Canada tax holiday begins Dec. 14. Can WA residents do some tax-free holiday shopping?

Christmas has come early for some shoppers. Legislation in Canada proposing a wide-ranging sales tax exemption this holiday season has received final approval. The tax holiday will run from Dec. 14, 2024 to Feb. 15, 2025, and will cover the federal Goods and Services Tax on food, drinks and several common categories of gifts, like books.

“The temporary measure will exempt the GST, the federal sales tax here in Canada, from a variety of essential items: prepared food and snacks, dining, beverages, children’s products, toys and entertainment, seasonal items,” Jairo Yunis, director of policy at the Business Council of British Columbia, told McClatchy in a phone call. “So it’s not a sweeping sales tax break. It’s just for a specific list of items.”

What’s covered by the tax holiday?

The tax holiday covers 12 categories:

• Food

• Beverages

• Restaurants, bars and caterers

• Children’s clothing

• Diapers

• Car seats

• Children’s toys

• Jigsaw puzzles

• Video games, consoles and controllers

• Books

• Newspapers

• Christmas trees

You can visit the program’s webpage for specifics on each category.

Can Americans buy with Canada’s tax break?

According to a statement by Canada’s Minister of Finance, Chrystia Freeland, the goal of the program is to “leave Canadians with a little more money in their pockets.” However, the tax break is applied automatically on purchases that qualify. As a result, Americans are eligible to make tax-exempt purchases, too.

Will it increase trips across the border?

Both Yunis and Maya Lange, who is vice president of global marketing at tourism advocacy group Destination British Columbia, say that the tax break on its own likely won’t drive Washingtonians across the border for their holiday shopping.

The tax holiday only applies to Canada’s 5% federal sales tax, and while some provinces combine federal and provincial sales tax, British Columbia doesn’t.

“The federal tax holiday applies only to the GST. B.C.’s provincial government chose not to extend the exemption to our provincial sales tax,” Yunis said. “But in other parts of the country, where there is what’s called a harmonized sales tax, where they combine their GST and provincial sales tax, it applies to the whole rate.”

As a result, British Columbia’s sales tax will remain higher than Washington’s, even during the tax holiday.

“The GST is going to be eliminated for these items for two months, but it still doesn’t eliminate B.C.’s 7% provincial sales tax,” Yunis said. “This means that shopping in B.C. will remain more expensive overall compared to Washington State’s 6.5% sales tax.”

But that doesn’t mean the tax holiday will have no effect at all. The exchange rate between the two countries – currently around $0.71 for each Canadian dollar – means that items that appear to be the same price are really discounted across the border. According to Lange, the tax holiday will strengthen that effect and give Washingtonians more incentive to shop in Canada.

“I think what’s important for our American friends is that this is already on top of what is pretty much a 25% discount given the exchange rate,” Lange said in a phone interview.

Still, Lange doesn’t expect the discounts to drive too many Washingtonians across the border for their holiday shopping.

“Generally, Americans aren’t aware of the exchange rate. I don’t think that they would be aware, generally, of the further tax break that’s being proposed…That’s not really the motivating factor for people to come to British Columbia,” Lange said.

What’s more likely, according to Lange, is that Washington residents who visit British Columbia for other reasons get some of their holiday shopping done while across the border.

“Hopefully they’ll be on a skiing trip to Whistler or to some of our local ski hills, or just to have a city escape,” Lange said. “I think it’s going to be a pretty great additional reason to come spend a weekend in Vancouver or in southern British Columbia.”

Will Canada’s tax break hurt Washington businesses?

Yunis said that he expects the tax holiday to delay when people do their holiday shopping more than he expects it to increase holiday spending in British Columbia.

“It can also mean that people might defer their consumption,” Yunis said. “So for example, people with, let’s say, holiday parties that are usually going to restaurants and have a big volume and a big bill. They probably would defer their consumption so they wouldn’t go to the holiday party these past few weeks, but then they just do it next week, probably, so they can take advantage of the savings.”

Additionally, the tax holiday mainly covers items that aren’t typically found at small, local businesses.

“The Canadian Federation of Independent Business, which represents small businesses, found that only 4% of small businesses in the country expect stronger sales as a result of the holiday,” Yunis said.

This story was originally published December 14, 2024 at 5:00 AM.