The Canada Revenue Agency (CRA) continues to update its GST/HST holiday tax break publication to provide administrative guidance concerning items that qualify for this tax relief. As a reminder, temporary GST/HST relief has been introduced for specific goods and services from December 14, 2024, to February 15, 2025 (the “eligible period”). The legislation for this change was passed in the House of Commons on November 28, 2024, and only needs to be passed by the Senate and receive Royal Assent to become law.
The following categories of supplies will qualify for the GST/HST holiday:
- Children’s clothing and footwear;
- Children’s diapers;
- Children’s car seats;
- Children’s toys;
- Jigsaw puzzles;
- Video game consoles, controllers, and physical video games;
- Physical books;
- Printed newspapers;
- Christmas and similar decorative trees; and
- Food and beverages and related services.
The CRA recently broadcast a webinar to outline its position on several issues identified by taxpayers trying to prepare for the temporary GST/HST relief. Key takeaways from this webinar are summarized below.
Delivery and Payment
The CRA made it clear that this temporary tax holiday will only apply where all of the consideration for an eligible supply is paid within the eligible period, and the property or service (e.g., a catering service) is delivered or performed or made available to the recipient during that same period.
The CRA acknowledged that these requirements may be problematic with business-to-business (B2B) transactions where extended payment terms are provided to a customer. From a compliance perspective, the CRA has indicated it will take a practical approach to enforcement and only penalize those taxpayers showing “wilful or egregious” noncompliance. Where an organization makes every effort to comply with the rules for this tax holiday, it should not be concerned about an occasional non-compliant transaction. However, ultimately, any potential GST/HST liability exposure may come down to an organization’s overall compliance with the legislation and how future audits are managed.
A possible approach to handling the full payment during the eligible period requirement on B2B transactions may be to issue invoices for qualifying items showing an amount due without GST/HST, provided payment is made on or before February 15, 2025, and a different amount due (including GST/HST) where payment is made after February 15, 2025, similar to how early payment discounts are sometimes handled by suppliers.
For example, on a supply of candy by a distributor for $100 made to a retailer in Ontario, the invoice could show that $100 is owing if paid by February 15, 2025, but $100 plus $13 HST is owing if payment is made after that date. If this approach is used, the extra amount owing after February 15, 2025, must be clearly shown as GST/HST to allow a purchaser to meet the documentary requirements when claiming input tax credits.
Food and Beverages
The CRA also expressed its view on the eligibility of certain items for the temporary GST/HST relief.
As a rule of thumb, if Health Canada recognizes an item as food, it will be eligible for the tax holiday. However, this relief does not extend to dietary supplements, including some energy drinks, as well as any product with a Drug Identification Number (DIN) or marketed with claims that it has a therapeutic or preventive effect or enhances physique or mental or physical performance. In addition, cannabis sold in the form of food (e.g., gummies), as well as cough candies and throat lozenges, will not qualify for relief.
Catered food also qualifies for the GST/HST holiday. However, where the catering is paid in full before the tax holiday takes effect, the relief will not apply. In addition, event packages that contain any combination of food, facility rental, entertainment, and accommodation for a single charge will remain taxable, as they are considered the supply of an event. However, where the charges for food are shown separately on the invoice for such events, GST/HST relief will apply to the food portion only.
Food supplied by delivery (i.e., groceries or meals delivered by a restaurant directly) will qualify for the GST/HST relief. Specifically, delivery charges charged by a grocery service will be eligible for the tax holiday, as they are viewed as additional consideration for an eligible supply. However, delivery and administrative fees charged by a platform operator (e.g., Uber Eats, Skip the Dishes, or DoorDash) are considered separate supplies and will remain subject to GST/HST, while the meal delivered by the platform operator will qualify for temporary zero-rating.
Mandatory gratuities will also be relieved from GST/HST during the eligible period. Note that optional gratuities are generally considered to be non-taxable. However, where a mandatory gratuity relates to both qualifying food and beverages and non-qualifying alcohol (e.g., alcoholic spirits and liqueurs), the gratuity must be prorated between the two components for GST/HST relief to apply to the amount attributed to qualifying items.
Decorative Trees
The relief for decorative trees is not based on the size of the tree or its composition. If the item resembles a Christmas tree, it will be eligible for relief. The tree can be real or artificial and made of any material. In addition, a Hanukkah bush will also qualify for the tax holiday. However, tree decorations and poinsettias are not eligible for relief.
Children’s Toys
Toys designed for use 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, qualify for this tax relief. The CRA has indicated that, where the toy can be used by children under 14 years of age, it will qualify for the temporary zero-rating. For example, if the package notes that a toy is suitable for those aged 6 to 99, it will qualify for tax relief because children under 14 years of age can use it. Kits used in arts and crafts and science may also qualify for the GST/HST relief, provided the kit is intended for use by children under 14.
Video Games
The temporary GST/HST relief also applies to video game consoles, controllers, and physical video games, regardless of the intended user’s age. In addition, accessories such as dance mats, tennis racquets, and guitars will also qualify for relief, as they are considered controllers.
This summary covers only a small sample of the many questions we have received from our clients concerning the temporary GST/HST relief on holiday essentials. 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.
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