Keeping track of Canadian sales tax developments can be challenging for Canadian and non-Canadian manufacturers, wholesalers, and retailers. This article highlights recent select Canadian sales tax changes that affect Canadian, U.S., and other foreign businesses in the retail industry.

GST/HST break on “holiday essentials” ends February 15, 2025

The two-month GST/HST break on certain “holiday essentials” that came into effect on December 14, 2024 comes to an end on February 15, 2025 (the “eligibility period”). We previously reported on this tax measure in GST/HST “holiday” tax break starts December 14th: What retailers, manufacturers, wholesalers, importers, and restaurants need to know.

As businesses transition back to the status quo, here are some issues that will need to be managed:

  • Be careful to not inadvertently claim input tax credits for temporarily zero-rated inputs where no GST/HST was charged, including input tax credits relating to employee expenses or reimbursements. This can include restaurant meals or gift baskets with edible treats, which may ordinary attract GST/HST. Manual adjustments may be required.
  • Businesses that accept online orders will need to review when a product is actually shipped to ensure that a particular sale qualifies as an “eligible supply” and is eligible for zero-rating status. Products shipped after February 15, 2025 will not be an “eligible supply,” even if the order was placed and paid for within the “eligibility period.” Businesses should review the sales tax treatment of orders placed close to the end of the “eligibility period” against the shipping date. If GST/HST should have been charged on a particular sale, businesses will need to decide whether to go back to their customer to collect the tax or absorb the GST/HST cost.
  • Detailed books and records, including payment dates, analysis used to determine whether a product is temporarily zero-rated, and product shipping or mailing dates should be maintained. This evidence may be required to support the zero-rated status of a particular transaction if a Canada Revenue Agency audit period includes the “eligibility period.”
  • Businesses should ensure that any specific “holiday break” advertising does not extend past the “eligibility period” and that any in-store notices are removed. All advertising currently in effect should clearly indicate that the eligibility period is about to end in order to avoid misleading consumers regarding the length of this particular tax break.
  • Point of sale (POS) systems and website check out procedures, including any price breakdowns, will need to be updated after the end of the eligibility period to ensure that any applicable sales taxes are properly charged.

Nova Scotia decreasing its HST rate on April 1, 2025

Effective April 1, 2025, Nova Scotia’s HST rate will decrease from 15% to 14%. Under the transition rules, generally, the rate that applies with respect to a particular transaction will depend on when the HST in respect of that transaction becomes payable. There are specific rules in the Excise Tax Act (Canada) that determine when HST becomes payable. In addition, there are specific transition rules for the sale of real property.

Businesses located in Nova Scotia, or out-of-province businesses that ship goods, provide services, or license software and other intangible personal property, to Nova Scotia customers must ensure that their POS systems and website checkout procedures accurately reflect and charge the applicable tax rate.

Determining if an imported shipment is commercial or casual

On January 17, 2025, Canada Border Services Agency (CBSA) published Customs Notice 25-01: Non-Resident Importers: Determining if shipments are deemed Commercial or Casual. This Customs Notice is intended to provide clarity in determining whether a shipment is the importation of commercial goods or casual goods.

Businesses should ensure that their terms and conditions and delivery terms align with their import processes and documentation. Failure to carefully consider Canadian sales tax payable to CBSA on importation, and registration and collection obligations under federal or provincial sales tax legislation, can lead to large assessment, interest and penalties, and the inability to claim input tax credits.

Manufacturers, wholesalers, and retailers should review their Canadian sales tax practices and update their systems and policies to address recent developments.

The members of the Miller Thomson Sales, Commodity and Indirect Tax Group and Marketing, Advertising & Product Compliance Group are available to support your business as you assess the impact of these recent changes, and update and implement the necessary adjustments.