The holidays just got a bit merrier for Canadian businesses and consumers. The federal government recently proposed a temporary GST/HST tax break, suspending the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) on a range of goods and services. Running from December 14, 2024, to February 15, 2025, this initiative aims to support individuals and stimulate spending during the festive season.
But what does this mean for small business owners, wholesalers, distributors, and retailers? While the GST/HST tax break provides an opportunity to attract customers and boost sales, it also comes with complexities and compliance requirements. This article will walk you through everything you need to know to take full advantage of the tax break while staying aligned with federal regulations.
What Is the GST/HST Break?
The GST/HST break is a temporary suspension of sales tax on certain goods and services during the designated period. Businesses offering eligible items during this time will not charge GST or HST, resulting in direct savings for consumers. The initiative isn't just limited to retail transactions; it applies across the supply chain, including wholesale.
The Canada Revenue Agency (CRA) has released compliance guidelines.
Here are the key details you need to know now.
Start Date: December 14, 2024
End Date: February 15, 2025
Transactions are only exempt from GST/HST if payment is made in full and delivery occurs within this window. More on this below.
Eligible Items
The CRA has provided a list of categories qualifying for the GST/HST holiday tax break. These include:
- Food and beverages (excluding alcohol)
- Restaurants and catering services
- Children's products, such as clothing, footwear, diapers, car seats, and toys
- Books (physical copies only) and printed newspapers
- Recreational items, such as jigsaw puzzles, video game consoles, controllers, and physical video games
- Seasonal items, like Christmas trees and similar decorations
For the most accurate information, refer directly to the CRA's guidelines on eligible goods and services and it’s a good idea to also seek advice and clarification from your external accounting office.
Compliance Guidelines for Businesses
While the GST/HST tax break offers exciting opportunities, the implementation requires careful planning. Below are actionable steps to help your business prepare and comply with the draft legislation.
- Maintain Accurate Record-Keeping
All transactions during the GST/HST tax break must be accurately documented. This includes invoices, sales receipts, and payment details. Proper record-keeping will not only help you stay compliant but will also prove invaluable in the case of a CRA audit.
- Consider Delayed Payment Terms
According to the CRA's draft guidelines, products delivered during the GST/HST tax break period but paid for outside this timeframe (e.g., Net 30 payment terms) may still be subject to GST/HST. If partial payment is made after February 15, 2025, businesses may need to issue an accounts receivable (AR) voucher to charge the tax retroactively.
To address this, identify affected customers early and prepare clear communication about their obligations to pay the difference in GST/HST if payments are delayed. This article will be updated if and when clarification has been released.
- Update Your Systems and ERP
We will update and expand these details with more specifics once the legislation is finalized and, ideally, after the CRA provides enhanced guidance. For Blue Link customers, our team will aim to provide additional support through our Help Desk or Consulting services; however, this can only be confirmed once the final guidelines are available.
For companies relying on ERP systems to manage inventory and invoices, now is the time to prepare your tax settings and workflows. Key steps include:
- Identify the product SKUs affected by the GST/HST tax break. Check if these share consistent attributes, such as belonging to a specific product category or class.
- Determine whether sales orders typically contain a mix of taxable and non-taxable items.
- Create a list of the various payment term periods you offer and identify the customers assigned to each term.
- Estimate the effort required to review and update the taxable status of each sales order line-by-line. Anticipate the work involved in reconfiguring taxable statuses and returning to normal configurations after February 15, 2025.
- To be safe, it may be advisable to develop a plan to identify customers who received the additional GST/HST tax break during the period but failed to pay their bills on time, so you can issue AR vouchers for the GST/HST amount that should have been charged.
- After February 15th, issue the AR vouchers for the GST/HST to those customers and inform them that, according to the legislation, they are now required to pay the tax due to non-compliance with the payment deadline.
- Prepare for Customer Queries
Customers will likely have questions about the GST/HST tax break, from item eligibility to order timing. Train your sales, customer support, and order fulfillment teams to answer these questions confidently. Provide clear instructions on how to handle exceptions or disputes.
- Communication Strategies
Use this tax break as a chance to strengthen customer relationships. Proactively promote the eligible savings on qualifying goods and services through your marketing channels. Use social media, newsletters, and in-store signage to communicate the benefits customers can enjoy during this period.
Unique Challenges for Businesses
While the GST/HST tax break offers many benefits, it can also present unique challenges for businesses.
Handling Split Payments
What happens if a customer orders eligible items during the holiday period but pays in installments that extend beyond the deadline? The CRA's draft guidelines are unclear in this area, creating complications for businesses offering delayed payment terms. Seek clarification and document all such transactions to avoid disputes.
Post-Holiday Adjustments
After February 15, 2025, businesses must return to charging GST/HST on all transactions. Ensure your systems and pricing are updated accordingly and notify any customers with pending payments about their outstanding tax obligations.
How to Turn the Tax Break Into a Profit Opportunity
The GST/HST tax break isn't just about compliance—it’s a unique opportunity to drive sales and cement customer loyalty during the traditionally busy holiday and post-holiday shopping season. Here's how you can take full advantage.
Leverage the Savings in Marketing
Highlight the tax break in your marketing campaigns. Use phrases like "Shop tax-free this holiday season!" or "Save More with [Your Business Name]: No GST/HST on Eligible Items."
Upsell Other Items
Bundle eligible items with taxable goods, and use the holiday as an incentive to upsell products that don’t qualify for the GST/HST exemption.
Enhance Customer Retention
Use the holiday period to engage your customers and provide stellar service. Answer their questions honestly and if you don’t know the answer, search for it and get back to them. Loyal customers are more likely to return long after the tax break ends, supporting your long-term growth.
Get Ready for the GST/HST Tax Break
The upcoming GST/HST tax break offers businesses a chance to boost sales and attract customers during the busiest time of the year. But careful planning and compliance are crucial to ensure your business operates smoothly during the exemption period.
Start by identifying eligible products, updating your systems and workflows, and preparing your staff to handle customer inquiries. Proactively communicate the benefits of the tax break to your customers while staying vigilant about following CRA guidelines and be sure to reach out to your external accounting team to clarify any questions or concerns.
This unique initiative is your opportunity to stand out in a competitive landscape and end the year with strong sales. Stay informed and set your business up for success.
