Some small businesses in Ontario think the upcoming holiday tax break is a “pain in the butt” that could potentially cause issues before and after the policy is over.
Starting Saturday, both the federal goods and services tax (GST) and the provincial sales tax (PST) will be waived for about two months in a bid to cut down household costs amid a high cost of living. The tax break will be applied to a slew of items, from prepared foods, beer and wine, some snacks and restaurant meals to children’s clothing and toys, books and video games.
While trimming tax seems like a gift to Canadians this holiday season, one convenience store owner sees this more like a lump of coal for businesses.
“My reaction was they should just eliminate the carbon tax and be done with it, and that this was gonna be a pain in the butt for businesses, and I had to know if they even contemplated or considered that? Because there’s a lot that goes int, depending on how your system is set up, there’s a lot that goes to adjusting prices or tax codes on a system,” Terry Yaldo, owner of Midway Convenience in Windsor and the chair of the Ontario Convenience Store Association, told CTV News Toronto in an interview.
“I know, for me, I was kind of exploring my most effective way, and I might have to actually go item for item and adjust the tax setting to ‘no tax,’ and then I have to adjust it back in February,” Yaldo added.
Dan Kelly, the CEO of the Canadian Federation of Independent Business (CFIB), noted in a post on X that a small convenience store chain estimates spending 16 hours for each of its franchises – a total of 800 hours – to prepare for the GST holiday.
“If there’s like, let’s say, anywhere from two to 6,000 items, that’s very tedious,” Yaldo said, but noted not every business operates with the same point of sale systems.
Yaldo plans to make all of the changes overnight the day before, estimating it could take anywhere from two to eight hours.
“That is, if I’m even successful getting it all done. If not, then we’d have to manually do it at each transaction if something gets missed or something doesn’t get complete,” Yaldo said.
“It’s not an easy process and I don’t see the net gain at the end of the day. I know it’s giving the consumers a break but, to me, this is just a way to buy votes and give the illusion that our government is trying to help us.”
Tax holiday not mandatory: CFIB
Speaking to CP24 on Saturday morning, Kelly said he learned that businesses are not required to offer the savings.
“The government confirmed that, in fact, no business, whether it’s a manufacturer, wholesaler or even a retailer, is required to participate in the GST, HST holiday. If they don’t, the business or even the final end consumer can go back to the Canada Revenue Agency and request a refund. How practical that is on the ground is anyone’s guess,” Kelly said.
While it’s optional, he believes most businesses will participate as they do not want to lose customers.
During a news conference Saturday morning, Rechie Valdez, the federal minister of small business, told reporters that the government “expects” retailers to comply.
“The Canada Revenue Agency will take a practical approach when it comes to compliance,” the minister said.
“As long as small businesses do their best to comply with the legislation and demonstrate their ability to be able to do that, then the Canada Revenue Agency will not focus on them in terms of compliance.”
Kelly criticized the government for butchering the messaging around the measure, saying the implementation’s been a complete mess.
The CFIB recently surveyed more than 3,500 small businesses soon after the federal government announced the tax holiday, and 65 per cent said there is not enough time to implement the change while 75 per cent said it will be costly (and complicated) to remove and then reinstate the tax.
Additionally, the survey found 71 per cent of small businesses feel big box corporations and online giants will benefit more from the tax break.
“This was a last-minute tax change with massive implementation costs for small businesses. Tons of them stayed up late because they had to change their computer systems, their point of sale systems last night to put this in place,” he said.
Kelly added there are better ways for the government to reduce taxes to help Canadians than a complicated tax holiday that is temporary and not mandatory.
“Small business owners' heads are spinning right now,” he said.
David Soberman, a marketing professor at the University of Toronto’s Rotman School of Management, noted the levels of ease in reclassifying tax-exempt products across businesses, pointing to how liquor stores, for example, know exactly what products qualify for the tax break while other retailers are faced with gray areas.
“I was thinking especially like certain toy and hobby stores, it’s not clear what’s considered to be a children’s toy because there are (…) toys for adults too,” Soberman told CTV News Toronto. “This creates a big issue for businesses and so, everybody thinks it’s great, but when you sort of do something like this it seems the government sort of ignores the transaction costs.”
The small businesses surveyed by the CFIB appear to echo Soberman’s statement, as 68 per cent say it will be hard to determine what products are temporarily tax-exempt.
“Instead of a complicated, temporary tax holiday, small businesses would far rather government focus on permanent tax changes, such as cancelling the 19% increase in the carbon tax planned for April 1. But if the government proceeds with this 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 programing costs,” Kelly said.
‘Collateral damage’ from the tax break
While this policy is a way of making Canadians happy (and teeming with pre-election campaigning), Soberman pointed out some secondary effects the government might not have considered – something the marketing professor said could cause “collateral damage” to retailers.
Businesses recoding their stock-keeping units — the alphanumeric codes retailers use to track inventory — may end up making some mistakes, Soberman said, which could pose problems for retailers when they submit their tax forms.
“Now you have these people working for Revenue Canada who send you a complaint, and now you have to try to resolve it, and you also have some financial track transactions that need to be corrected to fix the fact that you either underpaid or maybe overpaid the tax,” Soberman said.
“There’s even a cost to processing all these errors that have occurred during this time when the tax holiday was in effect. That’s also an issue, and I would also say our systems (are) already complicated enough before this tax holiday.”
Canada’s GST holiday could cost as much as $2.7 billion if provinces with harmonized sales tax ask for compensation for their chunk of lost revenue, the federal parliamentary budget officer noted earlier in December. Ontario has said it will not seek this, as the move will provide “nearly $1 billion in additional relief for Ontario families” and is, instead, matching the temporary tax break on items not currently covered by existing provincial rebates.
The CFIB is calling on the federal government to order the CRA to forgive taxes owed, penalties and interests for any potential errors small businesses make “rushing” to implement this tax holiday.
Though Canadians will feel a relief at the tills for the next two months on select items, Soberman opines the tax break would be more advantageous to lower-income people if it applied to necessities, instead of luxuries like beer and wine.
“I’m just trying to think logically, is that really what we should be giving people a tax break on? Diapers, yes, food, yes, because sales taxes are regressive and they are much more difficult for poorer people to pay, but unless you have a clear thing that you’re giving a break on things that you want people to consume more of, you should be careful to not put a break on things where, probably, you might create problems and people consume more of it,” Soberman said.
With files from The Canadian Press