GST/HST Holiday Tax Break

Bill C-78, the Tax Break for All Canadians Act, has been adopted by the House of Commons and is now before the Senate. The Bill proposes a temporary GST/HST tax break on food, beverage, books, children’s supplies, toys, and holiday decorations. 

If passed by the Senate, the tax break would begin on December 14, giving little time for businesses to implement the point of sale and accounting system changes required to action the tax break. 

We’ve highlighted sections of the guidance most likely to impact organizations in our sector, and have provided our own guidance on how to implement changes to your accounting processes so you’ll be prepared when the tax break comes into force.

You can read the Government of Canada’s explainer through this link: GST/HST holiday tax break - Canada.ca 

Overview

The program requires businesses to stop charging GST/HST on qualifying goods at checkout as of December 14, 2024. It is set to run until February 15, 2025. Businesses are responsible for not charging GST/HST on qualifying goods during this period.

This measure temporarily zero-rates supplies of the qualifying goods and services, meaning the tax rate charged on these items during the specified period is 0%. Businesses registered for GST/HST can still claim back the tax they paid on expenses related to these exempted items, as long as the goods or services meet the qualifying criteria.

What is impacted?

The following types of items qualify for the GST/HST holiday tax break:

• Children's clothing and footwear

• Children's diapers

• Children's car seats

• Children's toys

• Jigsaw puzzles

• Video game consoles, controllers, and physical video games

• Physical books

• Printed newspapers

• Christmas and similar decorative trees

• Food and beverages and related services

We recommend everyone review each category in detail on the Government of Canada’s website: GST/HST holiday tax break - Canada.ca. 

The two categories our audience is most likely to be affected by are Physical books, and Food and beverages and related services. You can find a full list of details on what qualifies and what is excluded at the bottom of this email.

Qualifying items also must both be paid for in full and delivered/made available to the buyer during the period from December 14, 2024 to February 15, 2025.

When making purchases

Businesses will be responsible for implementing the tax break, and as a shopper, you will automatically receive this tax break on the qualifying things you buy. There will be no GST/HST charged on the item when you make your purchase.

If you receive an invoice or bill for a qualifying item during the period that includes GST/HST, we recommend contacting the supplier and requesting an updated invoice.

When making Sales

Make sure to use the zero-rated tax code when selling qualifying products during the holiday period.

If you are using a point of sale (POS) system like Square, Shopify, etc., you will need to make sure that the tax code assigned to each qualifying item is set to zero-rated.

Using the zero-rated codes will ensure that Input Tax Credits (ITCs) can still be applied against your total taxes payable for the period.

Books and Food & Beverage detailed breakdown

These items qualify as physical books and would have no GST/HST charged:

• Most published, printed books (hardcover or softcover)

• Updates of printed books

• Guide books, and atlases that do not mostly contain street or road maps

• Magazines and periodicals (that have no more than 5% of their printed space devoted to advertising) supplied by subscription, if all the consideration is paid during the relief period and only for those magazines or periodicals that are delivered during the relief period

• Physical audio recordings of printed books, if 90% or more of the recording is a spoken reading of a printed book, including abridged versions (for example, a cassette, compact disc, or reel-to-reel tape version of a published book)

• Physical recordings of a performance of a published play

• Bound or unbound printed versions of scripture of any religion, such as the Quran, the Bible, prayer books, missals, hymn books, and Torah scrolls

• Illustrated versions of religious scriptures (for example, comic book versions)

• Printed books that are wrapped or packaged for sale as a single item with a physical read-only medium that is made up of either a reproduction of the printed book or material that makes specific reference to the printed book

These items would not qualify as physical books and would still have GST/HST charged:

• E-books

• Downloadable audio books and e-audio books

• Magazines and periodicals that are not purchased by subscription or that have more than 5% of their printed space devoted to advertising

• Books designed primarily for writing on, such as address books, diaries, journals, and notebooks

• Colouring books, scrapbooks, sticker books, sketchbooks and albums for photographs, stamps or coins

