A temporary “tax holiday” could prove to be a “hot mess” for small businesses preparing to implement the new measure this week, according to the Canadian Federation of Independent Business.
The Liberal legislation is set to go into effect on Saturday, slashing the goods and services (GST) or harmonized sales tax (HST) from dozens of items, including certain groceries.
The two-month tax break will save taxpayers an estimated $1.5 billion, and will reduce that amount from federal revenues, the parliamentary budget officer (PBO) said in a costing note published Monday.
The PBO’s estimate is in line with the federal government’s, which put the cost of the tax relief down to roughly $1.6 billion.
The four Atlantic provinces and Ontario have their own provincial and federal sales tax lumped into the HST. The PBO said the “tax holiday” could cost the federal government an additional $1.26 billion if those provinces did not waive the compensation required under their agreements with Ottawa.
To date, Ontario and Newfoundland and Labrador have said that they will match the federal government’s tax break.
The “GST holiday” bill passed in the House of Commons last month. The bill has now reached final reading in the Senate and if passed there, will go on to receive royal assent.
Small businesses in a crunch
The “GST holiday” will apply on certain groceries, alcoholic beverages and children’s clothing and footwear, among other items.
Many retailers are scrambling to comply with the new rules, the CFIB says, arguing that they did not have enough time to get ready for the tax break.
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“Business owners were given just two weeks to prepare, right in the middle of their busiest season,” Dan Kelly, CFIB president, said in a statement on Monday.
“For some small retailers, this has required going through and making judgment calls on thousands of items based on limited guidance from the Canada Revenue Agency. It is going to be a hot mess.”
Kelly warned that “it will be nearly impossible for most retailers to implement this right.”
“This temporary tax change has created brand-new tax categories that have never existed before, including differential sales tax rates on toys marketed at adults or children, drinks based on their percentage of alcohol or collectible dolls versus dolls for play,” he said.
“Consumers will bring their own interpretation, expecting part-time clerks and store owners to have become sudden tax experts on rules that even CRA is struggling to sort out.”
Some toys, including games, dolls and jigsaw puzzles, for children under the age of 14 years are eligible for the tax break.
Toronto store Face to Face Games is finishing preparing for the changes, figuring out what will and won’t qualify under the guidelines.
“There was a little bit of a discussion about the spirit of the rule. At the end of the day, it came down to what games are for 14 and up, and which ones are for below that age group,” Cameron Hart, Face to Face Games manager, said in an interview with Global News.
Hart believes the tax break is a positive move for customers who he hopes will save in the end on their holiday shopping, but figuring out the guidelines was difficult, he said.
His team had to seek the help of an accountant to ensure the transition was smooth.
“We didn’t have a customer service line that we could call for the government, so I think like a lot of businesses we’re probably just making it up as we go and hoping for the best.”
To help ease some of the pressure off small businesses, the CFIB says it has issued a free counter sign that firms can use explaining their challenges and urging customers to be patient.
“If a business owner makes a mistake and doesn’t charge tax when they’re supposed to, or does charge tax when they weren’t supposed to, many business owners are panicked the CRA in March or April is going to show up and send a giant bill upon audit — charging the back taxes, penalties and interest,” the CFIB said.
For that reason, the CFIB is urging the federal government to show leniency.
The group is asking for the CRA to forgive taxes owed, penalties and interests for any good faith errors made and for Ottawa to give affected small businesses a credit of at least $1,000 in their GST/HST accounts to cover the costs of implementing the tax break.
– with files from Global News’ Megan King
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