Introduction:
The Canadian real estate scene is abuzz with the latest updates on GST rebates for new builds, particularly targeting new purpose-built rental housing. This move promises to transform the construction industry significantly.
The Federal GST Rebate on New Builds:
In September, an announcement by the Canadian Prime Minister put a spotlight on the GST rebate for new builds. If you’re constructing properties with four units or more, you can now claim back 100% of the GST paid. This change is set to reduce costs substantially for builders.
Ontario’s Parallel Announcement:
Fast forward to November 1, 2023, and the Doug Ford government in Ontario announced a game-changing policy: the removal of the full 8% provincial portion of the HST on qualifying new purpose-built rental housing. This initiative is designed to encourage the construction of more rental homes across the province.
The Taxing Process of the Past:
Previously, builders of rental properties had to undergo the cumbersome process of self-assessing HST based on the property’s fair market value upon completion. This added a financial burden to the builders, with the HST amounting to 13% of the property’s fair market value.
Illustrating the Old vs. New Scenario:
- Before: If a property was valued at $1,000,000 upon completion, builders had to remit HST amounting to $130,000 (13% of $1,000,000), minus the actual HST paid during construction. This could lead to tens of thousands of dollars in additional costs.
- After: With the new rebate, builders can claim back 100% of the HST on the fair market value of qualifying properties. This change puts more money in the builders’ pockets and incentivizes the construction of new rental properties.
Criteria for Eligibility:
To qualify for this enhanced rebate, a project must meet specific criteria:
- Construction must start after September 14, 2023.
- At least 90% of the property’s units should be designated for long-term rental.
- Only properties with four or more units qualify.
- Commercial-to-residential conversions are included, but subdividing a house into units does not.
- Single units, duplexes, triplexes, and housing co-ops are excluded.
- The rebate doesn’t apply to substantial renovations of existing rentals or new single-family homes, duplexes, or triplexes.
Conclusion:
This enhanced HST rebate represents a significant opportunity for rental property builders in Ontario. While we await more detailed guidelines, the potential benefits are clear. As always, we’re here to help you navigate these changes and leverage new opportunities in the real estate market.
Until next time, happy Canadian Real Estate Investing!
Cherry Chan, CPA, CA
Your Real Estate Tax Accountant
