Feds to relieve GST on new rental construction
By Adam FreillConstruction Residential
Canadian government announces rebate intended to spur new construction of purpose-built rental housing units.
The federal government is proposing to enhance Goods and Services Tax (GST) rebates to landlords of new purpose-built residential rental buildings. The rebate, which was announced last week and is effective immediately, will apply to certain apartment buildings, student housing, and senior residences built for long-term rental accommodation.
The enhanced rebate applies to construction projects started between September 14 and the end of 2030. Qualifying projects need to be completed by the end of 2035.
Although the federal government announced these changes on September 14 in response to recent calls to action with respect to housing affordability in Canada, legislation related to these changes had yet to be tabled as of press time. According to details provided by leading Canadian accounting and business advisory firm Grant Thornton LLP, it is expected that the Excise Tax Act will be amended to allow for the new rebate.
If enacted, the proposal will increase the rental rebate to 100 per cent, from 36 per cent of the GST and federal portion of HST. The proposed relief also removes the existing GST phase-out thresholds for qualifying purpose-built rental housing projects. Rental buildings must generally contain at least four self-contained apartments for residential units to qualify, and student and senior housing must have at least 10 units.
“This proposed measure is intended to spur new construction projects that will increase the overall availability of rental housing. It’s important to note, however, that projects that are already underway as of the announcement date do not qualify for the enhanced GST rebate,” stated Sarah Noftell, Grant Thornton’s indirect tax leader. “Additionally, an interesting criteria for this rebate is that 90 per cent of the residential units in the building must be designated for long-term rental. This measure is likely intended to support the policy intent of creating housing as opposed to short-term rental units.”
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 the GST/HST on the fair market value on 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.
Prior to these changes, only non-profit organizations, co-operative housing corporations, public institutions, or charities were able to receive a full rebate of the GST on apartment buildings, provided certain criteria were met.
The federal government has also called on all provinces to remove their provincial sales taxes (PST) in line with the federal relief. The Ontario and Newfoundland and Labrador governments have followed up with their intentions to remove the provincial portion of the HST on purpose-built rental housing. In addition, the British Columbia government committed to removing the PST from certain construction costs for purpose-built rentals.
The enhanced rebate does not apply to substantial renovations of existing residential properties, as it is intended to increase overall housing supply. That said, it is uncertain whether some projects, such as a conversion of commercial properties to long-term residential use, could qualify. If the government determines that these projects would qualify, it could also include projects converting suite hotel properties to long-term apartment rentals.
Once the legislative adjustments are made, it may become necessary for the construction industry to obtain additional background and interpretations to ensure that project plans are not unexpectedly excluded from the new rebates.