Assists count. Royalties do not always.

A mould paid for by the importer and a royalty owed on a licence agreement can both change the value declared on a Commercial Accounting Declaration, and section 48 of the Customs Act treats them by two different rules. An assist is added because the purchaser put something of value into producing the goods. A royalty is added only when the sale itself depended on paying it. Value for duty is one of the checks run on every line, and mixing the rules up is an error CBSA does find on verification.

What counts as an assist

"Assist" is not a word the Customs Act uses. It is CBSA's shorthand for goods or services the purchaser gives the foreign vendor free or below cost, to help make the imported goods.

"The term 'assist' does not appear in the Customs Act (Act). It is used here to describe any of the goods and services provided directly or indirectly by the purchaser free of charge or at a reduced cost, for use in the production of imported goods outlined in subparagraph 48(5)(a)(iii) of the Act."

Subparagraph 48(5)(a)(iii) sets out four categories.

How is an assist added to value for duty

The value of an assist is added to the price paid or payable, apportioned to the imported goods "in a reasonable manner and in accordance with generally accepted accounting principles." CBSA's own worked example shows the arithmetic for a material that goes straight into the product: a Canadian manufacturer supplies semi-conductors, valued at $10 each, free of charge to a foreign producer, and each finished unit incorporates three of them.

"In this case, $30 would be added to the price paid or payable of each unit of the finished goods imported into Canada."

A tool or a mould is not consumed unit by unit, so it spreads differently. CBSA's example is a $1,000 mould, supplied free of charge, for a run of 10,000 plastic toys, apportioned on whichever basis the importer chooses.

When is a royalty added instead

A royalty or licence fee does not go into making the goods, it is owed on the right to sell or use them once they exist, so the Act tests it a different way. The test comes from the Supreme Court's decision in Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., 2001 SCC 36, and CBSA states it as three factors that must all be met.

"The payment: (a) must be a royalty or licence fee; (b) must be in respect of the goods; and (c) must be a condition of sale of the goods."

The third factor is where the answer usually turns. CBSA reads condition of sale narrowly: the purchase agreement or invoice has to say what happens if the royalty is not paid, that the vendor can refuse to ship or can end the contract. A royalty a licensor happens to collect on the same goods, with no such consequence written anywhere, fails that factor and stays out of the declared value.

Why do two similar royalties get opposite answers

CBSA's own appendix runs the test on two royalties that look alike on paper.

Same kind of payment, same kind of goods, opposite result. The difference lives in the purchase agreement's wording, not in the product or the percentage.

Does a right to reproduce the goods count

One category is carved out of the royalty rule by name. Subparagraph 48(5)(a)(iv) adds royalties paid as a condition of sale to the price paid or payable, then closes with its own exception.

"royalties and licence fees, including payments for patents, trademarks and copyrights, in respect of the goods that the purchaser of the goods must pay, directly or indirectly, as a condition of the sale of the goods for export to Canada, exclusive of charges for the right to reproduce the goods in Canada"

CBSA's memorandum restates the same carve-out in plain words.

"Subparagraph 48(5)(a)(iv) of the Act excludes royalty or licence fee payments made for the right to reproduce imported goods in Canada from being added to the price paid or payable of the imported goods."

The exclusion covers only the reproduction right itself. A single fee that also pays for engineering or design work the vendor put into producing the goods is tested separately as a possible assist under subparagraph 48(5)(a)(iii).

Whether a particular royalty passes the condition of sale test depends on what the purchase agreement says about non-payment, not on the product or the percentage. Reading that agreement is a fact question nobody can answer without opening it, Norquin included. What is checkable at the entry level is whether an assist, or a royalty the importer's own contract already ties to a condition of sale, made it into the declared value. If it did not, value for duty was understated, and that is what triggers the correction obligation.