The Canadian Federal Government recently announced a “GST Holiday” to provide some sales tax relief for those struggling with affordability just in time for the holidays. Through the two-month period from Dec 14th to Feb 15th, 2025, select items will be exempt from GST/HST. These include mostly holiday related foods and gifts, such as:
- Prepared Foods: Like sandwiches, rotisserie chickens, fruit platters, and salads
- Restaurant Meals: All meals including dine-in, takeout, and delivery
- Snacks: For example chips, ice cream, and candies
- Alcohol: Beer, wine, cider, and spirit coolers under 7% ABV
- Children’s Items: Clothing, diapers, car seats. Also toys such as dolls, video game consoles, and board games.
- Printed Entertainment: Books, newspapers, and jigsaw puzzles
- Christmas Trees: Both natural and artificial
In addition, the Federal Government also announced the “Working Canadians Rebate”, where they will be sending $250 cheques to approximately 18.7 million Canadians, who worked in 2023 and earned less than $150,000. Amongst the eligibility criteria is to complete and file your 2023 tax return by December 31, 2024.
At face value this temporary tax relief and rebate sounds promising, we see a few challenges with this rather rushed change:
- Likely Delays in Interest Rate Cuts – As these changes will spike consumer demand, the Bank of Canada will want to be cautious as to not further raise inflation which more recently came in at 2%. This means the expected rate cut on December 11th that many are anticipating will likely only be 25 basis points versus the 50 basis points that we all hoped for. The advantage of the GST/HST suspension and rebate likely do not outweigh the savings borrowers could have seen with what is now a doubtful larger rate cut. As interest rates continue to decline, this lowers the cost of capital and encourages confidence in businesses to hire staff and make the necessary capital expenditures they are likely delaying. As the cost of capital drops, investors looking to make real estate or other investments are more confident to move forward.
- Temporary Costly Promise – The “GST Holiday” gives a tax break on many luxury items, including alcohol and prepared meals. Publicized estimates are that this temporary program will cost the federal treasury $1.6 billion in revenue, and an additional $4.7 billion from the rebate. The additional cost of government process and staffing to administer this temporary program adds to the costs. The combined $6.3 billion could be much better spent on stimulus to increase investment in Canada and providing the necessities that many Canadians are struggling to afford. For example, providing training to unemployed Canadians, supporting housing for youth, or even providing funding to get more homes built. In reviewing the list above, some of the items such as alcohol and Christmas Trees are hardly essential items warranting a tax break!
- Costly for Business Owners – Business owners now have additional regulations to comply with and must take time to understand the exempt items to determine if they are required to act. Those who are selling these kinds of goods are now also responsible for configuring their point of sale systems and processes on very short notice, just to change it all back in two months. These additional rules are being done with minimal notice and during the busiest time of the year for retailers causing confusion to consumers as well.
- Rebate Exclusions – The $250 rebate noted above only applies to those who “worked” in 2023. The rebate as announced excludes many vulnerable groups who could not work ineligible, such as retired seniors and those with disabilities. These individuals living on fixed incomes are barely keeping up with inflation and likely need the rebate most will not be receiving it.
Change is constant in the world of accounting, tax, and finance regardless of your current and future situation. Navigating tax changes whether temporary or long-term requires the help of a trusted advisor. At Finalyze CFO Services we are proud to work with business owners, real estate investors, developers, and investment funds as their Trusted CFO Advisor. Reach out today for a complimentary consultation to learn more about our CFO Advisory, Accounting, and Tax Services.
For a full list of qualifying goods for the new rebate click the link below: More money in your pocket: A tax break for all Canadians – Canada.ca