• Brochures, pamphlets, catalogues and advertising material

• Warranty booklets and owner's manuals

• Agendas and calendars

• Certain directories and collections of street or road maps

• Cut-out and press-out books

• Collections of patterns, stencils, or blueprints

• Programs for events or performances

• Rate books

• Recordings of performances of musical scores

• Recordings of unpublished manuscripts

• CD-ROMs, DVDs, and Blu-ray discs with textual or visual information

These food and beverage related items would qualify and have no GST/HST charged:

• Restaurant meals, whether dine-in, takeout, or delivery (including meals at cafés, pubs, food trucks, and other food and beverage establishments)

• Prepared foods including sandwiches, salads, vegetable or cheese platters, and pre-made meals

• Snacks including chips, candy, baked goods, fruit-based snacks, and granola bars

• Non-alcoholic drinks, such as coffee, tea, carbonated drinks, juices, and smoothies

• Beer and malt beverages

• Wine, cider and sake (including fortified) that are 22.9% alcohol by volume (ABV) or less

• Spirit coolers and premixed alcoholic beverages that are 7% ABV or less

• Catered meals, including the catering fee for providing, preparing, or serving qualified food and beverages

These items would not qualify and would have GST/HST charged:

• Food or beverages sold from a vending machine

• Alcoholic beverages (other than beer, malt beverages, wine, cider, and sake) with more than 7% ABV

• Dietary supplements

• Cannabis products, even if they are food or beverages

• Other items that do not qualify as food or beverages for human consumption (for example, pet food)

If you have any questions, please feel free to reach out to us and we’d be happy to provide an advisory call to support you!

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The above is a version of a recent edition of Young Associates’ newsletter. Yu can sign up for our newsletter list at the link at the bottom of this page.

UPDATED: T4As: Should we or shouldn’t we?

Staff Post
By Heather Young

According to the Canada Revenue Agency, fees for services provided by contract staff should be reported on a T4A slip in Box 048.

CRA’s Guide – titled “Filling out the T4A slip” under the Box 048 section – directs payers to: “Enter any fees or other amounts paid for services. Do not include GST/HST paid to the recipient for these services.”

A couple of observations.

The CRA makes no distinction regarding who provided the services. Many companies assume T4A slips are for freelancers – but that’s not what the Guide says. An email to the National Payroll Institute’s InfoLine as well as discussions with the CRA have confirmed that incorporated businesses should also receive T4A slips.

And for sure HST registration makes no difference! Every year, clients’ contract staff tell Young Associates bookkeepers that they don’t want a T4A slip because they have an HST number. Whether or not a contractor charges HST is irrelevant to the payer’s T-slip obligation.

Make no mistake: this has nothing to do with individual preferences. Our job is to do our best to help our clients – the payers – comply with the Income Tax Act.

We hear all sorts of variations from payers too. Some companies are willing to issue T4As to freelancers who work under their own name but not to those who have a company name. Other organizations make apparently arbitrary decisions; for instance, that they’re willing to issue T4As to actors but they don’t want to generate slips for technicians.

Indeed, there’s a lot of confusion out there – and, to boot, a tacit acknowledgement on the part of the CRA that the T4A requirement is unclear.

CRA’s Guide goes on to say: “Currently the CRA is not assessing penalties for failures relating to the completion of box 048.”

We don’t take this as a blanket pass for organizations to do whatever they want – and we don’t think you should either.

The wisdom from the National Payroll Institute – experts in the field – is that organizations should implement a process for issuing T4A slips to contractors so that when the CRA provides clear guidance they are able to comply immediately.

We can add to this some experience of payroll audits, where CRA examiners have scrutinized companies’ practices around T4A slip preparation.

Young Associates’ position is that clients need to work with their auditors and boards to interpret the Guide as best they can for their own situation. We always advocate for CRA compliance – and, if anything, for a more conservative interpretation that protects you from unwelcome attention from the government.

We appreciate comments on this post, although please note that Young Associates specializes in services for organizations. If you are an individual with a question about a T4A issue related to personal tax, we suggest that you contact a bookkeeper or accountant who prepares personal tax returns. 

