It is official: the two-month GST/HST break on certain “holiday essentials,” effective from December 14, 2024, to February 15, 2025, received Royal Assent on December 12, 2024.

During the eligible period, the tax rate for certain products and menu items will be 0%, meaning no GST/HST should be charged. Retailers, manufacturers, wholesalers, importers, and restaurants will have to assess the impact of these legislative changes, review their products and menu items, and implement necessary adjustments, such as updating point-of-sale (“POS”) systems and website checkout pages. Additionally, they will need to train staff to answer the inevitable questions from shoppers and patrons.

This measure was first announced on November 21, 2024 (the “Announcement”). Following our initial report (Government Announces GST/HST Break on Certain Holiday Essentials), Bill C-78, An Act respecting temporary cost of living relief (affordability) (“Bill C-78”) was introduced. One day later, on November 28, 2024, Bill C-78 passed the House of Commons and subsequently passed the Senate on December 12, 2024.[1]

How are sales and importations affected by this temporary GST/HST measure?

Bill C-78 amends the Excise Tax Act (Canada) by adding a new Part (Part XI) to Schedule VI, effectively expanding the list of zero-rated supplies. Under the new provisions, a supply classified as an “eligible supply” of the eligible items listed in Part XI will now be zero-rated during the “eligible period,” which runs from December 14, 2024, to February 15, 2025. Additionally, the importation of an eligible item during the eligible period will be treated as a non-taxable import. There is a similar amendment to address property brought into an HST province during the eligible period.  

In general, if a supply is zero-rated, it remains a taxable supply (allowing businesses to claim input tax credits), but the tax rate is 0%, meaning no GST/HST is charged. Basic grocery items, such as fruits, vegetables, most milk products, fresh meat, poultry and fish, eggs, and coffee beans are already zero-rated.

What are eligible items?

The list of eligible items has not materially changed since the Announcement, but the new Part XI to Schedule VI contains additional details. The following is an updated summary of the eligible items:

  • children’s clothing, footwear, diapers, and car seats;
  • physical books and printed newspapers;
  • Christmas trees or similar decorative trees, whether natural or artificial;
  • toys intended for children under 14 years old for learning or play, and that meet other specified conditions;
  • jigsaw puzzles;
  • video game consoles, controllers, and physical video games (does not include downloadable or online-only games and other gaming accessories such as chairs and headsets);
  • pop, candy, chips, ice cream, chocolate, cakes, pastries, pudding, etc. (does not include food or beverages purchased from a vending machine or those that contains cannabis);
  • prepared salads, sandwiches, platters of cheese, cold cuts, fruit or vegetables, and other arrangements of prepared food;
  • beer and malt beverages; wine, cider, and sake (including fortified) that are 22.9% alcohol by volume (ABV) or less; and spirit coolers and premixed alcoholic beverages that are 7% ABV or less (alcoholic spirits and liqueurs remain subject to GST/HST); and
  • food and beverages sold by a restaurant, coffee shop, take-out outlet, pub, food truck, etc. (some mixed drinks remain subject to GST/HST).

Canadian businesses and importers of eligible items are strongly encouraged to review the new Part XI of Schedule VI for specifics. The Canada Revenue Agency website provides examples of the types of items that qualify for the GST/HST break.

What are “eligible supplies” and timing considerations?

To qualify as an “eligible supply,” the entire purchase price for the eligible item must be paid within the period from December 14, 2024, to February 15, 2025 (including all instalment payments). Further, the property must be delivered or made available (e.g., transferred to a shipping service or courier, or sent via mail) during that period.

What else do retailers, manufacturers, wholesalers, importers, and restaurants need to know?

Below are key observations and issues that businesses will need to manage:

  • While the Announcement indicated that this GST/HST break would provide “Canadians real relief at the cash register,” it is now evident that this temporary GST/HST measure not only affects retail sales to consumers but also wholesale sales and other business-to-business (B2B) transactions.
  • The separate provincial sales taxes in British Columbia, Saskatchewan, Manitoba, and Quebec will continue to be charged (i.e., no corresponding tax “holiday” measures are expected in those provinces).
  • Businesses may face challenges when assessing whether a particular product or menu item is temporarily zero-rated or remains taxable. This will require an item-by-item review, which could be quite onerous for businesses managing a large volume of SKUs. For example:
    • Lego sets intended for children under 14 years old are zero-rated, while those intended for children 14 years old or older, or for adults, remain taxable.
    • Mimosas (made with sparkling wine and orange juice) are zero-rated, whereas sangria (made with wine, rum, and juice) remains taxable.
  • Customers and patrons may be confused as to why certain products or menu items are still taxable, so businesses should consider how to manage questions from the public.
  • Non-resident and resident importers should be prepared to work with the Canada Border Services Agency to ensure the correct tax treatment of imported products.
  • It is positive news that businesses remain entitled to claim input tax credits. However, if businesses are not collecting GST/HST on eligible supplies of eligible items, some may find themselves in a net tax refund position. This could create cash flow challenges. Further, businesses need to be mindful not to inadvertently claim input tax credits for zero-rated inputs, including input tax credits relating to employee expenses or reimbursements.
  • Businesses that accept online orders will need to be mindful of when products are shipped to ensure that a particular sale qualifies as an “eligible supply,” and will need to when manage checkout systems resume charging GST/HST again (which may be before the end of the eligibility period, being February 15, 2024, if the product is shipped after that date).
  • In the event of a Canada Revenue Agency audit, businesses should maintain detailed books and records, including payment dates, analyses used to determine whether a product or menu item is temporarily zero-rated, and product shipping or mailing dates.
  • As noted above, businesses must ensure that their POS systems and website checkout procedures accurately reflect and charge the applicable tax rate. If businesses intend to advertise which products are subject to the “holiday break” on tax, they must ensure that such advertising is not false or misleading, and generally aligns with advertising laws, including requirements for price disclosures.

Prepare your business for the GST/HST holiday tax break! Review your products, menu items, and systems today to avoid disruptions and ensure compliance.

The members of the Miller Thomson Sales, Commodity and Indirect Tax Group and Marketing, Advertising & Product Compliance Group are available to support your business as you assess the impact of these legislative changes, review your products and menu items, and implement the necessary adjustments.

[1]     The Standing Senate Committee on National Finance held committee meetings on December 3, 4, and 5, 2024 to discuss Bill C-78 and heard from government officials, industry representatives, and other stakeholders. The Committee did not recommend any amendments but observed “that this measure may fail to make a real difference for those who are facing affordability issues,” and acknowledged that committee members “heard testimony given regarding the administrative burden that will be shouldered by certain small and medium enterprises, as highlighted by representatives from a variety of business organizations and tax experts.”