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The restaurant sector in Canada is rallying for a permanent extension of the GST/HST tax holiday, which has shown early signs of revitalizing dining out among cash-strapped Canadians. As the two-month tax break approaches its conclusion, industry leaders are advocating for a lasting solution to support their businesses and consumers alike.
Impact of the tax holiday on dining trends
Since its inception on December 14, the tax holiday has provided Canadians with a reprieve from the federal sales tax on various goods, including groceries, alcohol, and dining out. According to a report from Restaurants Canada, the initiative is projected to generate an additional $1.5 billion in food service sales during the holiday period compared to a scenario without the tax break.
Data from OpenTable indicates an 18% increase in seated diners in the first two weeks of the tax holiday compared to the previous year, with Ontario experiencing a remarkable 23% annual rise.
However, contrasting data from Moneris reveals a 6% decline in transaction volume at Canadian restaurants during the same timeframe, highlighting the mixed effects of the tax holiday.
Kelly Higginson, president and CEO of Restaurants Canada, emphasizes the positive impact of the tax break, especially amid declining consumer confidence as the country heads into 2025.
Consumer behavior and spending patterns
With the ongoing affordability crisis, many Canadians are feeling the pinch in their wallets.
Higginson notes that the timing of the tax break is crucial, as it helps stabilize consumer demand for dining out during a period when spending typically decreases after the holidays. Surveys conducted by Restaurants Canada reveal that approximately 36% of respondents are dining out less frequently to save money, with many opting for water instead of additional menu items.
Furthermore, the survey indicates that about one in four Canadian households earning below $50,000 annually did not dine out even once last August, marking an increase of eight percentage points from the previous year. This shift in consumer behavior underscores the need for a permanent tax relief solution to support the restaurant industry and encourage Canadians to return to dining establishments.
The call for permanent tax relief
Restaurants Canada is advocating for a permanent extension of the tax holiday, arguing that the disparity in tax treatment between grocery store purchases and restaurant meals should be addressed. Since the introduction of the GST in 1991, the restaurant sector’s share of Canadians’ food spending has diminished, with many consumers opting for grocery items that remain exempt from sales tax.
As the government considers the future of the tax holiday, Restaurants Canada is hopeful that policymakers will recognize the significance of taxing food and its implications for hardworking Canadians. The organization has reached out to Finance Minister Dominic LeBlanc’s office for clarification on the government’s stance regarding the potential extension of the tax exemption for restaurants, but a response has yet to be received.
Looking ahead, Restaurants Canada anticipates a nominal sales increase of 3.9% for 2025, though this figure drops to 0.8% when adjusted for menu inflation. The uncertainty surrounding potential tariffs from the United States also looms large over the industry, raising concerns about increased costs for food packaging and ingredients, which could further strain restaurant operations and consumer spending.
