Federal government relieves GST on new rental construction

An enhanced rebate is available to landlords of new residential rental buildings, as the federal government announced relief for the goods and services tax (GST) on the construction of purpose-built rental housing. This rebate, which was effective as of the announcement date, applies to certain apartment buildings, student housing, and senior residences built for long-term rental accommodation. Specifically, the enhanced rebate will apply provided that construction begins on or after September 14, 2023 and before December 31, 2030, and is completed by December 31, 2035. 

The federal government announced these changes on September 14, 2023 in response to calls to action with respect to housing affordability in Canada. Legislation related to these changes was tabled in Parliament on September 21, 2023 and received Royal Assent on December 15, 2023. This enhanced rebate has also been extended to educational institutions for new student residences, subject to certain conditions.

As enacted, this proposal will increase the rental rebate to 100% (from 36%) of the GST and federal portion of the Harmonized Sales Tax (HST). The additional relief also removes the existing GST phase-out thresholds for qualifying purpose-built rental housing projects. To qualify, rental buildings must contain at least four self-contained residential units, and student and senior housing must have at least 10 units. The building must also contain at least 90% long-term residential units to qualify. The enhanced rebate doesn’t apply to substantial renovations of existing residential properties, since it’s intended to increase overall housing supply.

Background 

While builders are already entitled to input tax credits on their costs of construction, those who ultimately sell or decide to act as landlords for newly constructed buildings are required to charge or otherwise remit GST/HST on the fair market value upon first occupancy or substantial completion of the building, whichever is later. The use of the residential units in the apartment building for long-term rental represents the use of the building in an exempt supply; thus, the GST/HST forms a cost on completion for landlords. 

Provincial sales tax  

Some provinces have also removed their provincial sales tax (PST) in line with the federal relief. The Ontario, Nova Scotia and Newfoundland and Labrador governments were the first to remove the provincial portion of the HST on purpose-built rental housing. New Brunswick and Prince Edward Island followed with some differences in the conditions. In addition, the British Columbia government committed to removing the PST from certain construction costs for purpose-built rentals while Saskatchewan and Manitoba have their own unique new housing construction incentives. 

Takeaway

Our experienced sales tax professionals can help you assess how this change could affect you, as this tax relief is new and it’s uncertain how the rebate or parallel PST measures will apply at this time. Stay tuned for more updates as new details become available. Contact your local advisor or reach out to us here.

Disclaimer

_{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}