On September 14, 2023, the Department of Finance Canada announced its plans to relieve the 5% GST cost that builders incur on certain new purpose-built residential rental housing, such as apartment buildings, student housing, and seniors’ residences to be built specifically for long term rental accommodation.
This relief will come in the form of an enhanced GST Rental Rebate for projects that begin construction between September 14, 2023 and December 31, 2030 inclusive, where the construction is completed by December 31, 2035.
What types of units qualify for the enhanced rebate?
The enhanced GST Rental Rebate applies to new units in buildings that would have qualified for the existing New Residential Rental Property (NRRP) rebate and where:
- the building contains at least four private apartment units (with a private kitchen, bathroom, and living areas) or at least 10 private rooms or suites (e.g., residences for seniors, students, or people with disabilities); and
- at least 90% of residential units designated for long term residential rental accommodation.
Relief will also be available for conversions of non-residential properties into residential properties meeting these conditions.
The 2023 Fall Economic Statement announced that co-operative housing corporations that provide long-term rental accommodation would also be eligible for the enhanced rebate on new rental housing, provided the other conditions are met. This measure is not intended to apply to co-operative housing corporations where occupants have an ownership or equity interest.
What impact does the enhanced rebate have?
As an example, prior to this announcement, a builder of an apartment building with four units having a fair market value of $500,000 per unit would have been required to self-assess $25,000 of unrecoverable GST in respect of each unit (it was not eligible for any federal relief because each unit’s value exceeded $450,000 per unit). The enhanced rebate is expected to offset the GST the builder is required to self-assess on the value of each unit, resulting in a savings of $100,000 for the four units (where all conditions are met).
What types of units do not qualify for the enhanced rebate?
The enhanced GST rebate is intended to stimulate supplies of new residential units. Accordingly, it will not be available for:
- individually-owned condominium units, single-unit housing, duplexes, triplexes, housing co-ops, and owned houses situated on leased land and sites in residential trailer parks;
- Renovations of existing residential complexes.
What about relief for the provincial component of HST and provincial sales taxes?
Since the federal government’s announcement of the GST/HST New Residential Rental Property Rebate, two provinces announced similar rebate programs for the provincial component of the HST.
Prince Edward Island’s (PEI) new HST rebate program for qualified rental housing projects will provide a 100% rebate of PEI’s provincial component of HST, up to a maximum of $35,000 per unit. To qualify for this rebate, construction must begin on or after September 14, 2023 and be completed by December 31, 2028. Projects that are completed after 2028 and before 2035 will qualify for a reduced amount of this PEI HST rebate.
The Ontario government’s enhanced rebate rules mirror those presented by the federal government in September. Previously, the Ontario HST New Residential Rental Property rebate was 75% of the provincial portion of HST, up to a maximum rebate of $24,000. Under the new measures, the Ontario HST New Residential Rental Property Rebate will be 100% of the Ontario provincial portion of HST, with no maximum limit on the rebate amount for qualifying new purpose-built rental housing.
Currently, Nova Scotia, New Brunswick and Newfoundland and Labrador do not offer a GST/HST new residential rental property rebate for the provincial component of HST.
The Indirect Tax team at BDO Canada LLP will be following the development of this GST relief measure closely. We expect the provincial jurisdictions to issue changes in light of these new measures.
In the meantime, if you have any questions about the effects of this measure, please contact BDO.