On November 24, 2024, the federal government made an announcement offering a two-month GST/HST break on groceries and holiday essentials from December 14, 2024, to February 15, 2025. This tax relief aims to provide $1.6 billion in savings on items like children’s clothing, diapers, toys, books, snacks, and restaurant meals.
In provinces with HST, such as Ontario, additional savings apply. Businesses are expected to apply the GST/HST exemption at checkout during the period, providing significant financial relief during the holiday season.
Whether or not your business sells this items, the tax break is sure to effect your books. Read on to find our answers for your most common questions, and get tips to make the change from tax to no tax and back again.
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What is the Federal GST/HST Break?
The Canadian government introduced the GST/HST break to provide financial relief to families during the holiday season and help manage the ever-rising cost of living. The break temporarily, and fully, removes GST/HST on essential goods like groceries, children's toys and clothing, holiday items, snacks and meals from December 14, 2024, to February 15, 2025. The goal is to make these essential items more affordable.
Do I need to stop charging tax on my products?
That depends on what your business sells. Service-based businesses need not worry, but anyone with physical goods will want to look over the following list. If you think your goods might fall into one of these categories, we encourage you to read the full bulletin on Canada.ca.
Food and Beverages: Items for human consumption, including:
Alcoholic beverages (except spirits) and carbonated drinks.
Candies, chocolate-coated items, chips, popcorn, and salted snacks.
Frozen desserts (e.g., ice cream, sherbet, frozen yogurt).
Snack foods such as granola products and mixes
Sweet baked goods, puddings, and similar desserts.
Prepared salads, sandwiches, and platters.
Heated foods, beverages sold on-site, catered, or at food-service establishments.
Bottled or dispensed water at supplier establishments.
Children’s Clothing: Excludes garments exclusively for sports, or costumes. Includes:
Baby garments (e.g., bibs, bunting blankets, receiving blankets).
Children’s garments up to girls size 16, boys size 20, or sizes XS to L if no national standard applies.
Hosiery, socks, hats, ties, scarves, belts, suspenders, mittens, and gloves designed for children.
Children’s Footwear: Footwear (not stockings or sports footwear) designed for babies or children with insole length ≤ 24.25 cm.
Children’s Diapers: Includes diapers, inserts, liners, training pants, and rubber pants for babies or children.
Children’s Car Seats: Restraints or booster seats conforming to Canadian Motor Vehicle Safety Standards 213, 213.1, 213.2, or 213.5.
Print Newspapers: Regularly published newspapers with general-interest content (not digital, fliers, inserts, magazines, or periodicals).
Printed Books: Includes printed books, updates, audio readings of books, and scripture but excludes:
Non-subscription magazines or periodicals with >5% ad space.
Brochures, pamphlets, catalogues, price lists, and advertising material.
Books for writing, coloring, or inserting items.
Event programs, agendas, calendars, directories, rate books, blueprints, patterns, or stencils.
Decorative Trees: Natural or artificial Christmas trees or similar.
Children’s Toys: For children under 14, including:
Board games, card games, and strategy games.
Toy imitations (e.g., dollhouses, cars, action figures).
Dolls, plush toys, or construction toys (e.g., Lego, STEM kits).
Puzzles: Jigsaw puzzles for all ages.
Video Games: Consoles, controllers, and physical game media (cartridges or discs).
Does the tax break affect only the GST portion of Harmonized Sales Tax?
In provinces where the HST applies (Ontario, Newfoundland and Labrador, Nova Scotia, New Brunswick, and Prince Edward Island), the tax break will include both the federal GST portion (5%) and the provincial portion of the HST. This provides additional savings compared to provinces where only the GST is charged.
Example: Ontario HST Savings
Ontario’s HST rate is 13% (5% GST + 8% provincial component).
If a $2,000 basket of goods qualifies for the tax break and the entire HST is removed:
Savings = 13% of $2,000 = $260.
This represents greater savings than in provinces where only the GST (5%) would be removed, which would yield savings of $100 (5% of $2,000).
Will my business be absorbing any of these costs?
No, businesses in Canada will not have to absorb the cost of the GST/HST break. The tax break is structured so businesses are not financially burdened by it.
