U.S. / Canadian Vessel Transactions
By Mike Burns, CPYB - North South Nautical Group, Inc.
Canada and the United States have the distinction of having the longest border in the world, officially known as the “International Boundary”. Of course, much of this boundary runs through water, namely in the Great Lakes region, and many boaters share common waters in many areas not only in this region, but from coast to coast. Cross border transactions of boat sales have been happening for many years, but with the change of economic times recently, there seems to have been a significant increase in cross border deals.
Many factors can determine how simple, or how complicated, a cross-border transaction process may be. For example, the direction the vessels is being bought and sold (US to Canada, or Canada to US), where vessel was manufactured, and the state or Province in which the transactions will take place are all key factors on how a deal is handled, and what taxes and duties may apply. Whether a vessel is being used for commercial or pleasure can make a difference too. For the purpose of this article, we are dealing with recreational craft only.
Before we get into details on the logistics of selling boats cross-border, let’s start with how vessels are titled or registered in the two countries, and the subtle differences between the two. How a vessel is ‘registered’ in either country can significantly affect the sales process, and it is also good to have a general knowledge of options available, once a boat is imported.
In Canada, a Provincial licence is mandatory for all pleasure craft equipped with motors of 10 horsepower or more, (which is why we have 9.9 hp motors), including personal watercraft, which are principally maintained or operated in Canada. Alternatively, pleasure craft owners may choose to register their vessels Federally, with the Canadian Register of Vessels.
For the most part, most pleasure craft are now Provincially Licensed. In 2006, the licensing system was changed significantly, and a new system of identifying vessels was put in place. New boat licence numbers begin with provincial abbreviations (MB, ON, NB, etc.) followed by digits. Licenses no longer indicate a 'port' location. If a boat has a number-letter combination on the boat's bow such as 32E9876 (E is Ontario, 32 is Ottawa), it was licensed before 2007. If the boat has a provincial digraph followed by digits (BC12345 is British Columbia), the licence was issued by Service Canada on behalf of Transport Canada. It is highly recommended that pre-2007 licence owners apply for a new number at no charge, which will be entered into the new licence data system. There is no cost to obtain a vessel licence, and they remain in effect for 10 years, or until the vessel is sold. Once a vessel has been sold, the new owner must transfer the licence over within 90 days. If a vessel is being purchased for export, there is no need to update the licence numbers.
The process to Federally Register a vessel with the Canadian Registrar of Vessels, is a somewhat more complicated, and a relatively costly process. There is more paperwork involved (several forms required), and a tonnage survey is also required. Tonnage may be determined by using the Assigned Formal Tonnage, the Simplified Method (for vessels under 12 M), or by a duly appointed Tonnage Measurer for larger vessels. All paperwork is handled by one central office in Ottawa. All regional offices were closed in 2013.
In the United States, vessels are generally ‘registered’ in a similar manner. They are either State Licensed (similar to Provincial Licenses), or Federally Documented (similar to Federal Registration in Canada). The process for state licensing can vary from state to state. Unlike cars, not every state’s DMV handles boats. Other government agency’s such as States Park, Natural Resources, or Fisheries and Wildlife may oversee the process.
A recreational vessel owned by a U.S. citizen may (at the option of the owner) also be Documented if it is 5 or more net tons. The US Coast Guard issues the Certificate of Documentation. An outline of the process, and all the forms required are available at the National Vessel Documentation Center website.
Advantages & Disadvantages of the Different ‘Registration’ Processes
If the owner has a choice between the two forms of ‘registration’, regardless of whether they are in Canada or the United States, what are the advantages or disadvantages each system?
Advantages: The main benefit of documentation or registration versus numbering (licensing), is that a ‘Ship Mortgage’ can be applied and recorded much more easily to a Documented/Registered vessel than a licensed vessel. In practical terms, this means that lending institutions regard a documented/registered vessel as a more secure form of collateral. In addition, for larger and more expensive boats, it may be easier to obtain bank financing if the boat is documented/registered rather than numbered.
Another benefit is that the certificate of documentation may make customs entry and clearance easier in foreign ports (ie. the Bahamas). The document is treated as a form of national registration that clearly identifies the nationality and ownership of the vessel.
Disadvantages: The main disadvantage of documenting/registering is the higher cost. The initial fee for a recreational vessel can be quite expensive, and the process is somewhat more complicated. Licensing, in general, is much cheaper. In fact, in Canada, there is no fee for the process, and in the US, the average cost is around $25. In addition, documented vessels are not exempt from State or local taxes or other boating fees. Some individual States require a registration fee even if a boat is documented. It should also be noted that in Canada, licensing is an identification system, not a title system. A boat licence does not provide clear title or ownership of a boat, and most Provinces do not have a formal vessel ‘title’ system in place. A Bill of Sale is the primary proof of ownership.
Checking for Clear Title: In the US, if the vessel is documented, you can check title with the Nation Vessel Documentation Center, a branch of the US Coast Guard. With the official number, you can obtain an abstract of title. You need to study to abstract of title to confirm that all mortgages and liens are discharged.
For State Registered vessels, a check can be done with the Secretary of State for the seller’s state of residence, and the state where the vessel is registered.
