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November 27, 2024 Canada proposes temporary GST/HST relief for holiday essentials
On 21 November 2024, the Government of Canada announced it will introduce legislation to provide temporary Goods and Services Tax/Harmonized Sales Tax (GST/HST) relief on holiday essentials such as groceries, restaurant meals, children's clothing and footwear and children's toys. If enacted, relief would apply for the period beginning on 14 December 2024 and ending on 15 February 2025. Given that the onset of the relief period is fast approaching, retailers should prepare by reviewing their inventories and adjusting their point-of-sale software as soon as possible. At the time of writing, no notice of ways and means motion or bill has been tabled to implement the proposals. In accordance with a backgrounder released by the Department of Finance, GST/HST relief would apply to qualifying goods that are delivered to the purchaser and paid for during the relief period. Relief would also apply to importations of qualifying goods if the goods are imported during the period beginning on 14 December 2024 and ending on 15 February 2025. The backgrounder also states that "in provinces where the HST will also be removed from qualifying goods (Ontario, Newfoundland and Labrador, Nova Scotia, New Brunswick, and Prince Edward Island), further savings would be realized." This indicates that relief for qualifying goods will extend to the provincial portion of the HST. Some HST provinces already provide relief in respect of certain qualifying goods; for example, Ontario provides a point-of-sale rebate for children's car seats, children's clothing and footwear, children's diapers, newspapers, and prepared food and beverages. However, provinces such as Newfoundland and Labrador and New Brunswick do not currently provide such rebates, with the result that the GST/HST relief measures could have a disproportionate impact on their tax revenues. Qualifying goods It should be noted that, for purposes of the temporary GST/HST relief provisions, the Department of Finance is adopting the definitions of "children's car seats," "children's clothing," "children's diapers," "children's footwear," "printed books" and "qualifying newspaper" listed in the Deduction for Provincial Rebate (GST/HST) Regulations. However, there is currently no such guidance for other proposed qualifying goods such as "children's toys." This may leave some room for interpretation and potential confusion for retailers. The backgrounder indicates that qualifying goods would include the following: Children's clothing — This applies to garments that are:
It would not include garments of a class used exclusively in sports or recreational activities, or costumes. Children's footwear - Applies to footwear designed for babies or children and that has an insole length of 24.25 cm or less. It would not include stockings, socks or similar footwear, or footwear of a class that is used exclusively in sports or recreational activities. Children's diapers - Applies to a product designed for babies or children and that is a diaper, a diaper insert or liner, a training pant or a rubber pant designed for use with any of these items. Children's car seats - Applies to a restraint system or booster seat that conforms to the Canada Motor Vehicle Safety Standard 213, 213.1, 213.2 or 213.5 under the Motor Vehicle Restraint Systems and Booster Seats Safety Regulations. Food or beverages - This would generally include food and beverages that are currently excluded from the zero-rating provisions applicable to supplies of basic groceries under Schedule VI, Part III of the Excise Tax Act. Temporary GST/HST relief would apply to items for human consumption that are:
The only food and beverage products that would remain excluded from the temporary GST/HST relief provisions are:
Print newspapers - Applies to a print newspaper (other than a flyer, insert, magazine, periodical or shopper) that contains news, editorials, feature stories or other information of interest to the general public and that is published at regular intervals. Electronic or digital publications would be excluded. Printed books - This would apply to printed books that qualify for the point-of-sale rebate for the applicable provincial component of the HST, which is available to consumers in the five HST provinces. This includes a printed book or an update of such a book, an audio recording where 90% or more of it is a spoken reading of a printed book, or a bound or unbound printed version of scripture of any religion. It would not include items excluded from the definition of printed book in subsection 259.1(1) of the Excise Tax Act, such as:
Children's toys — Temporary GST relief will apply to a product designed for use by children under 14 years of age in learning or play that is:
Other — Temporary GST relief will also apply to:
Next steps While Canadian consumers will no doubt welcome these temporary relief measures and retailers may anticipate increased consumer spending, the proposed measures do present some challenges. Retailers will need to review their inventories to determine which of their goods qualify for relief and which do not and adjust their point-of-sale software accordingly. Given the relatively short notice, this may present problems for certain businesses. As well, it is possible that retailers will experience diminished sales in the short term, as consumers may delay their holiday spending until the relief period kicks in. It will also be interesting to see how the Department of Finance proposes to amend the legislation to implement the temporary relief measures. As noted above, it appears that temporary relief for qualifying goods will extend to the provincial portion of the HST. Technically, the requisite amendments can be made without prior provincial approval. For example, providing tax relief in respect of food and beverages that are not currently zero-rated could be accomplished through amendments to Schedule VI, Part III of the Excise Tax Act. However, providing relief for the full slate of qualifying goods may reduce provincial tax revenues for HST provinces significantly. At the time of writing, it is unclear whether the proposed measures will require the federal government to compensate HST provinces for the reduced revenues, in accordance with their respective Comprehensive Integrated Tax Coordination Agreements. Further, providing tax relief by amending Schedule V of the Excise Tax Act — in other words, exempting qualifying goods from GST/HST — could have a detrimental effect on retailers, as they would not be able to claim input tax credits in relation to sales of qualifying goods.
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