How? The government typically reimburses businesses for any tax-exempt or zero-rated sales through adjustments in their tax filings. Here's how it works:
Tax-Exempt/Zero-Rated Sales:
When goods are exempt from GST/HST during this period, businesses do not collect GST/HST on those qualifying sales.
Businesses still claim Input Tax Credits (ITCs) for GST/HST they paid on supplies and expenses related to those sales (except for zero-rated goods that are described in the list above - find out more on ITCs later).
Reimbursement via Tax Filings:
Businesses report their GST/HST collected and ITCs in their regular tax filings. Since no GST/HST is collected on zero-rated items during the tax break, businesses would effectively remit less (or nothing) for those specific sales.
The government absorbs the cost of the tax break, not the businesses.
Administrative Adjustments:
Businesses may need to adjust their point-of-sale systems and invoices to reflect the temporary tax exemptions, which could involve administrative costs. However, these costs are not considered a direct "absorption" of the tax. More on this below.
How do I implement this in QuickBooks Online or my Point of Sale?
You’ll have to be precise with both the tax you charge and the tax you claim. To implement the Canadian GST/HST tax break in QuickBooks Online (QBO) and your Point of Sale (POS) system, follow these steps for both your Accounts Receivable and Accounts Payable.
We recommend setting up reminders on your CRM or calendar app - they will help you remember when to reverse these settings.
In QuickBooks Online
Create a Zero-Rated Tax Code:
Open QBO and head to Taxes > Sales Taxes and select Manage Sales Tax.
Look for Zero-Rated - if it isn’t there, proceed to + Add Custom Rate. Name it Zero-Rated GST/HST Tax-Free.
If applicable to your business, check off I collect this on sales and set the GST/HST rate to 0%, Account to Liability, and add to the return line GST/HST collected or collectible.
If applicable to your business, check off I pay this on purchases and set to GST/HST rate to 0%, Account to Liability, and add to the return line Input Tax Credits (ITCs)
Update Eligible Products/Services:
Go to Sales > Products and Services.
Edit each product or service eligible for the tax break.
Under the Sales Tax section of the item settings, select the new GST/HST Tax-Free code.
If your products and services list is quite extensive, you can also bulk Export a list of your products and services for editing in Excel or another program, and re-import them.
Track Tax-Free Sales:
Double check: Ensure you use the zero-rated tax code when creating invoices, sales receipts, or other transactions involving eligible goods during the tax-free period.
Tip: Add a note on invoices to explain the tax break, e.g., “GST/HST waived under Canadian Tax Break (Dec 2024–Feb 2025).”
Monitor Reporting:
In QBO’s Taxes Center, verify that the zero-rated tax code is reflected in the GST/HST summary reports.
Keep all records and receipts of ITCs as usual for purchases related to tax-free sales.
In Point of Sale (POS) Systems
Adjust Tax Rates for Eligible Items:
Access your POS system’s tax settings.
Create a temporary tax rule or override:
Apply a 0% GST/HST rate to items eligible for the tax break.
Name the rule something like GST/HST Holiday for clarity for yourself and your customers.
Assign Tax Rule to Products:
Go to your product inventory and assign the zero-rated tax rule to eligible items.
If your POS allows bulk updates, apply the rule to multiple items at once.
Set a Time Frame:
Some POS systems allow you to set a start and end date for tax overrides. If available:
Start Date: December 14, 2024.
End Date: February 15, 2025.
If not, remember to manually disable the zero-rated tax rule after the tax-free period.
Train Staff:
Brief employees about the tax break and ensure they know which items qualify.
Provide instructions for handling exceptions or questions from customers. Draft and publish a memo for distribution to your employees.
Generate Reports:
Use the POS reporting tools to track zero-rated sales separately during the tax break for reconciliation and tax filing.
Reconcile against your balances and clearing accounts in QuickBooks
Additional Tips
Communicate with Customers: Add signage, email notifications, or receipts that highlight the tax break to avoid confusion.
Update your website to include information and a banner at the top of the homepage.
The tax break can also work as incentive for shoppers - consider adding a small tag to each eligible product on your online store.
Consult with an Accountant: Ensure the adjustments are correctly implemented and comply with CRA requirements. Contact us today if you have any questions - we’re here to help!
Revert Changes After February 2025:
Set reminders well before February 15, 2025 - it’s a busy month for T4s and Year End
Deactivate the zero-rated tax codes and revert to standard GST/HST rates for affected items.
