The Department of Finance Canada has released a backgrounder to provide further information on the federal government’s announcement that it will enhance the GST Rental Rebate for new rental housing. The enhanced rebate will be available for new rental housing projects that commence between September 14, 2023, and December 31, 2030, provided construction is completed by December 31, 2035.
Current Rebate
Currently, a New Residential Rental Property Rebate is available in respect of the GST (or federal component of HST) paid by a landlord on the purchase of taxable rental property from a builder, or the same tax self-assessed on a deemed self-supply of rental property by a landlord-builder, where a qualifying residential unit costs less than $450,000, subject to several conditions. This rebate is calculated as the lesser of $6,300 and 36% of the total tax paid or self-assessed by the landlord in respect of the residential unit, if there is only one unit, or the proportion of the total tax paid or self-assessed represented by the particular unit’s percentage of total floor space in a multiple unit residential complex. However, the current rebate is phased out by a formula where the fair market value of a unit is more than $350,000 and less than $450,000, which can limit the tax relief available to builders of these highly sought-after rental units.
Proposed Changes
The proposed enhancement will increase the GST rebate to 100% from 36% and remove the phase-out mechanism for qualifying rental housing projects. This change should provide residential housing builders with additional incentive to construct more rental projects.
The enhanced rebate will be available for new rental housing developments (including projects undertaken by public service bodies) that qualify for the existing rebate and include at least four private apartment units or 10 private rooms or suites, with 90% or more of the residential units designated as long-term rentals. Examples of eligible projects include apartment buildings, office building to residential complex conversions, student housing developments, and senior residences purpose-built for long-term rental accommodation.
However, the enhanced rebate will not be available for the construction of individually owned condominium units, single-unit housing, duplexes, triplexes, housing co-ops, or owned houses situated on leased land or residential trailer park sites. (The current rebate may still be available for these units.) In addition, the enhanced rebate will not apply to construction projects designed to substantially renovate existing residential housing, as such projects typically take the under-renovation units off the market.
The enhanced rebate, which is subject to the passage of legislative amendments, will be in effect as of September 14, 2023. As with the existing residential rental property rebate, builders of qualifying projects are responsible for claiming GST/HST input tax credits during construction and filing rebate applications within the prescribed time limits.
While the rental rebate enhancement announced by the federal government only applies to the 5% GST (or federal component of the HST), it is expected that certain provincial governments will follow suit with increased rebates for the provincial component of the HST on qualifying projects.
Further Information
If you have any questions about how the enhanced GST Rental Rebate might impact your organization, please contact Ryan TaxDirect® at 1.800.667.1600 or taxdirect@ryan.com.