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:

• Designed for babies, including baby bibs, bunting blankets and receiving blankets
• Children's garments up to girls size 16 or boys size 20, according to the national standard applicable to garments (if no national standard applies to the garments, girls or boys sizes extra small, small, medium or large)
• Hosiery or stretchy sock, hats, ties, scarves, belts, suspenders, or mittens and gloves in sizes and styles designed for children and babies

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:

• Spirit coolers up to 7% alcohol by volume, wine, beer and ciders
• Carbonated beverages, noncarbonated fruit juice or fruit-flavored beverages or products that, when added to water, produce one of these beverages
• Candies, confectionery that may be classed as candy, or goods sold as candies, such as candy floss, chewing gum and chocolate, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners
• Chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), popcorn and brittle pretzels
• Salted nuts or salted seeds
• Granola products and snack mixtures that contain cereals, nuts, seeds, dried fruit or other edible products
• Ice lollies, juice bars, ice waters, ice cream, ice milk, sherbet, frozen yogurt or frozen pudding, including non-dairy substitutes
• Fruit bars, rolls or drops or similar fruit-based snack foods
• Cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies and croissants with sweetened filling or coating
• Pudding, including flavored gelatine, mousse, flavored whipped dessert product or any other products similar to pudding
• Prepared salads, sandwiches, platters of cheese, cold cuts, fruit or vegetables, and other arrangements of prepared food
• Beverages dispensed at the place where they are sold
• Food or beverages heated for consumption
• Food or beverages sold in conjunction with catering services
• Food or beverages sold at an establishment where all or substantially all of the food or beverages sold are currently excluded from zero-rating, such as a restaurant, coffee shop, take-out outlet, pub, mobile canteen, lunch counter or concession stand
• Bottled or unbottled water that is dispensed at a permanent establishment of the supplier

The only food and beverage products that would remain excluded from the temporary GST/HST relief provisions are:

• All spirits and alcoholic beverages with an alcohol content of more than 7% by volume
• Cannabis products, as defined in section 2 of the Excise Act, 2001
• Food and beverages sold through a vending machine

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:

• A magazine or periodical purchased individually and not through a subscription
• A magazine or periodical in which the printed space devoted to advertising is more than 5% of the total printed space
• A sales catalog, a price list or advertising material
• A coloring book or a book designed primarily for drawing on or for affixing or inserting items such as clippings, pictures, coins, stamps or stickers
• An agenda, calendar, syllabus or timetable
• A directory, an assemblage of charts or an assemblage of street or road maps

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:

• A board game or card game
• A toy that imitates another item, such as a doll house, a toy car or truck, a toy farm set or an action figure
• A doll, plush toy or soft toy, such as a teddy bear
• A construction toy, such as building blocks, STEM assembly kits or plasticine

Other — Temporary GST relief will also apply to:

• Jigsaw puzzles for all ages
• Video-game consoles, controllers or physical game media
• Christmas trees or similar decorative trees, whether artificial or natural

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.