Tax holiday on GST more work than it’s worth, small business says

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Thousands of small businesses have big concerns and bigger questions about the upcoming two-month GST/HST holiday, according to a recent poll by Canadian Federation of Independent Business (CFIB).

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Last week, the Trudeau government promised to make dozens of items tax free between Dec. 14 and Feb. 15, ranging from children’s clothing, toys and video games to Christmas trees and restaurant meals and more. The tax holiday bill is one step closer to becoming law after it was passed by a majority of the House of Commons late Thursday night.

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The Conservatives and Bloc Québécois voted against the legislation.

The plan has been welcomed by some, but others see it as a desperate attempt by the struggling Liberals to win votes. The CFIB polled its members on the upcoming tax holiday and heard back from 3,500.

Three quarters of respondents said it would be costly and complicated to implement the holiday — small firms reported a median of $1,000 in additional costs to reprogram their point-of-sale systems to remove and then reinstate the tax.

Sixty-five per cent said there is not enough time to implement the change.

Seventy-one per cent said big businesses and online giants will benefit most from the holiday.

As well, more than two-thirds said it will be difficult to determine which items are temporarily tax-exempt. Most provinces don’t require labelling telling consumers which items are taxed.

Sixty-six per cent said they believe consumers will delay purchases and 54 per cent believe consumers will return products to repurchase during the holiday period.

“Small firms — particularly those in retail — do not have the time or resources to effectively make the changes to accommodate this temporary change and very few believe there will be any net benefit,” said CFIB president Dan Kelly in a statement. 

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On top of the GST holiday, the federal government had also planned to send out $250 cheques in the spring to working Canadians who made $150,000 or less. But the opposition wouldn’t support the plan. The Bloc wanted seniors included and the New Democratic Party also wanted cheques sent to students and people with disabilities.

The four Atlantic provinces and Ontario have a harmonized sales tax, which means the entirety of that levy — 15 per cent in the Atlantic and 13 per cent in Ontario — will be lifted. For the rest of the provinces only the five per cent GST will be lifted on exempted items. 

Wendy Friedman owns The Independent Mercantile in Halifax. She appreciates the offer of limited help for consumers and retailers but doubts her business or many others will really benefit.

Several hours of administrative time will go into combing through her merchandise to figure out which are tax exempt, she said. Then there’s the laborious process of changing the tax codes for the items that make the cut.

“Then we have to spend the same amount of admin time to reverse it in two months,” she said. “You begin to think, ‘Is this going to be of any benefit to a small business like ours?’”

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Friedman said she’s also concerned that people might delay shopping, especially for bigger ticket items. Then there’s the timing of the tax-free holiday. It would made more sense to push it up two weeks to the beginning of December when many people start their holiday shopping and businesses are typically busiest. Most small retailers make 20 to 30 per cent of there annual sales in December, she said.

“It would give us a lot more runway before the holiday. Whereas where it’s starting Dec 14 it’s so close to the holiday that it’s quite a tight little timeline. Considering this is only giving us 11 days before Christmas, it’s not really giving a real boost to holiday shopping.”

If government proceeds with the plan, CFIB is calling on the Department of Finance to give affected small firms a credit of a minimum of $1,000 in their GST/HST accounts to cover the administrative and programming costs. It’s also asking the government to order the Canada Revenue Agency to forgive the taxes owed, penalties and interests for any good-faith errors made by small firms rushing to implement this change.

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Jolyn Swain, owner of Nurtured Products for Parenting in Halifax, said she expects some sleepless nights preparing for the tax holiday. But overall, she believes the tax break is a good thing and encourages people to shop during an otherwise slow period. “It’s a unique time to examine where cost savings can happen for parents, especially,” Swain said. ”There is a lot of spending when you have young kids.”

She said she’d like to see the tax holiday last longer and car seats, which are among the tax-exempt items, be permanently tax free because they’re an essential item.

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