If you’re a small business owner in Canada, you’ve probably heard about the upcoming GST/HST holiday announced by Prime Minister Justin Trudeau. From December 14, 2024, to February 15, 2025, certain food and goods, such as children’s clothing, books, and car seats, will be exempt from GST/HST. While this is great news for consumers, small business owners need to prepare for some important changes. Here’s what you need to know to navigate this temporary tax break smoothly.
What Is the GST/HST Holiday?
The GST/HST holiday is a two-month period when certain essential goods will be exempt from the Goods and Services Tax (GST) and Harmonized Sales Tax (HST). This temporary relief applies to items such as groceries, children’s clothing, books, and more. While this initiative offers savings for consumers, businesses must adjust their pricing and accounting systems to comply with the rules. Ensuring accurate application of the exemption is key to staying compliant during this period.
What’s Covered by the GST/HST Holiday?
Here’s a snapshot of eligible items:
- Children’s Clothing and Footwear
- Children’s Car Seats and Toys
- Diapers
- Books (including printed and audio versions)
- Baby Items (e.g., diapers, car seats)
- Christmas Trees
- Certain Food and Beverages (like snacks, soft drinks, and baked goods)
For a detailed list, consult the CRA’s Qualifying Goods List. Knowing what qualifies ensures that your business applies the tax exemption correctly.
Preparing Your Business for the GST/HST Holiday
While this tax break is designed to benefit customers, businesses need to make several adjustments. Here’s a step-by-step guide to help you prepare:
1. Know When to Apply the GST/HST Exemption
The exemption applies to qualifying items sold between December 14, 2024, and February 15, 2025. This includes:
- Goods Delivered and Paid For: If customers purchase and pay for eligible items during this period, ensure GST/HST is removed at checkout.
- Imported Goods: Items imported during the holiday and falling under the qualifying list are also exempt.
2. Update Your Pricing Systems
Adjust your pricing to reflect the exemption. This involves removing the GST/HST charge from eligible items at checkout, whether you sell online or in-store. Here are some tips:
- Online Sellers: If you use platforms like Shopify, Amazon, or Etsy, check if they can automate the update. Otherwise, you’ll need to adjust it manually.
- Custom POS Systems: Coordinate with your provider to update tax rates for the holiday period.
- Manual Invoicing: If you generate invoices manually, ensure GST/HST is excluded from qualifying items during the exemption period.
3. Set Up a Zero-Rated Tax Code
Create a new tax code in your point-of-sale system named something like “GST Holiday – Zero Rated.” This helps you track sales of GST-free goods accurately. “Zero-rated” means the goods remain taxable but at a 0% rate, allowing you to continue claiming input tax credits for GST/HST paid on purchases.
4. Monitor Cash Flow
The GST/HST holiday will reduce the tax revenue collected during the period. While this doesn’t affect your sales directly, it may impact cash flow, especially if you rely on tax remittances for liquidity. Monitor your finances closely and plan accordingly.
What If You Accidentally Charge GST/HST?
Mistakes can happen. If you accidentally charge GST/HST during this period, here’s what to do:
- Refund the Tax: If possible, refund the incorrectly charged GST/HST to the customer.
- CRA Rebate Form: If a refund isn’t feasible, your customer can file a GST189 Rebate form to recover the tax. Encourage them to keep their receipts and provide guidance on completing the form.
How to Use the GST189 Rebate Form
Customers can claim a rebate for any GST/HST paid in error during the holiday. Here’s a quick guide:
- Keep Receipts: Ensure receipts showing the incorrect GST/HST charge are retained.
- Download the Form: Access the GST189 form from the CRA website.
- Fill Out the Form: Select reason “1C” for amounts paid in error.
- Submit the Form: Customers can submit it online through My Account or by mail. CRA allows one application per calendar month.
Seek Professional Help
Navigating the GST/HST holiday can be challenging, especially when you’re managing daily business operations. Don’t hesitate to seek help:
- Accountants: Consult your accountant to ensure compliance and smooth integration of the exemption into your business processes. They can help with system updates, tax tracking, and cash flow management.
- Tax Advisors: If you don’t have an accountant, consider hiring one. Professional guidance will save time and help you avoid costly mistakes.
Final Thoughts
The GST/HST holiday is a win for consumers but requires careful planning for businesses. By understanding the rules, updating your systems, and seeking professional assistance if needed, you can ensure a smooth transition during this period. Proper preparation not only keeps you compliant but also enhances the shopping experience for your customers. This started on December 14th, so adjust your business accordingly!
