On November 28, 2024, Bill C-78, the Tax Break for All Canadians Act, was passed by the House of Commons of Canada. This legislation was tabled to implement temporary GST/HST relief on certain taxable supplies for the period from December 14, 2024, to February 15, 2025.
The GST/HST relief will be achieved through legislative amendments to add temporary zero-rating provisions to the Excise Tax Act (ETA). This is welcome news for registrants as the GST/HST holiday will have no impact on an organization’s eligibility to claim input tax credits.
However, the timing of the change and the use of temporary zero-rating provisions could pose a challenge to many organizations since the tax relief will apply throughout supply chains and take effect in about two weeks.
Eligible Supplies
Several different types of supplies will be eligible for the temporary GST/HST zero-rating, provided they are supplied between the period beginning on December 14, 2024, and ending on February 15, 2025 (referred to as the “eligible period”). In addition, all consideration for an eligible supply must be paid within the eligible period, and the property in question must be delivered or made available to the recipient during that same period. For these purposes, a supply of property will be deemed to be delivered to a recipient when it is sent by mail or courier to the recipient or the supplier transfers possession of the property to a common carrier retained on behalf of the recipient.
Items eligible for the temporary zero-rating include:
- Most food and beverages for human consumption, including groceries, prepared food and beverages, catering services (where performed and paid for during the eligible period), snack items, and alcoholic beverages [excluding spirits, but including beer, wine and sake (containing up to 22.9% alcohol by volume), packaged alcoholic beverages (containing up to 7% alcohol by volume), and any mixtures of otherwise eligible alcoholic beverages];
- Children’s clothing, footwear, diapers, and car seats [as defined in the current Deduction for Provincial Rebate (GST/HST) Regulations];
- Certain products designed to be used by children under 14 years of age to learn and play, including games, playing cards and dice, toys, dolls, plush toys and toy sets or systems involving the creation of structures or models and the sorting, stacking, or organizing of parts;
- Printed books (as defined in subsection 259.1(1) of the ETA), qualifying audiobooks, printed religious scriptures, and qualifying newspapers and composite properties, such as a printed book combined with a CD-ROM in a single package (as defined in the Deduction for Provincial Rebate (GST/HST) Regulations);
- Christmas trees and similar decorative trees;
- Jigsaw puzzles for all ages; and
- Video game consoles and certain accessories, including controllers and video games provided in a read-only tangible format (i.e., game cartridges).
Note that supplies of food and beverages through vending machines have been specifically excluded from the temporary zero-rating.
Retailers supplying any of the above items to consumers will likely have further questions about the eligibility of certain products. For example, what constitutes a decorative tree? Is a toy or game ineligible if it is marketed to both children and adults?
To date, the Canada Revenue Agency has published limited guidance on the GST/HST holiday tax break. Further information is expected to be provided before the temporary zero-rating takes effect. Ryan continues to monitor the situation closely and will provide further guidance as it becomes available.
Key Concerns
All GST/HST registrants making eligible supplies to consumers must act quickly to adjust their point-of-sale systems to reflect the temporary zero-rated status of impacted products and services – or face the potential wrath of angry customers. However, it is equally as important to ensure that no supplies are incorrectly coded to zero-rated status, resulting in a liability for failing to collect tax.
While the intent of the legislation is to provide tax relief to consumers at the point of sale, technically, the provisions will also apply to any organization making an eligible supply during the eligible period, including registrants involved in business-to-business (B2B) transactions. Where the supply of an eligible item is delivered or made available to and fully paid for by a recipient on or after December 14, 2024, and before February 16, 2025, it will qualify for zero-rating. It is expected that the payment terms in many B2B transactions will prevent otherwise eligible supplies from qualifying for the temporary zero-rating, since payment is typically not due or made until well after the supply has been provided. However, this is not guaranteed, and an organization could have the tax status of its supply change if the customer pays for the property or service in full before the end of the eligible period. Organizations should carefully consider how the potential impact of the temporary zero-rating on their B2B transactions should be addressed.
The temporary GST/HST relief also applies to eligible supplies imported into Canada or brought into a participating province during the eligible period. Importers should ensure that GST is not overpaid on eligible supplies imported into Canada during the eligible period.
The enacting legislation must still be passed by the Senate and receive Royal Assent for the GST/HST holiday to take effect, but those steps are expected to be a formality.
If you have any questions about eligible supplies or how the temporary GST/HST relief might impact your organization, please do not hesitate to contact Ryan TaxDirect® at 1.800.667.1600 or taxdirect@ryan.com.