Rethinking taxation of prepared foods
The recent GST holiday showed how tax relief can influence consumer behavior. According to Restaurants Canada, restaurant traffic increased by 18% nationally during the first two weeks of the holiday compared to the same period last year. Provinces with harmonized sales tax (HST), where the combined reduction was more significant, saw even greater results. In Ontario, for example, restaurant visits jumped by 23%, reflecting the 15% total tax reduction from both federal and provincial sources. Similar trends were reported in Atlantic Canada and British Columbia. Restaurants Canada attributes much of this increase to the tax break—a claim that seems entirely reasonable.
The effect was less pronounced in Quebec, where the GST reduction was limited to 5%. Neighboring provinces like Ontario and New Brunswick experienced more substantial boosts, highlighting the role of tax rates in influencing spending.
Did restaurants pocket the savings?
One question remains: did restaurateurs take advantage of the tax reduction to increase prices? This possibility is worth examining, especially given historical precedents. When the federal GST was reduced under Stephen Harper’s government, inflation rose shortly after. In Quebec, however, this effect was mitigated because the provincial government simultaneously raised the Quebec Sales Tax (QST), offsetting the GST cut. Inflation data from the coming weeks will reveal whether a similar dynamic is at play this time.
READ: Tax holiday boosting spending at retailers, restaurants: industry groups
A shift from grocery stores to restaurants?
Another noticeable outcome of the GST holiday may have been a shift in spending from grocery stores to restaurants. At grocery stores, only 15–20% of food items are subject to tax, compared to 100% of items sold in restaurants. On average, the GST holiday offered savings of no more than $5 per person over the two months it was in place, but that small reduction may have encouraged some Canadians to dine out more or purchase more prepared meals—also taxed—at their local grocery store.
READ: Seven tips for grocers to elevate their prepared meal offerings
Restaurants Canada recently proposed a bold idea: eliminating taxes on all prepared foods, whether sold in restaurants or grocery stores. This could be a first for a national organization advocating such a sweeping policy change.
A solution for grocery stores
This proposal deserves serious consideration, especially when it comes to prepared foods sold in grocery stores. Why tax a salad or sandwich when these items are practical options for Canadians who don’t have the time or means to cook? According to the latest census, single-person households account for 29.3% of all households in Canada—over 4.3 million in total. Additionally, over 90% of Canadians aged 65 and older live in private residences. These individuals often rely on prepared foods to avoid food waste, which can be costly for those living alone or eating smaller portions.
Taxing prepared foods is like taxing the use of life jackets at the pool, well, almost. It penalizes those who need a simple, practical solution to keep their heads above water. For millions of Canadians juggling work, caregiving, or other demands, prepared foods aren’t a luxury—they’re a lifeline. Yet our tax system unfairly targets these options while ignoring the realities of modern life.
Reducing food waste and supporting Canadians
Removing taxes on prepared foods could lighten the load for millions of Canadians while also contributing to waste reduction. As the cost of living continues to rise and food insecurity grows, rethinking how we tax prepared foods is a small step that could have a significant impact. It’s time to adjust our approach and ensure our tax policies align with the realities of Canadian households.
