The federal government has announced they are removing the Goods and Services Tax/Harmonized Sales Tax (GST/HST) on all new qualifying rental housing constructions to help with the rising cost of living. This is effective September 14, 2023, subject to the passage of the related legislation.
The removal will be by way of an enhanced GST/HST Rental Rebate, available on new purpose-built housing, such as apartments, student housing, and senior residences built specifically for use as long-term rental units. This announcement increases the current GST/HST Rental Rebate from 36% to 100% and will apply to projects that begin construction on or after September 14, 2023 and on or before December 31, 2030, with a completion date of December 31, 2035 or earlier.
The legislation has yet to be released on qualification requirements, but it is clear that to be eligible for the enhanced GST/HST Rental Rebate, the building must qualify for the existing rebate and have at least four private self-contained units, or at least 10 private rooms or suites in shared living areas such as student or senior residences. Furthermore, at least 90% of units in the building must be long term rentals.
This will cover projects that convert non-residential real estate into a residential complex, and public service bodies, if the qualifications are met. 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 will continue to qualify for the existing rebate, but the enhanced GST/HST Rental Rebate will not apply to this housing. The enhanced GST/HST Rental Rebate will also not apply to substantial renovations of existing residential complexes.
GST/HST is a significant barrier to constructing new rental buildings. In British Columbia, the removal of GST represents a 5% savings for qualifying new rentals builds. Builders in the industry say there are three main issues with getting a project off the ground: the rising cost of land, government fees, and high interest rates. The removal of GST/HST will hopefully address concerns about government fees. Some are speculating that the removal of GST/HST will bring projects that have been paused or cancelled due to high interest rates back to the table to increase Canada’s housing supply.
This announcement follows months of pressure on the federal government to do something to address the rising cost of housing and renting. The federal government is encouraging all provinces to follow their lead, which could mean even more savings are on the horizon. So far only Ontario has announced that it plans to follow the federal government. Currently, the Ontario HST rate is 13% which is made up of an 8% provincial sales tax and a 5% federal tax; Ontario’s announcement would result in the complete removal of their 13% HST on qualifying new rental builds.
We can expect to hear more on this soon from the federal government, but the announcement begs the question who exactly will qualify for the enhanced GST/HST removal? And, will this focus only on affordable housing or will it cover luxury rental builds as well? In addition, will the Province of British Columbia follow suit? Currently, the British Columbia Provincial Sales Tax (PST) sits at 7% and applies to all materials purchased by builders that become part of a rental build.
If you have any questions related to the GST removal announcement or are looking to get into the rental construction industry, please contact a member of our Real Estate Group.
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Megan Mussenden is an articling student in the Vancouver office of Lawson Lundell. She is interested in exploring all practice areas.
Megan completed her J.D. at the University of Calgary where she gained valuable experience ...
Len is a partner in our Vancouver office and is the co-practice group leader of our Tax Law group. Len’s practice focuses on creating tax effective structures for client’s operating Canadian businesses and their succession ...
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