Calls for permanency as Canada’s tax break set to conclude on Saturday

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Perhaps overlooked by Canadians amidst a heady week of U.S. President Donald Trump’s further tariff threats and 51st state rhetoric is that the two-month Goods and Services Tax (GST) and Harmonized Sales Tax (HST) Break comes to an end this weekend.

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Effective 12:01 a.m. local time on Sunday morning, thousands of goods and products that have been free of federal taxes — everything from bread to books to beers and burgers at your local brew pub — are taxable once again.

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It could take time before the economic benefits of the Tax Break for All Canadians Act can be accurately measured, so determining whether it was a success or a failure depends on who you ask.

From a food perspective, Sylvain Charlebois, senior director of Dalhousie University’s Agri-Foods Analytics Lab, told the National Post in an interview that food service and food retail are environments that experienced the measure differently.

He figures the taxation holiday likely drew more people to dine out during the typically dry months of January and February.

Numbers presented by Moneris, Canada’s largest payment processor, indicate a year-over-year drop of six per cent in the number of transactions and a five per cent reduction in transaction size in the restaurant sector for Dec. 14 to Jan. 15.

Fast food was down one per cent and eight per cent respectively. It also found a four per cent decline in total spending across Canada.

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“Our data shows a decline in both transaction count and average spend, likely reflecting post-holiday budget tightening,” Sean McCormick, director of business development and data services, was quoted by Daily Hive.

“This is a good reminder that consumer behaviour varies widely by category, and tax exemptions may not deliver a universal lift.”

In an email to the National Post, a spokesperson for Moneris said “initial data for the first month showed spending was largely unchanged” but they are “still awaiting results for the final month to get a complete picture and view of the full impact of the tax holiday.”

But using data from the booking service OpenTable, last month Restaurants Canada noted an 18 per cent increase in dining between Dec. 14-27 when compared to the same time in 2023.

The organization also highlighted a seven-point jump in the consumer dining index, which is calculated as a weighted average of the number of times Canadians purchased a meal or snack from a restaurant in the past month.

In their view, the break was such a success that they want Ottawa to make it permanent.

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“We’re very pleased to see these early signs of recovering consumer demand for our sector. This shows that removing sales tax on food is a measure that supports Canadians, businesses and workers. We urge the federal government to make the GST and HST tax break on prepared food permanent,” stated Kelly Higginson, President and CEO at Restaurants Canada.

That would apply to prepared food in the retail sector, too — think pre-made food meals in the deli section, ready-to-serve Caesar salads, and the gas station egg-salad sandwich.

Charlebois, who has long felt taxing retail food is a “regressive” policy, thinks the idea of permanency “has some merit.”

And while of the general opinion the bill was rushed and the better move would have been to make people eligible for GST rebates, he said not making it permanent from the outset was a “missed opportunity” to do right by families and created a situation where opportunity pricing could occur.

Following his warning in National Post coverage ahead of the holiday and citing Statistics Canada data since that indicates “savings weren’t at par with the reduction in taxes,” Charlebois thinks some retailers may have adjusted pricing to account for the two-month tax break.

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“As soon as you start playing around with marking conditions or you’re playing around with price points, it really ends up being more of a problem when it comes to inflation than anything else,” he said.

Charlebois said he’ll be watching in the months ahead to see if the financial furlough had any impact on pricing, but he warns it could be hard to accurately ascertain with a confluence of major events with a potential to affect the situation — a weak Canadian dollar, the end of the annual grocery pricing blackout period and the looming uncertainty of tariffs between Canada and the U.S.

Meanwhile, the Canadian Federation of Independent Business said this week that only five per cent of members witnessed increased sales over 2023.

“By all accounts the government’s GST holiday was a flop for small businesses,” CFIB president Dan Kelly stated in a news release.

“For many retailers it was an administrative nightmare to get point-of-sale machines compliant just before Christmas, let alone sort out which LEGO sets the holiday applied to, or how many items in a gift basket had to be tax-free for it to qualify.”

As business owners revert back to the original GST rate, Kelly said CFIB wants CRA to show leniency by waiving taxes, penalties, and interest for any errors made in “good faith” during the initial implementation period. They also want a $1,000 credit in the GST/HST accounts of affected businesses to cover the programming and administrative costs incurred to do so.

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