Restaurants Canada wants the tax ‘holiday’ made permanent as end nears

The national association representing Canada’s restaurants wants Ottawa’s GST/HST “holiday” made permanent amid early signs it’s helped some cash-strapped Canadians dine out more often.

The Liberal government’s two-month tax break is entering its final week on Friday. It began on Dec. 14 and has offered Canadians a break on the federal portion of sales tax for some groceries, alcohol, popular gifts over the holidays, as well as on dining out.

Restaurants Canada said in a report released Thursday that it expects a $1.5-billion boost in food service sales over the 60-day period than if there were no tax holiday.

Data from online reservation platform OpenTable shows an 18 per cent jump in seated diners over the first two weeks of the tax holiday compared to a year earlier. Ontario, in particular, saw a 23 per cent annual increase.

That contrasts with data from payment processor Moneris, which this week reported a six per cent drop in transaction volume at Canadian restaurants in the first month of the tax holiday.

Kelly Higginson, president and CEO of Restaurants Canada, says the tax holiday has been “really positive” for the food service industry, particularly given weak consumer confidence heading into 2025.

With Canadians historically reining in spending after the holidays, she says the tax break arrived at the right time to put a floor on consumer demand for dining out.

“With the affordability crisis going on, everyone’s been feeling a little pinched in the pocketbook,” she tells Global News.

“Regardless of whether or not there’s year-on-year sales increase … there is no doubt that sales were going to be higher than they would have been without the tax holiday.”

And according to Restaurants Canada, the tax holiday almost happened without dining out included.

The industry’s quarterly report claims that Ottawa’s original idea for the tax break, which preceded political dustups between Prime Minister Justin Trudeau and the then-finance minister, Chrystia Freeland, did not have restaurant meals as part of the plan.

Higginson says that once Restaurants Canada caught wind of the tax break proposal coming in late 2024, the group lobbied hard over a period of 48 hours to get the food service sector included in the plan.

Now, the organization is pushing to have the tax holiday made permanent for the industry.

Higginson says the restaurant sector’s share of Canadians’ food dollars has eroded since the GST was first introduced in 1991, losing ground to grocery products, many of which remain exempt from the sales tax.

The different tax treatment of food bought from a grocery store and from a restaurant ought to be rectified, Restaurants Canada argues, amid signs that Canadians struggling with affordability are forgoing eating out.

The association’s monthly consumer surveys suggest some 36 per cent of respondents are going out to both full and quick-service restaurants less often to save money, with some indicating they were forgoing add-ons or sticking to water with their meals.

The survey also suggests that roughly one in four Canadian households with an income below $50,000 annually did not eat out at a restaurant even once this past August, up eight percentage points from a year earlier.

“I am feeling optimistic that the government is recognizing the impact of taxing food and what that means for the average hard-working Canadian,” Higginson says.

Global News reached out to Finance Minister Dominic LeBlanc’s office to ask whether the government is considering extending or making permanent the tax exemption for restaurants but has yet to receive a response.

Restaurants Canada is expecting a 3.9 per cent nominal increase in total sales for 2025, though that figure pares down to 0.8 per cent when adjusted for menu inflation.

That follows mostly flat growth last year.

Higginson also noted the uncertainty around United States President Donald Trump’s threatened tariffs against Canada hang like a cloud over the restaurant industry.

Costs of importing food packaging and ingredients could rise in the face of retaliatory tariffs, and job losses tied to heavily impacted industries could further reduce Canadians’ discretionary spending in 2025, compounding the hit to restaurants.

“The spin-off effect there is, we lay off people and cut back on hours,” Higginson says. “There’s a lot of concern.”