Are you ready for the proposed GST/HST tax holiday?

The federal government has proposed measures to relieve the GST/HST on select goods from December 14, 2024, through February 15, 2025.

Goods covered by these proposed measures include children’s clothing, certain toys, printed books, Christmas trees (real or artificial), and many foods and beverages that households typically consume over the holiday season — including certain snack foods and alcoholic beverages. 

Legislation is still pending and, while consumers will benefit significantly from this tax holiday, retailers and restaurant operators will need to be prepared for the compliance.

Here are some things to consider while preparing for the proposed change:

Identifying qualifying goods

If you are a retailer or restaurant operator selling any of these qualifying goods, you will need to ensure they are properly identified in your system. Depending on the type of system you have, individually identifying all qualifying goods and removing the GST/HST could be a labour-intensive process. It may even require external support from a system specialist and/or coordination across various departments.

The process of restoring GST/HST may be equally disruptive. Appropriate measures should be put in place to ensure the GST/HST is properly adjusted after February 15, 2025, to avoid possible interest and penalties for failure to once again collect and remit GST/HST on these goods.

As of the time of writing, retailers have less than three weeks to determine which of their sales qualify for this tax holiday and address these administrative hurdles. The consequences for businesses that fail to comply with this measure for any reason remain unclear.

Provincial sales taxes

As proposed, the tax holiday also applies to the HST portion on qualifying goods. However, the federal proposal does not impact provincial sales tax in those provinces that administer their own sales tax. Whether those provinces will follow suit remains to be seen. Any differences in tax treatment on qualifying goods for businesses operating in multiple provinces will likely add additional complexity and increase the opportunities for errors.

Consider possible impacts to input tax credits

Treating the qualifying goods as zero-rated would allow retailers and restaurant operators to continue to claim input tax credits (ITCs) on their operating expenses. The full impact on businesses if the qualifying goods are considered tax-exempt remains unclear.

The government’s news release also mentions that imports of the qualifying goods would also not be subject to GST/HST. This again raises the question of whether ITCs will be available from sales of these goods during this period.

Stay tuned for further updates

Despite the potential challenges and unanswered questions, retailers and restaurant operators can expect to be extra busy through the holiday season and beyond if these measures take effect.

We are following this situation closely and will review the draft legislation and provide answers as soon as it is released. Contact our indirect tax team for more information on how this may impact your business.