If imported parts, fabric or materials end up in products you sell abroad, the duty you paid on them may be refundable.
Manufacturing drawback is a refund of Canadian duty paid on imported materials, parts and components that are used to make goods which are then exported. It also covers imported consumables used up in production.
Exports to Europe, the UK, Asia and other non-CUSMA markets can qualify for a full refund. Exports to the United States or Mexico are capped by CUSMA's “lesser of two duties” rule, so the destination matters as much as the duty paid.
Claims are filed on Form K32 within four years of the date the imported materials were released into Canada.
Canadian manufacturers often pay duty on inputs they cannot source at home: fabric, electronic components, steel, chemicals, packaging. When those inputs are built into products that ship to foreign customers, the Canadian duty becomes a cost that foreign competitors do not carry.
Manufacturing drawback is how the CBSA removes that cost. It is more technical than drawback on finished goods, because the imported material no longer leaves Canada in its original form. The claim has to show how much of each input went into the exported product.
Export products made with imported inputs?
The CBSA's Memorandum D7-4-2, Duty Drawback Program, allows a drawback when imported goods are further processed in Canada and then exported. It defines “further processed” to include imported goods, other than fuel or plant equipment, that are directly consumed or expended in making goods for export.
The program also covers imported goods used for the development or production in Canada of goods that are later exported.
In plain terms, a manufacturing claim can include:
Fuel and plant equipment, such as machinery, are excluded.
Any Canadian business that imports inputs and exports some of what it makes. Common examples:
The importer, exporter, processor, owner or producer may file the claim. Where more than one of them is eligible, the claimant needs waivers from the others on Form K32A or K32B. For contract manufacturing, agreeing who will claim before production starts avoids problems later.
This is the most important rule on this page.
Under CUSMA, when non-originating imported materials are used to produce a good that is exported to the United States or Mexico, the drawback cannot exceed the lesser of:
The CBSA explains this “lesser of two duties” rule in Memorandum D7-4-3.
| Where the finished goods go | Drawback on non-originating inputs |
|---|---|
| Europe, UK, Asia or any non-CUSMA country | Full drawback of Canadian customs duty |
| US or Mexico, finished goods enter duty-free | Lesser amount is zero, so no drawback |
| US or Mexico, duty paid on entry | Capped at the lower of the two duty amounts |
| Inputs that are CUSMA originating (US or Mexico origin) | Not subject to the cap |
The US now charges duty on many Canadian goods that do not qualify for CUSMA preference. If your finished products pay US duty on entry, there may be a drawback where there was none before. You will need evidence of the US duty paid.
To claim under the “lesser of two duties”, you must give the CBSA satisfactory evidence of the duty paid when the goods entered the other CUSMA country. This can be a copy of the foreign customs entry, or an affidavit or summary report containing the five data elements the CBSA requires. It is usually collected from the US importer or customs broker.
SIMA anti-dumping and countervailing duties cannot be claimed at all on goods affected by the CUSMA restriction.
The CUSMA cap does not apply to goods exported in the same condition they were imported. If you import finished goods and ship them to the US unchanged, see our page on same-condition export drawback.
Many manufacturers use imported and domestic materials of the same kind on the same line. Tracking which roll of fabric went into which garment is not realistic.
D7-4-2 allows equivalence in this case. Imported and domestic goods of the same class can be treated as interchangeable for drawback, provided that:
Equivalence only applies to goods that are further manufactured, including consumables and expendables. Textile fabrics have specific fibre class and weight rules in the regulations.
Production creates offcuts, trimmings and rejects. D7-4-2 allows scrap or waste to be included in a claim in most cases.
The exception: if the scrap has a sales value and similar scrap would be dutiable if imported, it can only be claimed if the scrap itself is exported. Otherwise the claim is reduced by the duty that would apply to the scrap's sale value.
GST and HST are not refundable through drawback. Registered businesses normally recover them as input tax credits through the CRA.
Canada's surtaxes on US steel and aluminum products remain in place after most other counter-tariffs were removed on September 1, 2025. The CBSA has confirmed that drawback is available for surtax paid, subject to CUSMA rules, and that goods of US or Mexican CUSMA origin are not subject to the lesser of two duties cap. Manufacturers who paid steel or aluminum surtax on inputs for exported products should review this.
An Ontario manufacturer imports $500,000 of components from China in a year and pays 8% duty, or $40,000. Production records show 60% of the components went into products that were exported:
The share used in European and UK exports carries $12,000 in Canadian duty. No CUSMA cap applies, so the full $12,000 may be recoverable.
The share used in US exports also carries $12,000. Here the CUSMA cap applies:
Total potential refund: $12,000 to $20,000, depending on the US duty paid.
Example figures are simplified for illustration. Actual duty depends on tariff classification, origin, customs value and the records available.
A manufacturing claim has to connect three things: the duty-paid import, the production, and the export.
The claim must be filed within four years of the release date of the imported materials, after the finished goods are exported. Claims are made on Form K32 through the CARM Client Portal. Interest at the prescribed rate is paid from the 91st day after the CBSA receives the claim.
Drawback refunds duty after it has been paid. The CBSA's Duties Relief Program lets approved companies import materials without paying duty upfront when the goods they make will be exported.
For a manufacturer that exports steadily, relief can be better for cash flow. It requires an application to the CBSA and ongoing reporting. Drawback is the right starting point when the imports and exports have already happened, and it is the only way to recover duty from past years.
Exports to the US and Mexico follow different math from exports elsewhere. Splitting exports by destination is the first step.
If your finished goods paid US duty on entry, some drawback may be available. Ask your US customer or broker what duty was paid.
Without a bill of materials or production records, the CBSA cannot see how much of each import went into exports.
Fuel and plant equipment are excluded, even though they are used in production.
The four years run from each import's release date. Inputs held in stock for a long time can expire before the finished goods ship. Unused inputs that become obsolete may still qualify under the obsolete or surplus goods rules.
We split your exports by destination, apply the right rules to each, build the bill-of-materials link from your import entries to your exports, and manage the claim with the CBSA. There is no upfront cost. We are paid a percentage of what is recovered.
If the CUSMA cap wipes out the US portion, we will tell you, and focus on the exports where the refund is real.
Yes. Imported materials, parts and components used in goods that are exported may qualify, as can imported consumables and expendables used up in production. Fuel and plant equipment are excluded.
Yes, for non-originating materials used to produce goods exported to the US or Mexico. The drawback is capped at the lesser of the Canadian duty paid and the duty paid when the goods entered the US or Mexico.
Then the lesser of the two duties is zero, and no drawback is available on non-originating inputs in those products. Exports to non-CUSMA countries are not affected.
Yes, under the equivalence rules. Imported and domestic goods of the same class can be treated as interchangeable if the imported goods were sufficient for the exports, were used first, and the finished goods are exported within two years.
Four years from the release date of the imported materials.
No. GST and HST are not refundable through drawback.
Proof of the customs duty paid when the finished goods entered the US or Mexico. It can be a copy of the foreign entry or an affidavit or summary containing the data elements the CBSA requires.
For ongoing exports it may help cash flow by removing duty upfront. Drawback is still needed to recover duty already paid on past imports.
This page provides general information and is not legal, tax or customs advice. Sources: CBSA Memorandum D7-4-2, Duty Drawback Program (October 2024), Memorandum D7-4-3, and CBSA customs notices on US surtax orders. Eligibility depends on the facts of each transaction and the rules in effect at the time.
Enter your annual duties and the share you export. Get an instant estimate, then let us show you where the refund is real.
Estimate My Refund →