtain a licence, to the CBSA.

Once CARM is implemented, the majority of paper forms will be eliminated, and many activities will be simplified for TCPs. As a result, it is expected that costs associated with the CBSA’s administrative requirements and clerical work for TCPs (e.g. the cost of submitting a paper form to the CBSA, the additional time it takes an employee to complete a paper form as opposed to an electronic form) will be reduced.

Financial Security (Electronic Means) Regulations

The one-for-one rule applies, since there is an incremental decrease in administrative burden on business. Though a new regulatory title will be created, the provisions result in administrative burden relief; thus the new regulation will not be counted as a title in for the purpose of the one-for-one rule. The annualized average decrease in administrative burden is $12,366,962 in 2012 dollars and discounted to 2012 using a 7% discount rate.

Currently, TCPs must provide the CBSA with a paper copy of security agreements. The regulatory change will remove the requirement for TCPs to provide copies of agreements, and instead the CBSA could request a copy by exception.

Regulatory cooperation and alignment

The development of the CARM system was informed by best practices and initiatives from other border service organizations. Specifically, the CBSA has been in discussion with the United States Customs and Border Protection (US CBP) to understand lessons learned from their experiences with a similar initiative, the Automated Commercial Environment (ACE), and to ensure that necessary alignments will exist to facilitate ongoing trade. This cooperation also included discussions on the specific US CBP regulatory approach used to support ACE to identify key lessons learned.

Strategic environmental assessment

The new regulations and changes to existing regulations do not have unique environmental impacts. Given that the changes allow TCPs and the CBSA to communicate electronically and move away from a number of manual processes that are primarily paper-based, this results in positive environmental outcomes as there will be a reduction in paper-based documentation.

Gender-based analysis plus

The gender-based analysis plus (GBA+) and other distributional issues were considered in the context of CBSA policies and programs, in both design and delivery. The regulatory amendments and new regulations will not change the audiences reached by the CBSA, and the CBSA has been proactive in considering the needs of TCPs as part of solution design through its TCP WG (and sub-working groups) and the Agency Revenue Management Advisory Board.

In the development of CARM, the CBSA has considered the impact that a TCP’s geographic location might have on their ability to meet key requirements of the regulatory amendments and new regulations (e.g. limited Internet access impacting their ability to transmit information electronically to the CBSA). While the CBSA believes that this will impact a very small number of TCPs, the Agency expects that these importers may choose to use a service provider to support them to meet electronic obligations and to communicate with the CBSA (and many are already doing so in the current state). The CBSA has also created an exception in the regulations where TCPs can continue to use paper-based processes if the Minister determines they are unable, because of factors outside of their control, to comply with electronic requirements.

While the CBSA’s changes related to financial security will put new requirements on importers and other TCPs to utilize electronic means for the purposes of security, there may be individual challenges (e.g. age, ability, language) that could impact the ability for some TCPs to make the move to electronic processes. Therefore, the CBSA has considered strategies to make use of the electronic system as easy as possible for all stakeholders, including ensuring accessibility of the CCP and other relevant materials for TCPs. For example, the CBSA has conducted significant reviews of training materials to ensure that they meet the most up-to-date Standard on Web Accessibility, and that they are fully accessible to all impacted groups.

Implementation, compliance and enforcement, and service standards

Implementation

The regulatory amendments and new Financial Security (Electronic Means) Regulations will come into force on May 13, 2024. The legislative amendments to the CA contained in BIA 2021 and BIA 2022 that require CARM R2 will also come into force on this day, which is the same day CARM R2 will be launched. The reason the dates must align is so the CBSA is not placing legal obligations on TCPs until the functionality is available in the CARM system for TCPs to be able to meet those obligations. For example, if the regulatory amendments to the AIGPDR were to come into force sooner, TCPs would be required to submit their accounting to the CBSA electronically; however, the functionality to submit an accounting declaration electronically would not be available to TCPs until CARM R2. If the legislative or regulatory amendments were to come into force before CARM R2, TCPs would not be able to meet their obligations.

The CBSA has undertaken significant testing to ensure that the CARM system is fully functional and ready for CARM R2 implementation, including identifying issues and making fixes, and establishing a CARM experience simulation. This simulation has followed best practices for large-scale IT transformations by giving TCPs and CBSA employees the opportunity to simulate a series of complex end-to-end business processes and familiarize themselves with the CCP and other CARM-related obligations (e.g. the requirement to submit a CAD electronically [via the CCP or EDI]) to ensure shared confidence of system readiness. The CBSA has also conducted continuity planning exercises to guarantee that the CBSA will be well prepared if system issues are to occur during or after implementation.

May 2, 2024, will be the first day of the cutover period, which is the transition between the Customs Commercial System (CCS) and CARM R2. In order to transition between the systems, there will be a blackout period where systems will be unavailable (from May 2, 2024, to May 13, 2024). As such, goods would continue to be released and accounting will be reconciled electronically once CARM R2 goes live. Subsection 33.7(1) of the Customs Act allows the Minister or a designated officer to extend, in writing, the time to account for goods released prior to accounting beyond the prescribed time. CBSA would use this subsection to provide extensions to the accounting deadlines for goods imported within the five days prior to the cutover period and during the cutover period. No penalty can be issued for late accounting if the time is extended and the goods are accounted for during that time. If goods are not accounted for by the end of the extension, penalties for late accounting are issued as the extension is deemed to not have occurred.