Archive temporary tax rules in your POS system.
By setting up your systems correctly, you can smoothly implement the GST/HST tax break and stay compliant while minimizing administrative burdens.
How will I file my GST/HST returns from this period?
Filing your GST/HST returns for the period of the federal tax break (December 14, 2024, to February 15, 2025) will require careful tracking of sales and input tax credits (ITCs), since for many it will occur during two or more filing periods. Here's how you can file accurately and comply with CRA requirements:
1. Track Zero-Rated Sales
During the tax break, qualifying sales of eligible goods will be zero-rated (0% GST/HST). This means:
No GST/HST is charged to customers on these sales.
You can still claim ITCs for GST/HST paid on expenses related to these sales.
Ensure your QuickBooks file or POS system:
Properly tracks sales subject to the 0% GST/HST rate.
Separates zero-rated sales from fully taxable sales.
2. Adjust GST/HST Collected
When preparing your GST/HST return:
Report total sales during the period (taxable + zero-rated) in Line 101 (Total Sales and Other Revenue) of the GST/HST return.
Exclude GST/HST collected on zero-rated sales in Line 103 (GST/HST Collected).
3. Claim Input Tax Credits (ITCs)
Continue claiming ITCs for GST/HST you paid on business expenses, including those related to zero-rated sales, in Line 106 (ITCs) of your GST/HST return.
Double-check that you’ve captured all eligible expenses and GST/HST paid, particularly for goods and services used in the production or sale of zero-rated items.
You can View transactions by tax code in the Sales Tax module under your filing period
4. File as Usual
Complete your GST/HST return using the CRA’s My Business Account or your chosen filing method (e.g., paper or electronic). Include:
Total Sales (Line 101): Includes taxable and zero-rated sales.
GST/HST Collected (Line 103): Exclude GST/HST from zero-rated sales.
Input Tax Credits (Line 106)
Net Tax (Line 109): Subtract ITCs from GST/HST collected. If zero-rated sales significantly reduce your net tax liability, you may have a refund.
5. Include Notes if Necessary
Although not mandatory, consider including a note in your records or with your return indicating that certain sales were zero-rated under the temporary tax break. This can help explain variances in GST/HST collected compared to other periods.
6. Reconcile and Report
After the tax break ends:
Revert eligible items to their normal GST/HST rates in your accounting or POS system.
Reconcile zero-rated sales to ensure accurate reporting for the affected filing period.
Example Scenario
Sales from Dec 14, 2024, to Feb 15, 2025:
Total sales: $50,000 (including $30,000 in zero-rated sales).
GST/HST collected on $20,000 taxable sales: $2,600 (13% in Ontario).
ITCs for business expenses: $1,000.
Filing:
Line 101: $50,000.
Line 103: $2,600 (only taxable sales).
Line 108: $1,000 (ITCs).
Line 109: $2,600 - $1,000 = $1,600 net tax payable.
Additional Notes:
Record-Keeping: Retain detailed receipts and records of all sales and ITCs for CRA audits or inquiries.
Refunds: If zero-rated sales and ITCs result in a negative net tax (refund), the CRA will issue a refund after processing your return.
Consult the CRA if necessary: Check the CRA's website for specific guidance or updates on the tax break.
By following these steps, you can ensure accurate GST/HST filing during the tax-free period.
Can I still claim Input Tax Credits on my Meals and Entertainment expenses?
No. We know it’s a common time of year for company holiday dinners and gift baskets containing snacks and beverages.
You cannot claim GST or HST that was not paid, unless otherwise stated on your receipt or bill, but all businesses should be abiding by these federal tax changes.
The Tax Break: In Summary
The Canadian GST/HST tax break from December 14, 2024, to February 15, 2025, offers businesses and consumers a unique opportunity to save during the holiday season while navigating temporary tax changes.
For businesses, the key to success lies in understanding which goods qualify, updating accounting and POS systems accordingly, and tracking zero-rated sales and Input Tax Credits (ITCs) meticulously.
While the tax break aims to ease financial burdens for families, it also requires businesses to adapt quickly and accurately.
By implementing the right processes, maintaining clear communication with customers, and consulting professionals when needed, businesses can manage this transition smoothly and remain compliant with CRA requirements.
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