How do I record a US$ or other foreign currency transaction?

Staff Post
By Heather Young

Accounting logic says that your financial statements must be denominated in one currency. Many organizations make regular payments to foreign artists, suppliers and others – so how can they record the transactions correctly?

Let’s take two cases.

In the first instance, let’s assume you only have a Canadian dollar bank account. That means you’re purchasing foreign currency (e.g. bank drafts or wire transfers) as needed. The bank calculates the cost in Canadian dollars by applying today’s exchange rate. This becomes your expense.

Suppose you’ve engaged an American soloist and agreed to pay them $2,500. The day you purchase the US draft, the US dollar is trading at 1.23. Your artist fee expense becomes 2,500 x 1.23 = $3,075.00, and you’ll see that amount being withdrawn from your Canadian bank account.

In this instance, the $2,500 US dollars don’t appear in your accounting records: the only value that counts is the Canadian equivalent. And, yes, that amount depends on the day! Yesterday the US dollar might have been worth 1.22 and tomorrow it might be 1.24! That doesn’t matter: what counts is the prevailing rate on the day of the transaction, because that determines how many Canadian dollars came out of your account. It is important to add a memo/note to the journal entry to indicate that the fee was $2,500 US dollars. This will create a link between the original fee agreement and the amount withdrawn from the bank, in case it is ever in question.

The process is different – and a little more complicated – if your organization owns a US dollar bank account. Now, the $2,500 US dollars must be part of your accounting entry, because that’s the number of US dollars you’re expending. Your accounting system must accomplish the following:

Record the number of units of the foreign currency you hold. (So, if you have $3,456 US dollars in the US bank account, that’s the number you should be looking at on your balance sheet.)
Record the correct value of that asset. (So, if you have $3,456 US dollars and today’s rate is 1.23, those US dollars are presently worth $3,456 x 1.23 = $4,250.88 Canadian.)
Record US revenues and expenses at the Canadian equivalent. (So, if you’re using $2,500 of those US dollars to pay your soloist, you must record an expense of $3,075 as calculated above.)

Many organizations deal with the problem by pairing the US bank account with a second asset account, named “Revalue US Dollars” or something similar. The foreign bank account captures the number of units of the foreign currency you hold. The paired account captures the difference in value to the Canadian dollar.

Thus, if your organization held $3,456 US dollars and the exchange rate was 1.23, the Revalue US Dollars account would contain $794.88.

Your entry to pay the American soloist would look like this:

This entry states the true cost of the soloist; it updates your US bank balance correctly; and it revalues your asset (those US bucks) according to today’s exchange rate.

Let’s take another example – a deposit. Suppose an American visitor paid for their ticket in US dollars. If they paid $45.00 US a day when the US dollar was worth 1.23, your entry would look like this:

Now: the face value of that ticket may have been some other amount. But, as a matter of fact, at today’s exchange rate you made $55.35 Canadian – so that becomes your revenue. 

As the month proceeds, you might have any number of transactions, each valued at the day’s exchange rate. Because the rate floats up and down, the amount in your “Revalue US Dollar” account eventually becomes inaccurate. For that reason, it’s important to “true up” the value of your US dollars from time to time. 

Many organizations would make a separate entry on the last day of the month to update their US currency to the month-end rate. 

Using the examples above, we started with $3,456.00 US dollars. We spent $2,500.00 and deposited $45.00 – bringing the account balance to $1,001.00. 

And, the Revalue US Dollar account started at $794.88; we subtracted $575.00 and added 10.35, bringing the account balance to 230.23.

Let’s say that the exchange rate on the last day of the month was 1.25. At that rate, our $1,001.00 is actually worth $1,251.25. Our month-end balance sheet misstates the value of the US dollars. The following entry “trues up” to the current Canadian equivalent. 

Note that this adjustment isn’t tied to any particular transaction: it simply corrects for the month-end exchange rate. The “pick-up” is allocated to a revenue account that specifically captures currency gain or loss. In months when the US dollar increases in value, you show a gain, because your “greenbacks” are worth more. But, when the Canadian dollar surges, you show a loss on your American currency.

