Tax Insights: GST/HST break for Canadians ─ Temporary relief on holiday essentials

In brief

On November 21, 2024, the Department of Finance announced a temporary Goods and Services Tax/Harmonized Sales Tax (GST/HST) break for Canadians. The proposed measure aims to provide financial relief to consumers by removing the GST/HST on groceries and certain other qualifying goods for a two-month period from December 14, 2024 to February 15, 2025 (the relief period). Legislation to give effect to the proposal is expected to be passed quickly, but has not yet been introduced into Parliament, nor has the Canada Revenue Agency (CRA) published administrative guidance. The relief period will start soon, so retailers should consider how it affects their business and prepare to make the necessary adjustments to their point‑of‑sale (POS) systems.

In detail

What is the GST/HST break?

The GST/HST break is a temporary measure designed to help Canadians save money on certain purchases during the holiday season. The government proposes to temporarily relieve the full amount of the GST/HST on a range of qualifying goods, including groceries, restaurant meals, drinks, snacks, children's clothing and common holiday gifts.

How the measure is proposed to work

Starting on December 14, 2024, businesses will be expected to remove the GST/HST on qualifying goods “at the checkout” and “at the cash register.” The relief will apply to qualifying goods “delivered to the purchaser and paid for” during the relief period. It is also expected that, during the relief period, these goods will not be subject to the provincial portion of HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island, since the Department of Finance stated that “further savings would be realized” in those provinces. The GST/HST will also be relieved on the importation of these qualifying goods if they are imported during the relief period.

Qualifying goods

The following goods would qualify for the temporary GST/HST relief:

• Children’s clothing – Garments designed for babies and children, including baby bibs, bunting blankets, receiving blankets and children's garments up to girls’ size 16 or boys’ size 20.
• Children’s footwear – Footwear (other than certain footwear, such as that used exclusively in sports or recreational activities) designed for babies or children with an insole length of 24.25 centimetres or less.
• Children’s diapers – Products designed for babies or children, including diapers, diaper inserts, liners, training pants and rubber pants.
• Children’s car seats – Restraint systems or booster seats conforming to Canadian safety standards.
• Print newspapers and printed books – Newspapers containing news, editorials, feature stories, and printed books or updates of such books.
• Christmas trees – Natural and artificial.
• Food or beverages – Items for human consumption, including certain alcoholic beverages, carbonated beverages, candies, chips, granola products, ice cream and prepared salads. The proposed relief extends to prepared meals and food and beverages sold at an establishment, such as a restaurant, pub and coffee shop.
• Select children’s toys – Products designed for use by children under 14 years of age, including board games, card games, dolls, plush toys and construction toys.
• Jigsaw puzzles
• Video-game consoles, controllers or physical game media

Key issues and considerations

The Department of Finance news release on the proposed measure contained very few details. While we wait for draft legislation, CRA administrative guidance and other details, affected retailers should consider the following:

• Compliance and implementation – Be prepared to implement the temporary GST/HST relief changes at checkout. This includes reviewing product tax categorization against the list of qualifying goods, preparing to update POS systems to remove the GST/HST on qualifying goods and ensuring that staff are trained on the new procedures. However, the tight timeline for making these updates and providing training, especially for smaller businesses with limited resources or businesses with complex POS systems may restrict how quickly and effectively businesses can implement these changes.
• Documentation and record-keeping – Maintain accurate records of sales transactions during the relief period to ensure compliance with the temporary tax break. This includes documenting the qualifying goods sold and the GST/HST relief applied. Proper documentation will be crucial for audit purposes and to avoid potential disputes with the CRA. Also, be prepared for the December 2024 and February 2025 monthly GST/HST returns to be more complex because the relief period starts and ends mid-month.
• Communication with customers – To ensure a smooth transition, affected retailers must be prepared to communicate the GST/HST relief to their customers once further details are released.
• Importation of qualifying goods – As the GST/HST relief will also apply to the importation of qualifying goods during the relief period, businesses and/or consumers that import these goods must be aware of the relief and comply with the necessary documentation and reporting requirements to ensure that the GST/HST is not overpaid when the goods are imported into Canada. This may require importers to carefully review the import documentation prepared by the customs broker, since the import GST/HST is commonly paid by the broker on the importer’s behalf.

For consumers, the proposed measure is designed to put “more money in Canadians’ pockets.” For businesses that are required to provide the temporary GST/HST relief, there will likely be related challenges (due to lack of information on certain topics), including:

• Scope of affected entities – The Department of Finance news release states that businesses will be expected to remove the GST/HST on qualifying goods “at the checkout” and “at the cash register” and that the measure is designed to put “more money in your pocket,” which indicates that the relief is aimed at retail (business‑to‑consumer) sales instead of wholesale sales (which is earlier in the supply chain). However, it is not entirely clear how this will be achieved and it is possible that the relief could apply throughout the supply chain.
• Scope of qualifying goods – Although the government has provided a list of qualifying goods, there are still ambiguities on whether certain items qualify for relief, specifically those that are not already defined within the Excise Tax Act. For example, determining whether certain mixed-use products (e.g. items that can be used by both children and adults) qualify may be challenging. Without clear guidance, other items may be subjective or open to interpretation (e.g. how to determine whether a toy is “designed for use by children under 14 years of age”). More detailed guidelines and definitions are needed to avoid confusion and ensure compliance.
• Complex situations – The measure appears broad and simple at face value, but there will be complex situations that need to be considered and addressed. For example:
  • the rules are proposed to apply to supplies of qualifying goods that are “delivered to the purchaser and paid for” during the relief period. What constitutes “delivery” and how do the proposed rules apply in the case of goods ordered on an online platform that are subject to delivery delays, such that the actual delivery occurs outside the relief period?
  • how should POS systems be configured to treat returns or exchanges of goods supplied during the relief period (and afforded relief) that are returned after the relief period when the relief has been removed from POS systems (or vice versa)?

Clear guidelines, effective communication and diligent compliance efforts are required to successfully implement and manage the temporary GST/HST break.

The takeaway

This temporary GST/HST break is intended to provide significant financial relief for Canadians during the holiday season. However, most businesses will find it challenging to implement this temporary measure. Affected businesses should be prepared to act quickly once the legislation has been introduced in Parliament and the government provides additional guidance.