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CRA AUDITS PURPOSE-BUILT HOUSING REBATE

CRA REBATE ADMINISTRATION LEADS TO MANY DENIALS

When Prime Minister Justin Trudeau’s Liberal government announced its new 100% GST rebate for tax paid on the construction of qualifying new rental housing in September 2023 (which we blogged on here), the measure – formally called the Enhanced GST New Rental Housing Rebate – was unveiled with considerable fanfare.  In fact, it was touted as a key pillar of Canada’s renewed national housing strategy, and designed to reduce development costs, accelerate construction of much-needed rental units and increase long-term affordability for renters across Canada.

That fanfare has now met the practical reality of tax auditors at CRA charged with reviewing and auditing these Rebate Applications.   In fact, CRA is now actively auditing in this area and rejecting a number of Rebate Applications for failing to meet the very complicated rules that came with the new Rebate process.

Purpose-Built Housing Rebate

The Enhanced GST New Rental Housing Rebate, more commonly known as the Purpose-Built Housing Rebate (“PBRH”), is set out in subsection 256.2(3.1) of the Excise Tax Act.  It offers a potential 100% rebate on the federal portion of the GST/HST on qualifying rental housing projects that begin construction between the announcement date of September 14, 2023 and December 31, 2030, and that reach completion by December 31, 2035.

To qualify, newly constructed residential units must meet several detailed statutory conditions, including that they:

1. Form part of a multiple unit residential complex with either (1) at least 4 residential units (each with a private kitchen, bathroom and living area) or (2) at least 10 residential units; and
2. Be held, in at least 90% of the residential units, for either (1) long term residential rental or (2) making exempt supplies including giving possession or use of the unit to a person for occupancy as an individual’s place of residence.

Several provinces are also participating in the PBRH, including Ontario, Nova Scotia, Newfoundland and Labrador, New Brunswick and Prince Edward Island.  These provinces allow the relief of some or all of the provincial component of the GST/HST for projects meeting the federal criteria (though each province has its own nuances).  More information is available on the CRA PBRH webpage.

Policy Meeting Audit Reality

While the PBRH was intended to incentivise the construction of new rental housing, the CRA’s administration of the rebate appears to have become highly technical, with auditors applying strict interpretations to each statutory requirement.  As a result, some developers are discovering that projects they believed clearly aligned with the policy goals are denied.

Problem areas emerging on audit include the date of construction commencement, the location of specific residential units, and the timing and order of their construction.

Takeaways

The Enhanced GST New Rental Housing Rebate for new purpose-built rental housing was supposed to remove all GST from the building process.  The CRA now says that is not quite the reality and is actively auditing in this area.  Experienced GST Professionals can assist in dealing with Rebate denials!

For help with a PBRH rebate application, please click here.

Download a PDF copy of this Blog here.