Federal Government Announces GST/HST Holiday Relief

This article was updated on January 6, 2025 to reflect the passage of the Tax Break for All Canadians Act and the CRA’s release of GST/HST Notice 340.

To help Canadians by giving them “more money in their pockets” this holiday season, the federal government released a Backgrounder, on November 21, 2024, announcing two-months of relief from Goods and Services Tax/Harmonized Sales Tax (“GST/HST”) on certain groceries, restaurant meals and holiday essentials (the “GST/HST Holiday Relief”). The GST/HST Holiday Relief is proposed to start on December 14, 2024 and end on February 15, 2025, and will eliminate GST/HST on supplies that are commonly purchased during the holiday season.

The Details

The Backgrounder indicated that as of December 14, 2024, businesses across Canada “are expected to remove the GST/HST on qualifying goods at checkout.” The “qualifying goods” are items commonly purchased during the holiday season, including:

• Children’s clothing, footwear, diapers, and car seats;
• Print newspapers, excluding electronic publications;
• Printed books, with several exclusions such as most magazines and writing journals;
• Christmas trees;
• Food or beverages, including alcoholic beverages, restaurant meals, candies, and more[1];
• Select children’s toys, such as board games and dolls, designed for children under 14 years of age;
• Jigsaw puzzles; and
• Video-game consoles.

Draft legislation has not been released at the time of publication of this article and there is already ambiguity as to how some of the eligible goods will be defined and interpreted by the Canada Revenue Agency (“CRA”) and taxpayers. For example, there are some questions as to the scope of what is covered by “select children’s toys” as there is little guidance in the backgrounder. It will be interesting to see how the government will draw the line on the extent of the GST/HST Holiday Relief and whether there is pressure to extend it in whole or in part. It is also not certain whether the relief applies universally or is restricted to consumers. The federal government estimates that the two-month GST/HST Holiday Relief will cost $1.6 billion in lost tax revenue.

The government also announced that in early 2025 it will send a $250 “Working Canadians Rebate” cheque to 18.7 million taxpayers who worked and earned $150,000 or less in 2023.

What’s Next

Retailers including online retailers and online platform operators selling “qualifying goods” will need to start preparing their Point of Sale (“POS”) systems to implement the GST/HST Holiday Relief effective December 14, 2024. This will impose an administrative burden on these businesses who are being given only 23 days to set up their system with no draft legislation or explanatory notes to guide them. This task will be especially difficult for small, locally operated businesses who may have less developed POS systems and less access to expert tax advisors. It is unclear how the CRA will deal with non-compliant retailers although consumers should be able to claim rebates for tax paid in error. After the relief period expires, businesses will then need to reprogram their systems to impose tax on the items subject to the GST/HST Holiday Relief. The limited time period may also prompt consumers to return items previously purchased so that they can repurchase the items during the GST/HST Holiday Relief period causing additional administrative burdens for retailers.

We have not seen any announcements regarding “holiday relief” from the provinces imposing a separate provincial sales tax (“PST”) (British Columbia, Manitoba, Saskatchewan and Québec). While news outlets have reported that “[NDP leader Jagmeet Singh] wrote to Canada's premiers asking them to follow suit by removing their provincial sales taxes on essential items”, as of publication, the PST provinces have not made announcements relating to the GST/HST Holiday Relief. As Québec did not follow the federal government regarding the temporary enhanced GST/HST rebate for new purpose built residential rental property, there is precedent for Québec not following suit on tax relief.

Conclusion

The holiday season is an expensive and stressful time of year for many. While the GST/HST Holiday Relief may appeal to shoppers, the backgrounder is vague regarding some of the items subject to relief. This creates uncertainty for businesses trying to comply with the relief program within a very limited time period. For Canadians shopping online or in a retail store, as well as retailers themselves, there will be some difficulty in determining whether particular items qualify for the tax break unless draft legislation with clearer guidance is forthcoming.

