On November 27, 2024, the Minister of Finance introduced Bill C-78 – the Tax Break for All Canadians Act, which provides the legal framework for the GST/HST tax holiday announced earlier on November 21, 2024.
Bill C-78 largely follows the provisions set out in the original announcement, including key details such as:
The tax relief will be in effect from December 14, 2024, to February 15, 2025.
The relief will apply to the supply and importation of various children's clothing, toys, games, books, food, and beverages.
The Canada Revenue Agency (CRA) has issued guidance on these measures, offering detailed examples of what qualifies and what does not under these categories.
Here are some of the key aspects of the legislation and CRA guidance:
Zero-Rating
Bill C-78 specifies that qualifying goods will be temporarily zero-rated for GST/HST purposes, meaning no tax will be applied to their sale or importation. This measure will not affect a business’s ability to claim input tax credits (ITCs).
Qualifying Goods
The bill incorporates many definitions already present in the Excise Tax Act and other GST/HST regulations, with some modifications. However, certain qualifying goods are unique to this legislation.
Toys and Games
As outlined in the original announcement, a broad range of toys and games will qualify for the tax relief. However, the list is not exhaustive, and Bill C-78 includes specific characteristics that determine whether a toy or game qualifies. Retailers should carefully review their inventory against these criteria.
Toys and games for children aged 14 and under: It’s not entirely clear how this is to be determined. Retailers may need to refer to product packaging or instructions that specify the recommended age range.
Examples of non-qualifying items:
Collectibles (e.g., hockey cards, certain dolls)
Toys and models intended for adults (e.g., adult-themed Lego sets)
Digital video game downloads and video game accessories (e.g., headsets)
Note: Painting supplies and other DIY craft materials are not eligible for the GST/HST tax holiday.
Items without age restrictions: Jigsaw puzzles, video game discs, cartridges, controllers, and consoles do not have an age requirement for eligibility.
Christmas Trees and Decorations
As previously announced, both natural and artificial Christmas trees (or similar decorative trees) qualify for the measure. However, there is no further clarification on what exactly constitutes a "Christmas tree" or a "decorative tree." Decorations, on the other hand, do not qualify.
Books and Printed Materials
Printed books are generally exempt, with a few notable exclusions from the GST/HST holiday, such as:
Calendars, journals, scrapbooks, coloring books
Magazines/periodicals where more than 5% of the printed space is dedicated to advertisements
Downloadable audiobooks and e-audiobooks are excluded; only physical audio recordings of printed books (e.g., cassette or CD) are eligible.
Food and Beverages
Bill C-78 provides zero-rating for most food items that are typically taxable, including snacks and pre-packaged or prepared meals. However, packaged food sold through vending machines is excluded.
Beverages eligible for the tax holiday include beer, wine, sake, and other low-alcohol drinks, but exclude spirits and hard liquor.
Restaurant and Catering Services
For RestaurantS
Prepared meals, food, non-alcoholic beverages, and eligible alcoholic beverages provided at restaurants, pubs, bars, food trucks, and similar establishments will qualify for GST/HST relief during the eligible period.
If an eating establishment bills a customer directly for the delivery of a prepared meal, the delivery service will also qualify for GST/HST relief. However, if a meal is ordered through a third-party platform, the delivery service provided by the platform provider will not be eligible for the relief.
In cases where an order includes both qualifying and non-qualifying items, the GST/HST relief will apply only to the qualifying items.
Mixed drinks made with eligible beverages like beer, malt liquor, and wine will qualify for the relief. However, mixed drinks containing non-qualifying alcoholic beverages, such as spirits, will not be eligible.
A mandatory tip or gratuity added to the bill will follow the same tax treatment as the prepared meal and will qualify for the GST/HST relief during the eligible period.
Catering services generally qualify for the GST/HST relief, as long as they involve the provision, preparation, and serving of food, non-alcoholic beverages, or eligible alcoholic beverages.
Timing of Eligible Supplies
Goods qualify for zero-rating if both of the following conditions are met during the eligible period (December 14, 2024 – February 15, 2025):
The full payment for the supply is made within the eligible period.
The goods are delivered or made available to the recipient within the eligible period.
For example, if an online retailer ships a video game console ordered and paid for on December 26, 2024, and it is received by the customer on January 20, 2025, it qualifies as an eligible supply. However, if the item is not shipped by February 15, 2025, it would not be eligible.
A similar condition applies to restaurant and catering services, where the service must be provided within the eligible period and both the payment and delivery must occur during that time.
Special Cases for Pre-Payments
If a deposit for a product or service is made before December 14, 2024, the supply may still qualify, as long as the full payment is made and the product or service is delivered within the eligible period. However, not all pre-payments are deposits, and situations where deposits are made before the eligible period should be examined to determine if the tax relief applies.
Potential Areas of Confusion
While point-of-sale retailers and restaurant operators may find the timing conditions relatively straightforward, confusion could arise for suppliers that issue invoices with delayed payment terms (e.g., net 30 days). Specifically, it may not be clear whether GST/HST should be applied to invoices issued when the payment terms fall outside the eligible period. Similarly, when ordering online, customers may not know the exact shipping date when payment is processed, potentially causing uncertainty regarding eligibility.
This blog post was written by AI, however checked over and released by Walid Abu Daia from Opengate Professional Accountants.
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