GST rental rebate

Canada’s Enhanced GST Rental Rebate program

A "game-changing" step toward ending the housing crisis?
Friday, September 15, 2023
by Erin Ruddy

The Canadian government is removing the Goods and Services Tax (GST) on future purpose-built rental projects to incentivize the construction of much-needed rental housing. It’s the latest in a flurry of new measures announced by the Trudeau government to address the ongoing housing crisis—and for residential housing developers, it comes as welcome news.

“This really is a game-changer and it’s something that we applaud the government for undertaking,” said Dave Wilkes, president and CEO of the Building Industry and Land Development Association (BILD). “This is something that the industry has identified as a barrier for purpose-built rental, and we believe that it is a really significant step.”

The measure was first proposed, then promptly dropped, by the Liberal government in 2015. Reintroduced as the “Enhanced GST Rental Rebate” program on September 14th, 2023, it increases the existing rebate from 36 per cent to 100 per cent for any purpose-built rental housing project about to embark on construction. Whether it’s a student housing building, a senior residence, a quadplex, or a multi-tower rental complex, qualifying developments can expect a five per cent reduction in their overall costs as a result of this enhancement. Projects that convert existing non-residential real estate, such as an office building into a residential complex, are also eligible for the rebate.

“The stark and deeply troubling fact is that we are in a housing crisis and face an acute shortage of supply, so it is critical that government leaders come up with steps to spur construction of more housing and purpose-built rentals,” commented Richard Lyall, President of Residential Construction Council of Ontario (RESCON). “We need millions more units and must pull out all the stops to make that happen. The moves proposed today are a good start.”

To maximize the impact of the new measure, the federal government is calling on the Provinces to follow suit. So far, Premier Ford has committed to lifting Ontario’s provincial sales tax from new rental construction, as has Newfoundland and Labrador. (British Columbia and Alberta do not charge a provincial tax.)

It’s a good start, but how much of an impact will it have considering the scope of the crisis?

In late 2022, BILD, along with the Federation of Rental-housing Providers of Ontario (FRPO), Urbanation, and Finnegan Marshall, collaborated on a report looking at purpose-built rental supply in the GTA. Findings were dire, indicating that the supply deficit will double in the next 10 years to 177,000 units across the GTA if urgent action is not taken.

“We haven’t built enough purpose-built rentals to accommodate our growing population, yet projects were still being saddled with whopping sales taxes on the fair market value of a building upon completion,” said Lyall. “When encumbered with such formidable financial hurdles, developers often find it difficult to proceed with apartment building projects. These adjustments are clearly a step in the right direction as it will shave costs from constructing apartments and lead to more building.”

From the tenant perspective, advocates of the GST Rental Rebate program say that any step that encourages the construction of purpose-built rental housing over condominiums is a positive move for improving affordability. According to Jacob Gorenkoff who leads the affordable housing policy and advocacy work of the Canadian Housing and Renewal Association, “Eliminating GST on purpose-built rental projects is an important first step towards creating more of the housing that many Canadians need, at costs that are affordable to them. But like the Prime Minister said during the September 14 announcement, there is no silver bullet to solve the housing crisis.”

Gorenkoff added, “If we want Canadians to have access to affordable homes, the federal government needs to lead a Team Canada approach to housing, working with all levels of government, and private and non-profit housing providers, to set clear targets that can be achieved through ambitious, yet functional policies and programs. A key consideration must be supporting Canadians that can’t afford housing offered at sky-high market rates. The best way to help these neighbours is by doubling Canada’s proportion of community housing stock to be on par with the OECD and G7 averages.”

Meanwhile, the Liberals aren’t the only ones proposing urgent measures to encourage more housing development. Conservative Party leader Pierre Poilievre announced his intent to introduce the “Building Homes, Not Bureaucracy” Act to encourage municipalities to meet their housing targets. Bonuses would be given to those that exceed their goals, and funds withdrawn from those that don’t. He also proposed removing the GST on any new buildings that offer below market rental prices, and vows to address municipal-level barriers to housing development.

“We need quick and bold action on the housing front to bring us back from the dark abyss,” concluded Lyall. “Mr. Poilievre’s proposal would encourage cities to reach their housing targets, speed up the construction of much-needed new condos and homes, and make it easier for developers and builders to get shovels in the ground as soon as possible. Such a situation is a win-win for everyone.”

About the Enhanced GST Rental Rebate program 

According to the government website, qualifying new residential units would be those that are in buildings with at least:

  1. Four private apartment units (i.e., a unit with a private kitchen, bathroom, and living areas), or at least 10 private rooms or suites (e.g., a 10-unit residence for students, seniors, or people with disabilities); and,
  2. Ninety per cent of residential units designated for long-term rental.

Projects that convert existing non-residential real estate into a residential complex are also eligible provided they meet the conditions above.

The enhanced GST Rental Rebate will not apply to 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.

Find out more at: Enhanced GST Rental Rebate to build more apartments for renters – Canada.ca

 

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