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New GST Rebate on Purpose-Built Rentals

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On September 14, 2023 the Prime Minister announced upcoming legislation to remove the Goods and Services Tax (GST) on the construction of new apartment buildings. 

The announcement also called on the provinces participating in the Harmonized Sales Tax (HST), or that impose their own provincial sales tax, to match the federal government’s rebate.  In a twitter post the Ontario Minister of Finance has already indicated they will “work closely with Ottawa to do the same when it comes to Ontario’s portion of the HST.”

One week later, the federal government introduced Bill C-56, which will amend the Excise Tax Act (ETA) to introduce an enhanced GST residential rental property rebate in subsection 256.2(3.1) applicable to new purpose-built rentals. 

Residential Rental Property Rebate Background

While residential rent is generally exempt of GST/HST, new residential rental buildings are subject to tax either when first sold, or when completed (via a deemed self-supply). 

The ETA already contains a new residential rental property rebate in section 256.2 – however, it is effectively limited to 36% of the GST, and phases out gradually where the fair market value is over $350,000 before being reduced to zero where the fair market value is $450,000 or more.  

New Purpose-Built Rental Housing Rebate

The new rebate in subsection 256.2(3.1) provides for a potential full rebate of the GST which will apply to projects that begin construction between the announcement date of September 14, 2023 and December 31, 2020, and complete construction by December 31, 2035.  Unlike the existing rebate, there is no gradual phase-out and no cap on the fair market value for the rebate to apply. 

The draft legislation also makes reference to “prescribed property”, suggesting regulations will be introduced to define the qualifying types of “purpose built” rental properties.  While no draft regulations have been introduced, the Department of Finance Backgrounder makes it clear that the new 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”.

Additionally, no definition has been provided with respect to when construction “begins”, leaving builders who may have projects underway in various stages (permitting, demolition, excavation, etc.) uncertain as to whether they may be able to qualify for this rebate. 

Takeaways

As with most government announcements, details are subject to change as the legislation makes its way through Parliament and the Department of Finance receives feedback on the draft legislation and any proposed regulations, and the final details remain to be seen, including whether additional provinces decide to introduce corresponding rebates to their HST or provincial sales taxes.   

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