Navigating Canadian Surtax Audits: What Importers Need to Know

In early 2025, a new wave of trade tensions between the U.S. and Canada triggered a cascade of tariffs and countermeasures that are now reshaping the financial landscape for importers. On March 4, the U.S. imposed a 25% tariff on Canadian and Mexican imports not covered under the Canada-United States-Mexico Agreement (CUSMA), with a reduced 10% rate for energy and potash. Canada responded swiftly with a 25% surtax on over 1,200 U.S.-origin goods, valued at approximately $30 billion.

Subsequent U.S. tariffs on Canadian steel, aluminum, and passenger vehicles—some reaching 50%—prompted further Canadian surtaxes on a wide range of U.S. imports, including tools, technology, and automotive products.  The result: many Canadian importers, long accustomed to duty-free trade under CUSMA, are now facing unexpected and substantial surtax liabilities.

For Canadian importers, these new costs can amount to millions of dollars monthly. The financial impact is particularly acute for distributors, which often lack access to the remission orders offering surtax relief to certain entities, including eligible manufacturers and healthcare providers. With the surtax remission order for those other than automotive manufacturers set to expire in October 2025, the pressure on importers is mounting.

Furthermore, on August 1, the initial U.S. tariff was suddenly increased to 35% amid ongoing trade negotiations between the two countries. And while Canada removed its reciprocal surtax on most imports from the U.S. (except for the 25% retaliatory tariffs on steel, aluminum, and automobiles), effective September 1, 2025, the Canada Border Services Agency (CBSA) is expected to continue compliance verification activities on imports from the U.S., including any goods cleared prior to surtax removal.

Surtax Audits Underway

The CBSA has begun auditing importers to ensure compliance with the surtax regime. These audits do not appear to be routine. As Maureen Gilfoy, Director of Ryan’s Canadian Customs Duty practice, notes, “I don’t recall in the last Trump administration anyone going through a surtax audit. Now, there’s just so much money on the table.”

In the audits underway, the CBSA seems to be targeting high-volume importers whose goods fall within the surtaxed classifications. The process typically begins with a letter—sometimes sent directly to a company’s listed director, such as a CEO, rather than its customs compliance team—requesting supporting documentation for imports, such as invoices, bills of lading, certificates of origin, and end-use certificates.

Importers must tread carefully. While some have explored adjusting transfer pricing to reduce surtax liability exposure, this carries significant risks and must align with regulatory requirements. Missteps can lead to costly penalties.

Country of origin is a critical factor. Goods must be correctly classified and sourced to determine surtax applicability. It is important to note that even CUSMA-compliant goods may still be subject to surtax when imported into Canada because Canadian policy has not mirrored the U.S. regarding the CUSMA exemption.

Best Practices

For finance leaders, the key to managing surtax liability exposure lies in proactive compliance and strategic planning. Gilfoy and Sebastian Drozdziewicz, Senior Manager at Ryan, offer several best practices:

  1. Verify Classification and Origin: Ensure goods are accurately classified for customs duty purposes and that the correct country of origin is documented. Misclassification can lead to the overpayment—or underpayment—of surtax.
  2. Maintain Robust Documentation: Keep certificates of origin, supplier declarations, and end-use certificates readily available. If relying on a remission order for surtax relief, ensure adequate documentation is retained to support eligibility for the program.
  3. Conduct Internal Audits: Perform regular desk audits or engage a third-party consultant to review a sample of transactions. This will help identify any compliance gaps before they are detected by the CBSA.
  4. Seek Professional Advice: Customs brokers and consultants can help interpret CBSA audit requests and ensure only the necessary information is provided. “You don’t want to give CBSA too much information,” Gilfoy advises.  Unfortunately, given recent changes to Canadian customs duty processes, including the implementation of the CARM Client Portal—the CBSA’s new online platform for commercial imports—many customs brokers have been stretched thin. Remember that, even if a third party has been used, it is ultimately the importer’s responsibility to ensure accurate and complete declarations.
  5. Coordinate Internally: Finance, legal, and customs teams must collaborate. If an audit letter is received, it should be communicated immediately to the appropriate internal stakeholders. A point person within the organization should be assigned to coordinate and manage the audit process.
  6. Respond Promptly and Strategically: Acknowledge any audit requests received and prepare to challenge any incorrect findings in the interim report before the final verification findings are issued.

The Path Forward

The current trade environment remains incredibly fluid. Negotiations between Canada and the U.S. continue and may lead to further changes, but both the surtax orders previously in place and those still in effect are a significant source of revenue for the Canadian government and a customs duty liability exposure for Canadian importers. As Gilfoy notes, “It’s almost like a new source of revenue.”

Importers must remain vigilant. The CBSA is expected to continue audits for the foreseeable future, and U.S. customs authorities are also ramping up enforcement. While Canada’s surtax lists remained relatively stable until most items were removed, the wide variety and specificity of affected items made compliance tricky. The U.S. landscape is more volatile, adding further complexity and risk to cross-border transactions, particularly for companies exporting goods to the U.S.

Organizations with cross-border operations should view this as an opportunity to strengthen trade compliance programs and integrate customs considerations into broader financial planning. With millions of dollars at stake, the cost of inaction is simply too high.

For further information on recent trade measures announced by Canada and the U.S. and potential customs duty relief, please see our previously released tax development Latest on Tariff Turmoil on the Ryan Canada website.

Contacts:
Maureen Gilfoy
Director, Customs Duty
maureen.gilfoy@ryan.com

Sebastian Drozdziewicz
Senior Manager, Customs Duty
sebastian.drozdziewicz@ryan.com