These techniques allow you to have a foreign currency bank account – while still ensuring that your asset, and your revenues and expenses, are properly stated at their Canadian values. 
 

T4 slips can now be distributed electronically

In an attempt to encourage efficiency and reduce administrative burden for filers, the 2017 Federal Budget allows employers to electronically issue T4 slips to active employees, even without obtaining prior consent. Until this announcement, employers could send one copy of the T4 electronically, provided they had the employee's consent ahead of time, (as well as still providing one paper copy), or they could send two paper copies to the employee's mailing address or provide two paper copies in person. 

The Budget announcement means that for 2017 T4 slips (and those for any subsequent year), employers now do not have to obtain consent from an employee to distribute their T4 electronically, provided the following considerations are met:

• the employee is currently active (not on leave, has not left the company)

• (by the last day of February in the year following the calendar year to which the T4 applies) the employer provides the employee

  • a secure electronic portal through which the employee can obtain access their T4 slip,

  • a secure site for printing the T4 slip, and

  • an option to receive paper copies of the T4 slip, upon request.

The employer must distribute 2 paper copies of the T4:

• if the employee has requested that method
• if the employee is on leave or no longer with the company
• if the employee can not reasonably be expected to access the T4 electronically
• if the employer cannot meet the above conditions for secure electronic transfer (unless the employee had previously provided consent to receive the T4 slip electronically)

It is important to note that Budget 2017 does not consider email to be a secure method of transferring sensitive information included in the T4 slip, and it does not permit employers to use email as a method of distributing the T4 to employees without their prior consent. So, the only case in which a T4 slip is permitted to be distributed to an employee by email is if the employee has previously provided (written or electronic) consent to receive one copy of the T4 by email. 

Visit this page on the CRA website for more information.

What’s the difference between holiday pay and time in lieu?

‘Holiday pay’ and ‘Time in lieu’ are actually very different. Holiday pay is pay for ‘standard’ holidays, either public or at least consistently recognized by the employer. Time in lieu is paid time off in exchange for overtime work.

Holiday pay is pay for days that an employee doesn’t have to work, because they are public holidays. In Ontario, these days are: New Year’s Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, Christmas Day, and Boxing Day. Public holidays vary in different jurisdictions. Also, some employers choose to provide holiday pay for days which are not official public holidays, but are frequently observed. For example, in Ontario, employers often acknowledge Civic Holiday the first Monday in August. Public holiday pay is based on the previous four weeks of work, and can be calculated here. The calculation i:s (regular wages from 4 weeks previous + vacation pay from 4 weeks previous) / 20. You add up the last month of earnings and divide by 20 because there are 20 working days in a normal month.

In the entertainment field — and others — it’s not uncommon for employers to ask their staff to work on a public holiday. Employees have the option to agree in writing to work the day and receive either public holiday pay plus premium pay for the hours worked on the holiday OR their regular rate plus holiday pay on a ‘substitute’ day off. In this case, the holiday rate would be calculated on the four weeks previous to the substitute holiday, not the original holiday. Some jobs do not entitle employees to take public holidays off. More details on public holiday pay in Ontario can be found here.

‘Time in lieu’ is paid time instead of overtime pay. The Employment Standards Act sets out rules on overtime pay; in most cases it is time-and-a-half (1 ½ times regular pay) for hours worked beyond 44 in a week. An employee and employer can agree in writing to time in lieu, also sometimes called ‘banked time’. In Ontario, if an employee has agreed to bank overtime hours, the employer must provide 1 ½ hours of paid time off for each hour of overtime worked. The time off must be taken within 3 months or, if an agreement is made in writing, within 12 months. If employment ends before the employee takes the paid time off, the employer must pay him or her overtime pay instead.

Find more information on paid time off in Ontario here.

What are my vacation pay obligations when an employee departs?

When a staff member leaves, you must review their vacation pay entitlement. This is done by calculating vacation pay earned and subtracting vacation time used. If the employee has not used their vacation time, you must pay out the amount owing in cash.