The proposed GST/HST holiday: Santa comes early for consumers, retailers get coal

On November 21, 2024, the Department of Finance announced that the government will be introducing legislation in Parliament to amend the Excise Tax Act (Canada) (the announcement) to provide for a two-month break from the application of Goods and Services Tax/Harmonized Sales Tax (GST/HST) for most food items and certain “holiday essentials” (the GST/HST holiday). The announcement indicates that this GST/HST holiday would apply to sales of qualifying goods from December 14, 2024, to February 15, 2025. The removal of GST/HST from qualifying goods applies to both GST and the full amount of HST in those provinces that have harmonized their taxes with the GST (Ontario, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island). Provinces that impose their own sales tax (British Columbia, Québec, Manitoba and Saskatchewan) have not announced any similar changes at this time, so these taxes are not currently affected.

The announcement indicates that the exemption from GST/HST would apply to qualifying goods that the purchaser takes delivery of and pays for during the GST/HST holiday. This GST/HST break is also proposed to apply to qualifying goods which are imported during the GST/HST holiday.

The announcement indicates that qualifying goods for purposes of the GST/HST holiday will include almost all food products (including food purchased at restaurants), certain children’s items, print newspapers, printed books (and certain audiobooks), alcoholic beverages (excluding spirits but including wine, beer, ciders and spirit coolers up to 7% ABV), Christmas trees or similar decorative trees, certain games and toys designed for children under the age of 14, video game consoles and physical game media, amongst other goods.

Implications for retailers

With this proposed GST/HST holiday, it seems that Santa may be coming 10 days early for consumers. However, for retailers, this GST/HST holiday may be a much less welcome change during an already busy holiday sales season.

The announcement did not include any accompanying draft implementing legislation, so it is unclear how this GST/HST holiday will work. Regardless, with a little more than three weeks to go until the GST/HST holiday is intended to take effect, it seems that the Government of Canada expects that retailers will assume that legislation will be drafted; that it will match the description set out in the announcement; that it will ultimately pass (notwithstanding that there is currently a minority government) with an effective date of December 14, 2024; and that retailers will be able to update their point-of-sale systems to adjust for the GST/HST holiday within three weeks.

Overhauling retailers’ point-of-sale systems to exempt qualifying goods from GST/HST is a major undertaking, and implementing the significant changes to point-of-sale systems for the GST/HST holiday with a little over three weeks’ notice will be a major challenge for retailers. It will require changes to thousands of different product codes to ensure that retailers’ point-of-sale systems do not charge GST/HST on qualifying goods during the GST/HST holiday. Retailers will also need to consider carefully which products are included as qualifying goods in order to avoid accidentally exempting items in their point-of-sale systems that are not subject to the GST/HST holiday. This will require significant labour at a time of year when retailers are already stretched for labour as they prepare for the holiday shopping season. Retailers may also be hesitant to undertake an overhaul of their point-of-sale systems at this time as they cannot afford to have their systems experience an accident or crash at one of the busiest times of the year. As long as there is no draft legislation specifying exactly which items are to be included in the GST/HST holiday, retailers will have to base their determinations on the announcement and hope that the ultimate legislation covers the same goods.

In particular, with the release of the announcement, retailers can review the list of qualifying goods to begin the process of determining which of their products may be affected, but without the legislation being passed or even released in draft format, retailers will bear the risk that they could be assessed for failing to charge GST/HST, plus interest and penalties, if legislation is not ultimately passed, if the legislation does not exactly match the goods described in the announcement or if it is unclear whether a particular product meets the conditions (e.g., whether a board game or card game is intended for use by children under 14 years of age). As the GST/HST holiday is set to take effect three weeks after the announcement, retailers do not have much time to figure out what items are covered and make the applicable changes to their systems.

Retailers are also faced with uncertainty about how the Canada Revenue Agency (CRA) will respond to retailers who follow the announcement. The CRA has previously indicated that it expects taxpayers to file returns on the basis of proposed legislation. However, in the event that the proposed legislation does not ultimately come into effect, the CRA expects taxpayers to take immediate steps to refile and pay any taxes owing. That means retailers could ultimately be on the hook for any failure to collect GST/HST if they refrain from collecting GST/HST during the GST/HST holiday and the legislation is not passed.

Takeaways

It will also be interesting to see the effect of the announcement on how consumers spend over the holiday season. The announcement, made the day before many Black Friday sales begin, may cause consumers to delay purchases of qualifying goods until December 14 when the GST/HST holiday begins. The release of the announcement could also incentivize consumers who have already made purchases of goods that are listed as qualifying goods to return these items and repurchase them once the GST/HST holiday begins, putting further pressure on retailers at an extremely busy time of year.

Ultimately, retailers will have to balance the benefit of getting extra sales from the two-month GST/HST holiday against the risks of complying with legislation that is not yet drafted (much less passed) and potentially losing business to rivals who do implement the changes, plus the time and cost of implementing the changes to their systems — particularly given the short two-month period that the GST/HST holiday will be in effect before retailers have to revert their point-of-sale systems to again compute GST/HST on the qualifying goods.

While this may be a gift for consumers, unfortunately the short time frame to implement the GST/HST holiday proposed in the announcement, the risk that the changes are ultimately not legislated and the cost to make the changes (only to have to change everything back two months later) will leave retailers with a lump of coal in their stockings.