The Canada Border Services Agency (CBSA) is finalizing amendments to the Value for Duty Regulations with the aim of leveling the playing field for Canadian merchants, rather than punishing legitimate domestic brands. This overhaul focuses on closing loopholes that have allowed certain foreign merchants and multi-tiered e-commerce structures to calculate duties on a lower, upstream transaction value.
The proposed amendments primarily address two distinct use cases that lead to undervaluation:
How Does the Rule Constrain NRIs’ Use of COGS for Pre-Sold Goods?
The legitimate Non-Resident Importer (NRI) model permits foreign merchants to act as the Importer of Record and declare their Cost of Goods Sold (COGS) as the value for duty, but only if the goods are imported as unsold inventory without a pre-arranged sale to a Canadian customer. The new enforcement efforts clarify and reinforce that:
- The moment a retail sale to a Canadian customer occurs before the goods arrive, the sale triggers the export to Canada.
- In such cases, the NRI must declare the final retail price as the basis for duty, not the COGS.
- The reform constrains the ability of NRIs to claim a duty value using upstream, lower-priced transactions after a retail sale has already taken place.
Why Are Intercompany Transfers by “Paper Subsidiaries” Being Disregarded?
The reforms eliminate the advantage previously held by foreign merchants using a “paper subsidiary” B2B2C model. These nominal Canadian entities, which often lack genuine local presence, employees, management control, or operational substance, are used to declare a low intercompany transfer price (sometimes 60–80% below retail) as the value for duty.
The CBSA is clarifying that:
- A nominal entity does not qualify as a “Purchaser in Canada” if it lacks a fixed place of business and merely serves as a “conduit” or “pass-through” for a pre-ordained structure.
- The intercompany transfer price will be disregarded if businesses don’t pass a strict eight-point “Substantial Presence” test to be considered a legitimate resident entity for valuation purposes.
What Does “Substance Over Form” Mean for 2026 Compliance?
The CBSA’s move to substance-based enforcement means customs compliance will increasingly be assessed based on the economic substance of transactions rather than documentation alone. This change is intended to close valuation loopholes that disadvantage Canadian merchants while minimizing disruption for compliant businesses.
- No More Conduits: If your Canadian entity doesn’t have employees, management control, or a physical presence, it will be treated as a mere “conduit” rather than a real buyer.
- The “Last Sale” Rule: 2026 reforms ensure that the value at the border reflects the final transaction that caused the goods to be exported.
- Audit Scrutiny: The CBSA has warned that future audits will specifically target these simplified B2B2C models and “related-party” pricing structures to stop undervaluation.
When Might Upstream Valuation Still Be Possible?
Declaring value based on upstream cost remains an option only in limited, specific scenarios:
- Speculative Inventory: Goods are imported as inventory with no pre-arranged sale to a Canadian customer.
- Genuine Canadian Enterprises: The importer is a resident entity carrying on substantive business in Canada.
- Post-Importation Resale: The downstream sale occurs only after the goods have been fully imported and cleared into Canada.
What Is the Substantial Presence Test?
To rely on an earlier sale price and exclude a domestic transaction from the “last sale” calculation, CBSA is proposing that a business must prove it is a legitimate resident entity by meeting all eight of the following conditions:
Note on Regulatory Status: These criteria reflect the current proposed framework. Please note that these requirements may be revised or refined once the final ruling is officially issued.
Key Insights
- The “Last Sale” Mandate: Customs duties must now be charged on the last sale in a supply chain that causes goods to be exported to Canada.
- Redefining “Sale”: A “sale” no longer strictly requires a traditional transfer of title; it includes agreements, understandings, or arrangements—such as online checkout events—regardless of when title officially passes.
- Domestic Sale Inclusion: Transactions previously considered “domestic” are no longer excluded by default. They are only excluded if both parties are genuine “resident” persons.
- End of the “Paper Subsidiary”: Minimal business presence is no longer sufficient. Entities must pass a strict eight-point “Substantial Presence” test to be considered a resident for valuation purposes.
Preparing for the New Reality
The transition to ‘last sale’ valuation in 2026 isn’t just a paperwork change; it’s a fundamental repricing event for anyone selling D2C into Canada.For U.S. e-commerce sellers, this means traditional “first sale” strategies are likely at an end for pre-sold goods. Importers should immediately conduct a Cost Recalculation. If your current margins rely on valuing imports at cost, you must model them based on the retail sale price to ensure continued profitability under the new enforcement regime. See our guide to Canadian tariffs on US goods for how duties are calculated on that value once it changes.
How Passport Can Help
Navigating a shift like this isn’t something brands need to work through alone. Passport’s compliance services team supports ecommerce brands with trade, fiscal, and product compliance as regulations like this evolve, and Passport’s cross-border management solutions support brands adjusting their fulfillment and import strategy in response. Reach out to our team to discuss how the Last Sale rule affects your specific Canadian operations.
Authored by Thomas Taggart
Head of Global Trade | Passport
Thomas Taggart is a cross-border commerce leader with more than 20 years of experience in international shipping and regulatory affairs. As the Head of Global Trade, Thomas helps ecommerce brands go global by simplifying international trade, tax, and product compliance issues. Prior to Passport, he brought international shipping solutions to market through multiple roles in UPS’s product development organization.
Frequently Asked Questions
What is Canada’s “Last Sale” rule?
It’s a CBSA mandate requiring customs duties to be calculated on the retail price of goods sold to Canadian consumers — the “last sale” in the supply chain that causes the goods to be exported to Canada — rather than an earlier, lower-priced upstream transaction.
What is a Non-Resident Importer (NRI), and how does this rule affect them?
An NRI is a foreign merchant acting as the Importer of Record. Under the existing model, an NRI can declare its Cost of Goods Sold (COGS) as the customs value, but only for unsold inventory with no pre-arranged Canadian sale. Once a retail sale occurs before the goods arrive, the NRI must now declare the final retail price instead of COGS.
What is a “paper subsidiary,” and why doesn’t it work anymore?
A paper subsidiary is a nominal Canadian entity — often lacking real local presence, employees, management control, or operational substance — used to declare a low intercompany transfer price as the customs value. Under the new rules, that transfer price is disregarded unless the entity passes the eight-point Substantial Presence test.
Is upstream valuation ever still allowed?
Yes, in three specific scenarios: when goods are imported as speculative inventory with no pre-arranged Canadian sale, when the importer is a genuine Canadian enterprise carrying on substantive business, or when the downstream sale happens only after the goods have already cleared into Canada.
Are these rules final?
No — these criteria reflect the current proposed framework and may still be revised or refined once the CBSA issues its final ruling.
What should sellers do to prepare?
The CBSA describes this as a fundamental repricing event, not just a paperwork change. Sellers relying on cost-based import valuation should conduct a cost recalculation modeled on the retail sale price to confirm their margins hold up under the new enforcement approach.