Federal GST/HST relief legislation passes in House without planned tax rebate

The federal legislation implementing the GST/HST holiday on select items, which will be in place between December 14^th 2024 to February 15^th, 2025, has passed in the House of Commons and—barring any surprises in the Senate—will soon become law.

The legislation does not include the proposed Working Canadians Rebate for qualifying taxpayers, which (as outlined in a previous blog) would deliver $250 to an estimated 18.7 million employed Canadian residents who filed a 2023 tax return by December 31^st, 2024, among other criteria.

Given the Trudeau Liberals’ minority standing in Parliament, they require the support of another party to pass legislation. The New Democratic Party has refused to support the Working Canadians Rebate unless the measure is expanded to include seniors and Canadians with disabilities. Given that uncertainty, it’s unclear at this time whether the measure will be implemented in its current form (if at all), or whether it will be significantly amended.

In the meantime, the legislation did provide much-needed clarity around the implementation of the GST/HST tax break, which will ‘zero-rate’ qualifying items, whether purchased retail or wholesale. The tax discount will be applied at checkout. The legislation included clarifications around the categories of items that will be included program.

The list is complicated and includes some head-scratching exclusions. Take children’s toys, for example. Under the legislation, toys intended for children 14 years of age and younger will qualify, including:

Board games with physical components and rules (including replacement parts and add-on components such as dice)
Toys, toy sets and toy systems that either:
Imitate another item, whether real or imaginary
Involve building, creating or assembling structures, objects or models by using pieces, parts, materials or modelling compound, or involve sorting, stacking or organizing pieces, parts or materials
Along with dolls, plush toys and soft toys and their accessories

However, mixed-use toys that the government has categorized as being potentially enjoyed by adults (but may also be used by children), are excluded, including toys that are:

Collectible that are not intended for play or learning, such as hockey cards or collectible dolls
Toys and model sets that are marketed for adults (for example, adult Lego or train sets)

The implementing legislation also clarified that temporary GST/HST relief will apply to items that are paid in full, while partial payments on qualifying items must be made between December 14^th, 2024, and February 15^th, 2025, but with an exception for deposits. If a deposit was “paid on a qualifying item before December 14, 2024, the item would still qualify as long as:

The entire remaining amount is paid between December 14, 2024, and February 15, 2025
The item is delivered (or made available) between December 14, 2024, and February 15, 2025
Delivered or made available to the buyer between December 14, 2024, and February 15, 2025”

A shipped item will be considered delivered if it is shipped on behalf of the seller and arrives at the destination address. However, if a supplier:

Uses a shipping service (common carrier or consignee) for delivery on behalf of the recipient, the government will consider the item to have been delivered to the recipient at the time the supplier transfers the item to the shipping service
Sends the item by mail or courier to the recipient, the government will consider the item to have been delivered to the recipient at the time the supplier mails the item or transfers it to the courier

Qualifying imported goods will also qualify for temporary GST/HST relief.

Businesses are being instructed not to charge GST/HST on qualifying items, and it does not appear that they will be permitted to opt out of the tax holiday and continue remitting tax as normal. Given the logistical complexities of carefully adjusting point-of-sale systems during the busy holiday season to exclude the GST/HST on some items and not others, and to account for these changes when remitting GST/HST, it would come as no surprise if many affected businesses hoped to do exactly that.

Instead, businesses are being told to remit and report regular GST/HST as usual, along with claiming input tax credits for the GST/HST paid or payable on expenses made to provide zero-rated supplies. The reality is that this situation is anything but normal. There are many problems with the tax break measure including, but not limited to:

The challenge of communicating with customers, who will likely be confused as to which items are included in the relief program and which are not, just as they carefully check receipts to ensure their payment at checkout accurately reflects the GST/HST zero-rating on qualifying items
The risk of increased Canada Revenue Agency audit activity around GST/HST compliance. Will the CRA offer lenience to businesses that make mistakes around input credit claims or tax remittance for the break period? There is no guarantee that any such forgiveness will be applied when GST/HST returns are filed and if compliance disputes arise. Adding to the challenge: the relief applies mid-month between December and February, exacerbating the reporting complexities for impacted businesses
Managing returns and exchanges after point-of-sale systems are adjusted to reapply the GST/HST once the tax holiday ends on February 15^th, 2025
The likelihood that the tax holiday will incentivize consumers to wait until December 14^th to begin their holiday shopping, potentially delaying essential holiday sales and forcing retailers and restaurateurs to work overtime in the 10 days before Christmas to accommodate savings-hunting shoppers and guests
The costs associated with restoring GST/HST to point-of-sale systems in February, 2025

While the Trudeau government intended to deliver a tax gift to Canadians this holiday season, it has instead dropped a sizeable lump of coal in the stocking of business owners across the country, who must now scramble to comply with a dizzying set of new GST/HST compliance requirements. These will cause considerable headaches—and increase operational costs—for beleaguered owners and managers of business of virtually all sizes, with smaller, less-staffed companies surely bearing the logistical brunt of the changes.

As with so many of the federal government’s recent politically motivated tax measures, this one is being implemented with little consideration for those tasked with compliance, not to mention a deficit that continues to balloon due to Ottawa’s unfunded spending.

Armando Iannuzzi, Co-Managing Partner

For more information on the GST/HST tax holiday and how it impacts your business, contact a member of the KRP LLP team today.