Communication and outreach activities

In the lead up to the coming-into-force of the regulatory amendments and new regulations, the CBSA will amplify information about the updates and new regulations via the TCP WG, which includes representatives from key stakeholder communities (e.g. Surety Association of Canada; Canadian Association of Importers and Exporters; Canadian Society of Customs Brokers), as well as through the use of CARM social media channels and email distribution lists.

To help TCPs learn about the CARM system and how to onboard to the CCP, the CBSA already has the following resources available for TCPs on the Agency’s website:

Partner institutions

In preparation for CARM R2, the CBSA worked with a number of partner institutions including the Canada Revenue Agency (CRA), the Department of Finance, Statistics Canada and the US CBP. Outreach activities were conducted to ensure that the regulations in support of CARM implementation were aligned on a national level and had no unintended consequences on other government departments, and took into consideration lessons learned from similar initiatives in the US context.

The CRA in particular will play a critical role in the final implementation of CARM R2 due to the system integration between the CARM system and CRA systems (e.g. for the issuance of business numbers). Because of this integration, the CARM R2 system go-live date must align with a CRA system release window, which only occurs in May and October of each year. Therefore, the CBSA can only launch CARM R2 in either May or October.

Cooperation and coordination activities

The CBSA has been in regular communication with impacted federal departments (e.g. Shared Services Canada, Public Services and Procurement Canada) throughout the project, who have been actively included in CARM project governance. The CBSA has also closely considered and communicated possible impacts to other government departments and has worked collaboratively to identify and resolve risks and find opportunities for collaboration. For example, the CBSA is working collaboratively with relevant governmental organizations (Department of Finance, Statistics Canada, CRA) to update necessary agreements to facilitate information sharing at CARM R2 and to ensure that new data capabilities from CARM will provide benefits to the Government of Canada more broadly.

Operational guidance

TCPs will be provided with support to understand their specific obligations at CARM R2. Below is an overview of some of the planned key activities that will help external clients to understand how CARM R2 will work under the new regulations:

Performance measurement

Once fully implemented, the CBSA will track and monitor the progress of CARM to ensure that desired benefits are being realized as planned, including for reduced administrative burden for TCPs, increased Government of Canada revenue, and improved CBSA efficiencies. Specific key performance indicators will be established and measured to support the CBSA to make future decisions for CARM and to identify where adjustments may be needed to optimize benefits for TCPs and the Government of Canada.

Compliance and enforcement

Electronic communication and electronic payment

Unless there is an exceptional circumstance determined by the Minister, accounting (with the exception of interim accounting) will be required to be submitted to the CBSA electronically. Following the coming into force of the regulatory amendments and new regulations, paper-based accounting will not be accepted by the CBSA except in exceptional circumstances. If the Minister determines that a TCP did not meet one of the exceptions to providing accounting electronically, the CBSA will not accept paper accounting and, therefore, the TCP will not be able to have their goods released by the CBSA until accounting is submitted electronically.

Though TCPs will not be required to pay electronically and will continue to be permitted to make paper-based payments, electronic payments will be encouraged by the CBSA, as they can be processed more efficiently. This will be done through training, operational guidance and by making payments easier through the CCP.

Financial security provided by electronic means

Through the CCP, the CBSA will be able to monitor an importer’s financial security utilization and send notifications or “nudges” to the importer indicating that they need to make a payment on their account or increase their security, in order to remain compliant with their security obligations. These nudges will support TCPs to remain compliant and earlier nudges will be targeted primarily to impact those who are voluntarily compliant and those who are trying to comply with CBSA requirements.

Table 13: Overview of the compliance monitoring and nudging framework
Culpability Utilization Notification Timing Notification
Voluntarily compliant >75% Nudge Day 0 Notification will highlight the security utilization limit may be reached soon, and the importer should make a payment on their account or increase their security.
Trying to comply >100% Second nudge Day 0 Notification will highlight that the security utilization limit has been reached and to make a payment on their account or increase their security.
Third nudge Day 6 Notification will highlight above.
Avoiding compliance Fourth nudge Day 10 Notification will highlight above.
Resisting compliance Fifth nudge Day 25 Notification will highlight above. The CBSA will initiate a case to determine if sufficient security exists to continue allowing goods to be released prior to payment.

If an importer does not increase their financial security or make a payment after receiving the above-mentioned notifications on the CCP, the CBSA will create a case to initiate further collection activities (e.g. initiating a claim against the importer’s security or sending their account to the CRA for collection).

Billing cycles

When the regulatory amendments to the AIGPDR and other customs-related regulations come into force, TCPs will be required to follow the new billing cycle specific to their program, and submit payment on the prescribed payment due date. As with the current system, if a TCP does not make a payment by the payment due date, a late payment penalty will be issued in accordance with D22-1-1: Administrative Monetary Penalty System.

Contact

Valerie Dinis
Director
Commercial and Trade Policy Division
Strategic Policy Branch
Canada Border Services Agency
Email: CBSA.OCT/CECO.ASFC@cbsa-asfc.gc.ca