As part of efforts to address the high cost of housing in Canada, the Prime Minister announced on September 14, 2023, that GST would be removed on the construction of new apartment buildings for renters. The Prime Minister's statement did not give much in the way of detail, however the Department of Finance Backgrounder gives significantly more guidance. Draft legislation has not been published yet.
This increased rebate will only apply to projects that begin construction on or after September 14, 2023, and on or before December 31, 2030, and which complete construction by December 31, 2035. It also only applies to GST, and not to the provincial portion of HST in HST provinces. This is an increased rebate, these properties are not exempt, nor are they zero-rated. However the effect of this rebate will be similar to the effect of zero-rating, as ITCs will still be available on construction costs.
Background
The Goods and Services Tax ("GST") was originally designed to exempt residential rent, however it was intended to apply to "new housing." This had the effect of causing the landlord to pay the GST on the value of the building, rather than the tenants. When a landlord purchases an unused building, they pay GST on the value of the building. If the landlord builds a building they pay when a tenant moves in. The "builder" of a new rental building pays GST on the value of the building at the time that a tenant moves in. In 2001, a rebate was made available for new residential rental property (sometimes called the "landlord rebate"). Under the existing rebate, up to 36% of the applicable GST can be returned to the landlord, however the amount phases out as the value of the units increase, reducing to 0% at $450,000 per unit. For more details on the existing rebate, see the CRA's publication RC4231.
Changes
The proposed expansion would increase the amount of this "landlord rebate" to 100% for "purpose-built residential housing." Purpose-built residential housing must have at least four private apartment units or at least 10 private rooms or suites. At least 90% of residential units must also be designated for long-term rental.
It also appears that there will be no phase-out or upper limit on this rebate, unlike the existing one. This has an effect similar to zero-rating the relevant supplies, because ITCs would still be
Open Questions
As we do not yet have draft legislation, there may yet be peculiarities or particularities that will affect how this change is implemented. Furthermore, it remains to be seen whether HST provinces will follow suit. Ontario's premiere has indicated he would do so.
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