There are also policy issues with respect to granting tax relief in this manner whereby the benefits of the GST/HST Holiday Relief extend to expensive dinners at high end restaurants, which one would not normally associate with assisting struggling Canadians. Also, retailers may take the opportunity to raise prices such that even after the relief from GST/HST the overall price remains the same. Besides having to change the tax treatment in their POS systems, there is a concern that businesses will also need to deal with returns by consumers who paid tax on their purchases prior to the GST/HST Holiday Relief announcement. After returning the goods, these consumers will seek to take advantage of the relief by repurchasing the same goods after December 14. The GST/HST Holiday Relief may also distort purchasing patterns for retailers as consumers hold off their purchases until December 14 with a similar downturn in purchases after the relief program’s February 15 expiration date. 

In addition to the $250 “Working Canadians Rebate”, a better solution may have been increasing the income-based GST/HST credit, which is issued to low and modest income individuals and families on a quarterly basis. Such targeted relief, while less visible, would have helped those most in need. The GST/HST Holiday Relief is expected to decrease tax revenue, increase the administrative burden on businesses and add complexity to the application of taxes at a very busy time of year for businesses and consumers alike. It will be interesting to see if draft legislation is issued shortly and whether such legislation will clarify the uncertainty regarding the application of the GST/HST Holiday Relief.

Update

Draft legislation, short titled Tax Break for All Canadians Act (the “Legislation”), was released on November 27, 2024 and received Royal Assent on December 12, 2024. In addition, the CRA released GST/HST Notice 340, “Questions and Answers about the GST/HST tax break for all Canadians” (the “Notice”) on December 20, 2024, which provides more detailed information regarding the GST/HST Holiday Relief.

Although the Legislation and Notice help resolve some of the ambiguity regarding the relief, implementing the relief measures has proven to be a challenge for many businesses, particularly small businesses and manufacturers and distributors.

For example, most businesses in the supply chain before the retail level are able to recover GST/HST payable by way of input tax credit so that they do not incur a GST/HST cost on their purchases. However, for a supply of goods to qualify for the relief (i) the goods must be delivered or made available to the customers between December 14, 2024 and February 15, 2025 (the “Relief Period”) and (ii) the customer must pay for the goods during the Relief Period. In many cases, a supplier will not know whether payment and delivery will both take place during the Relief Period. As a result, to ensure they will not be in a position of failing to collect GST/HST in the event the conditions for the relief are not met, some manufacturers and distributors have notified their business customers that they will not be providing the relief. Although technically the business customers are not able to recover the GST/HST paid by way of input tax credit if the goods qualified for the relief, since the CRA is statutorily required to “audit to net tax”, the business customers, if audited, should be able to recover the GST/HST paid by way of rebate for tax paid in error.

Consumers should note that in the Notice, the CRA specifically instructs persons purchasing goods or services that qualify for zero-rating to seek a refund or credit of the tax from the supplier or file a rebate claim with the CRA if the tax paid in error exceeds $2. With respect to compliance by suppliers, the CRA states:

“The CRA will take a practical approach to compliance. The CRA will dedicate its efforts towards situations in which businesses willfully and egregiously refuse to comply with the temporary measures, such as those who collect the GST/HST but do not remit it to the CRA. Businesses who make reasonable efforts to comply with the legislation will not be the focus of our compliance actions.”

The Fall Economic Statement, which was tabled on December 16, 2024 did not mention the $250 “Working Canadians Rebate”, which means that at least for now it appears that the rebate will not be paid out as previously announced.

If you are affected by any of these measures, or would like further information, please contact a member of our National Tax Group.

[1] It appears that all supplies of food or beverages for human consumption that are not currently zero-rated under the current GST/HST rules contained in Part III of Schedule VI of Part IX of the Excise Tax Act (Canada) will benefit from a GST/HST relief during the covered period, and all supplies of food and beverages should therefore not be subject to GST/HST. Spirits and spirit coolers over 7% ABV are excluded from the GST/HST Holiday Relief.