In Canada, if a Registered vessel is carrying a mortgage, is should be documented on the Ship’s Registry as such, which can be checked online at the Transport Canada Vessel Registration Query System website. Simply enter the official number, or the vessel name.
For Provincially Licensed vessels, since the license does not constitute ownership, and since a formal ‘titling’ system, for the most part, does not exist, you need to check against the owner or owners (individuals, not corporations) for any registered liens. One option is to use the Personal Property Security Act website.
Regardless of the country, the risk of ‘hidden liens’ always exists and, if in doubt, seek the advice of a local professional.
Ok, so now you’ve found your vessel, and as best that you can tell, the title is clear. You’re now ready to make the final purchase. One important thing to keep in mind when handling funds is that there are processes and procedures in place for the cross-border transportation of funds over $10,000. When entering either country, funds over $10,000, if being carried (bank drafts included), must be declared and appropriate paperwork filled out. Quite often the international wiring of funds between two lending institutions is a better way to go, if timing and logistics permit.
Once the purchase is complete, now it’s time to get the boat back to your country. No matter which direction you are heading, the process is somewhat similar, but there are a few key differences.
When importing a boat from Canada to the US, the process may vary slightly from Port of Entry to Port of Entry (by water), or from Border Crossing to Border Crossing (when trailering a boat in). It is highly recommended that you contact the Customs and Border Protection Office where you plan on entering the country, well ahead of time, to get specific instructions from them. For the most part, you’ll need proof of ownership, such as the Bill of Sale, but you should also carry copies of paperwork showing the previous owners paperwork, such as a copy of the vessel licence, or registration papers. If the vessel is Registered in Canada, you may also need to obtain a Certificate of Deletion from the Canadian Registrar of Vessels, which has to be ordered well ahead of time.
If you plan on doing the import process on your own, be sure to call the CBP Office ahead of time. If you don’t, be prepared for a lengthy wait. Quite often, staff is limited, and if you hit them at a shift change time, you may be waiting many hours before you can proceed on.
If the vessel is being imported commercially (dealer inventory, or as a buyers agent for a customer), the use of a Customs Broker is mandatory. Even if not mandatory, it’s highly recommended to obtain the services of a customs broker, no matter which country you are importing to. The fee for the service is usually nominal (a few hundred dollars), but by having all the paperwork prepared for you, and by having a reference number assigned to you ahead of time, you’ll have a much better chance of having a quick and painless process at the border.
Pleasure craft are generally dutiable when imported to the US. Sailboats and Motorboats (other than outboard powered motorboats) have a duty rate of 1.5%. Outboard motorboats have a duty rate of 1%. This fee is generally collected by CBP at time of entry. Any taxes (sales or use tax), are generally collected by the state in which the boat will be primarily operated in.
If you are importing a boat on a trailer, the trailer is considered a ‘motor vehicle’, and must have a 17 character VIN attached. Additional paperwork is also required (DOT Form HS-7), and you should have a separate bill of sale for the boat and trailer.
Regardless of the vessel, you may also be required to submit proof that the boat conforms to Environmental Protection Agency Standards, if power driven, and Engine Declaration Form 3520-21 may also need to be submitted. Similar rules apply to importing into Canada on a trailer. You’ll need separate bills of sale, and once in the country, the trailer will likely need to be ‘inspected’ for safety requirements, before a permanent licence plate will be issued
The process of importing a vessel to Canada is somewhat similar, but there are a few subtle differences. As mentioned earlier, it’s highly recommended to use of a Customs Broker for import purposes. Again, you’ll be required to produce a Bill of Sale at the border, and applicable taxes will be collected then. Duties will also be collected, however if the vessel was built in Canada, United States or Mexico, duties are exempt under the North American Free Trade Act (NAFTA). If the vessel being imported was built in any other country, duties ranging from 5 % to 9.5% may apply. Before making the trip, call the Canada Border Services Agency office you plan to deal with when entering the country, and set up a game plan with them.
Paperwork: Regardless of which country you are importing a vessel into, it is very important to have the proper paperwork in order. The first obvious piece of paperwork required is a bill of sale. Keep in mind, a dealer invoice, or an ‘informal’ bill of sale between two parties may not suffice. If you plan on documenting or registering the vessel, a US Coast Guard Bill of Sale (even for use in Canada), is your best bet. This document is normally required to be notarized (if necessary, a Canadian Notary can perform this service). Using the services of a Vessel Documentation Services is highly recommended as well. All of the necessary paperwork can be completed on your behalf, all at a reasonable cost.
Other documents that may be required would be a Certificate of Deletion (a vessel cannot be legally documented or registered in two different countries), and a copy of a Builders Certificate, or a similar document that shows the country of build, which may be necessary to for the purposes of duty.
The article is just an overview of some of the intricacies involved with cross-border transactions and is for information purposes only. Seeking the services of specialized services, such as Customs Brokers, Documentation Services, and CPYB Certified Yacht Sales Professionals is highly recommended. For more information on these services visit the YBAA Affiliate Members and CPYB professionals online.
Mike Burns, CPYB is president of North South Nautical Group, Inc. located in Port Credit, ON. Mike serves as a member of the YBAA Board of Directors and is also a member of the CAC.