The Government of Canada announces a temporary GST/HST holiday tax break

The Government of Canada has announced temporary goods and services tax / harmonized sales tax (“GST/HST”) relief on children’s clothing, toys, games, books, food and beverages. Canadian businesses will be required reduce GST/HST to zero on a variety of qualifying products between December 14, 2024, to February 15, 2025.

The Minister of Finance tabled Bill C-78 – Tax Break for All Canadians Act on November 27, 2024. The Canada Revenue Agency (“CRA”) has released guidance, including detailed examples of qualifying and non-qualifying items under each category.

Zero-rating

Bill C-78 requires supplies from qualifying goods (see below) to be treated as zero rated for GST/HST purposes. Businesses are still able to claim input tax credits (“ITCs”) on the related purchases under this holiday. 

Qualifying goods

The tax relief applies to goods that are both delivered (or imported) and paid for during the relief period. Some qualifying goods include:

• Children’s clothing and footwear;
• Diapers and car seats for children;
• Toys and games for children;
• Jigsaw puzzles;
• Video game consoles, controllers, and physical video games;
• Physical books and printed newspapers;
• Natural and artificial Christmas trees (decorations excluded); and
• Food and beverages, including restaurant and catering services.

Timing of the eligible supply

To qualify for the GST/HST holiday:

• Full payment must be made between December 14, 2024, and February 15, 2025.
• Items must be delivered or services fully rendered by February 15, 2025.
• Deposits made before December 14, 2024, may qualify, provided the balance is paid during the eligible period and the goods or services are delivered by February 15, 2025.

Specific considerations

Children’s toys and video games consoles, controllers and physical video games

Toys and games (excluding video games) must be intended for children aged 14 or younger. Retailers will likely need to reference the manufacturer’s recommended age on the packaging. 

Non-qualifying items include collectibles, toys marketed to adults, digital video game downloads, and video game accessories.

Christmas and similar decorative trees

Both natural and artificial trees qualify, however, decorations, ornaments and other holiday accessories do not.

Physical books and printed newspapers

Qualifying items are limited to traditional physical books and newspapers. Some non-qualifying items include downloadable e-books and audiobooks, journals, notebooks, coloring books, or scrapbooks, agendas, calendars and magazines with more than 5% of printed space devoted to advertising.

Food and beverage related services

Most food and beverages, including restaurant and catering services, will qualify for the tax break. A key exclusion is packaged food items that are sold through vending machines.

Challenges for small business owners

While this GST/HST holiday offers significant savings for consumers, it poses logistical challenges for businesses. The short timeline for implementation has left many businesses scrambling to update their point-of-sale systems to remove, and later reinstate, the taxes.

Additionally, complexities arise for businesses issuing invoices with delayed payment terms or processing online orders where delivery timing may be uncertain.

Preparing for the relief period

This GST/HST holiday presents an exciting opportunity for both consumers and businesses. However, proper planning and understanding of the detailed requirements are crucial to maximize its benefits. For businesses, preparation before the holiday period begins on December 14 is essential. Key steps include:

• Updating point-of-sale systems.
• Training staff on the specifics of the legislation.
• Addressing any uncertainties in inventory categorization or payment timing.

Our tax specialists understand that interpreting and applying these relief measures can be overwhelming. We’re here to provide the support and advice businesses need to navigate the complexities of this temporary tax relief initiative effectively.