Death, taxes and shrinkflation

Shrinkflation has bothered many people for a very long time. The taxman has given another reason why we should hate shrinkflation even more
Sylvain Charlebois
Professor, Dalhousie University
sylvain charlebois

As if “shrinkflation” wasn’t painful enough on our wallets, it would seem the problem is about to become more widespread. 

Shrinkflation is when a food manufacturer reduces quantities but continues to sell the product at the same price. We have seen this happen in all sections of the grocery store, most recently in fresh with produce like strawberries and blueberries. 

The Canada Revenue Agency (CRA) has provisions that make some smaller products taxable that weren’t taxable in their larger forms. This policy is not new – it actually dates back to 2007, when the GST/HST Memorandum was revised. Some articles of the memo even existed back in 1997. But what is new is the number of products now subject to this Tax Act due to reduced quantities. An increasing number of products – hundreds – are now taxed that weren’t before.

The Act’s policy section Schedule VI, Part III clearly defines a snack and the meaning of single serving. For instance, the threshold for ice cream is 500 millilitres, but anything less is taxable as it is considered a snack and not basic groceries. Cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating and other similar products are all taxable if quantities are reduced below thresholds specified by the Act.

If food items are pre-packaged for sale to consumers in quantities of less than six, these products are taxed. Grocery shopping is complicated enough, but now, due to shrinkflation, consumers have to worry about how much more they need to pay. Depending on the province you live in, it could add 5% to 13% more to the price tag of some products you’re buying. And chances are, you have likely never noticed.

Consumers are essentially being hit by both the industry and the taxman himself, and in most cases, without knowing. By “shrinkflating” a product, consumers get less and are taxed more. Just great.

The CRA’s GST/HST Memorandum 4.3 on taxable food products comprises 156 articles. Unless you’re a tax expert, few will ever understand or even know how to interpret the Act and appreciate how it will apply to the 18,000 to 25,000 different food products you can find in the average grocery store. It is practically impossible to know how many items were taxed in compliance with the law.

A recent survey conducted by Dalhousie University, in partnership with Caddle, shows that 67% of Canadians have found at least one mistake on their grocery receipt in the last year. That is an astonishing number. And according to the same survey, only 9.2% have seen tax applied on a food item that shouldn’t have been taxed. The true number is likely higher – much higher. One can only assume that many consumers wouldn’t have been able to pick up on mistakes related to taxable items. The law is incredibly confusing for everyone. Even some grocers have admitted to making mistakes and applying taxes on food products when they shouldn’t have. 

With shrinkflation, many products which are now taxed find their way into lunchboxes for school children. Many are penalized by this. Most of these products were designed to bring convenience to our lives. Paying more taxes is certainly what most consumers would not consider convenient.

In essence, food at the grocery store should never be taxed, unless it is serviced to be consumed right away. Or at the very minimum, the Act should be changed to exempt smaller single servings and packages that include less than six items. 

Skrinkflation has been around for well over 30 years, perhaps even longer. The strategy has angered many consumers for obvious reasons. With food inflation having reached a 40 year high, most consumers are blaming the industry for their ills at the grocery store. Yet many tend to forget how our own fiscal regime also makes our food more expensive. The carbon tax is potentially impacting food affordability in our country. On April 1, the carbon tax will rise to $65 per metric ton and will reach $170 a metric ton by 2030. We need to know how the policy will influence our food bill over time.

However, the carbon tax is hidden and impacts the supply chain. A sales tax is very real for all of us. Seeing more taxes added to our food bill as we exit the grocery store adds insult to injury. This is just simply unacceptable.

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