The federal government’s Tax Break for All Canadians Act is a two-month exemption starting Dec. 14 on HST items such as prepared food, Christmas trees and some alcohol.
The tax exemption will also be applied to the GST portion on items like children’s footwear, car seats, and clothing.
In Ontario, the HST is the combination of the federal five per cent goods and services tax and the eight per cent provincial sales tax.
This tax pause is expected to result in a loss of $1.6 billion in government tax revenue.
“It's going to be expensive,” said Ken Garth, Indirect Tax Partner with BDO in Bracebridge.
While Garth acknowledged the benefit for families and individuals, he said retailers might face challenges in rolling out the tax break.
“We're already into the busiest time of the year for them, and sort of halfway toward the holiday break,” Garth said.
“They're going to have to completely revamp their sales tax systems and then change them all back again in February. So, I think it's going to be a major, major inconvenience for them.”
He said local small businesses will have to go into their sales system and identify all items that will be tax-free.
And it could be complicated.
For example, a bookstore will apply the tax break only to qualifying items, like novels, but not to colouring books.
Similarly, a game shop can only exempt games for children under 14.
“It's going to be a lot of work, I can imagine,” Garth said.
“I think there's going to be a lot of misunderstandings in the public about what is actually eligible and what's not. I could see the problems from the retailer’s perspective where people are going to be arguing about what should be taxable and what shouldn't be, and unfortunately, it's going to be at a very busy time of year.”
In the Almaguin Highlands, merchants are preparing for the tax holiday but not all expect to benefit.
For example in Emsdale, Greg Lobsinger, the owner of Tast Italy doesn’t expect any increase in business when his food becomes tax-exempt.
The popular restaurant specializes in wood-fired oven pizzas and sells other foods like chicken wings and french fries.
However, Lobsinger says he will need a technician to temporarily suspend the HST from being added to food sales. That work will cost him and other businesses that sell the tax-exempt products some money.
And Lobsinger agrees with Garth in that when the tax holiday is over, the businesses again face another charge to put their cash registers back to their original format where the HST is once again applied on items.
In South River, the co-owner of Corner Wines, Tim Hainsworth, says the HST holiday on selected goods including alcohol will have very little impact on his business.
Hainsworth says the wine kits the business sells are considered grocery items and are already tax-exempt. He says from the outset this makes his product a little cheaper than liquor store wines.
“And we have some customers who are here simply because of the (cheaper) price,” he said. “But they don’t represent the majority. Most of our customers are here because they genuinely prefer our product.”
Hainsworth explains his wine kits contain less tannin than liquor store wines and people who are sensitive to tannin have fewer health effects, like hives, with kit wines.
“So, people bothered by red wines can more easily drink our wines because of less tannin and preservatives,” he said.
As the HST holiday begins on the selected goods, including alcohol products, Hainsworth says there is a small risk that the small number of customers who are incentivized by price alone may buy their wine from outlets like the LCBO for the next two months.
Once the products are no longer tax-exempt after mid-February, he fully expects them to return.
Hainsworth says there is an element of the upcoming tax holiday that consumers buying from him need to take into account.
Although his wine kits are not taxed, the outlet, like other similar winemaking businesses, needs to charge a small service fee for making that wine.
Hainsworth says this fee remains in place regardless of the tax holiday and a small tax is applied to the service fee.
He says that tax remains in place and it’s something the business doesn’t control.
As the tax holiday approaches, Garth encourages people to be understanding if disputes or disagreements arise at the cash register over the application of the tax.
He also wondered if the Canadian Revenue Agency would be forgiving.
“When the CRA comes around to audit (businesses), how forgiving are they going to be on people with those kinds of things?” he asked.
“You know, be understanding and maybe have a bit of leniency where someone's made an honest mistake. They haven't had a long time to plan for this. Obviously, mistakes are going to happen."'
Rocco Frangione is a Local Journalism Initiative reporter with Almaguin News. The Local Journalism Initiative is funded by the Government of Canada.
