Everything you need to know about Ottawa’s GST cuts and more

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The federal government’s recent decision to cut the sales tax on a wide range of items over the holidays could have a significant impact on businesses and household budgets alike.

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On Thursday, Prime Minister Justin Trudeau announced Canadians would no longer pay the GST on most food and alcohol purchases, along with a slew of miscellaneous items, including children’s toys and newspapers.

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On top of the cut, the government announced it will be sending $250 cheques in the New Year to the more than 18 million Canadians who make less than $150,000 annually.

Here’s everything you need to know about the new federal initiatives, along with some other provincial government measures meant to help with the high cost of living:

When is the tax holiday?

The tax break begins on Dec. 14 and ends on Feb. 15.

How much is the GST?

Canada’s government sales tax rate is five per cent, but Ontario and the Atlantic province pay a harmonized sales tax (HST) of 13 per cent. This means that Ontario and Atlantic Canada will save 13 per cent on the new items, while the rest of the country will only save five per cent.

What is included in the GST holiday?

Many basic grocery items are already tax exempt, but the GST cut expands exemptions to include such non-essential items as carbonated drinks, snacks, prepared foods, premade meals and candy, among others.

The tax cut also applies to certain alcoholic beverages, including beer, wine, cider and pre-mixed drinks.

Restaurant meals — both dining in and takeout — are included as well.

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Many children’s toys designed for those under the age of 14 are among the products receiving the discount, along with children’s clothes. Diapers and car seats will also receive a break.

Printed material, including newspapers and most books, are exempt from the tax. And seasonal items and gifts, such as Christmas trees, puzzles and video game consoles, are also included.

What are some notable omissions?

When it comes to liquor, drinks containing more than seven per cent alcohol still face the GST, meaning spirits, most wines and strong beer remain subject to the tax.

Children’s shoes or clothes designed for sports and recreation will still be taxed, as will costumes.

While newspapers are included in the cut, digital subscriptions and most magazines are not. Notebooks and agendas will also still face the tax.

What do retailers and restaurants think?

The Canadian Press reported that retailers have largely applauded the move, though warn it will mean a lot of work for a measure that is only a short term.

Some retailers believe the transition will be fairly straightforward, while others warn that sifting through inventories to determine eligible products could be “quite laborious,” as Matt Poirier, vice-president of federal government relations for the Retail Council of Canada, recently said.

Max Roy, Restaurants Canada’s vice-president of federal and Quebec affairs, said the move could represent a five per cent boost in sales for restaurants in January and February, a traditionally quiet time for the industry.

However, Dan Kelly, president of the Canadian Federation of Independent Business, tweeted on Friday that he hasn’t heard from a “single small retailer who is excited” about the changes, save for restaurants. 

Kelly argues the list is very broad and many retailers risk being penalized for not taxing a taxable item. Plus, there could be a dead zone of sales when the holiday ends in February.

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How will the GST cut affect holiday shopping?

How the changes will affect holiday shopping is top of mind for retailers, as the cut takes effect after Black Friday shopping and most of the two-month tax holiday falls after the Christmas season.

Kelly is concerned Canadians may return items in large swaths with the intention of buying them back once the tax cut takes effect on Dec. 14, swamping retailers with last-minute shoppers.

Other holiday shoppers may choose to wait for the tax to take effect before buying some items, though they run the risk of finding they’re out of stock.

What does it mean for the Bank of Canada and interest rates?

Royce Mendes, managing director and head of macro strategy at Desjardins Group, said the tax cuts “could translate into a noticeable boost to growth in the first half of next year,” but will lower inflation as items will cost less.

Mendes also believes the Bank of Canada likely won’t be swayed by these changes, but it could potentially close the door on another 50-basis-point interest rate cut at its Dec. 11 announcement. However, a 25 basis point cut is still likely, he says.

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What about the $250 rebate?

The federal government’s “Working Canadians Rebate” promises $250 to every Canadian who earned less than $150,000 in 2023, with payments expected to arrive in the spring. It’s estimated 18.7 million Canadians will receive the payment.

What are some other cost-of-living government handouts?

Several provinces have already offered similar rebates meant to help individuals and families with the rising cost of living.

In Ontario, the Ford government has proposed a $200 rebate per eligible person in early 2025 and an additional $200 per child for families. An estimated 12.5 million adults and 2.5 million children will receive the payouts.

The Quebec government proposed a similar payment in 2022, offering up to $600 for Quebecers who made less than $105,000 on their 2021 income tax return. The deadline to file was on June 30, 2024, with final payments sent by September 30.

In Newfoundland and Labrador, residents with an adjusted income of $125,000 or less received a one-time payment of up to $500 in 2022 to address the cost of living. And in New Brunswick, residents were offered a one-time payment of $300 to help with living costs. Everyone older than 19 with a family net income of $70,000 or less in 2022 and 2023 were eligible.

British Columbia, meanwhile, boosted their B.C. Family Benefit payments by 25 per cent, meaning families received an average of $445 more this year than they did in 2023.