[Update: September 21, 2023] A bill has been put forward in the House of Commons to implement the expanded new residential rental rebate. The bill is available on Parliament's website. We still do not know what it means for construction to "begin," but the proposed legislation maps to the announcement discussed below very closely.
As part of efforts to address the high cost of housing in Canada, the Prime Minister announced on September 14, 2023, that GST would be removed on the construction of new apartment buildings for renters. The Prime Minister's statement did not give much in the way of detail, however the Department of Finance Backgrounder gives significantly more guidance.
This increased rebate will only apply to projects that begin construction on or after September 14, 2023, and on or before December 31, 2030, and which complete construction by December 31, 2035. It also only applies to GST, and not to the provincial portion of HST in HST provinces. This is an increased rebate, these properties are not exempt, nor are they zero-rated. However the effect of this rebate will be similar to the effect of zero-rating, as input tax credits will still be available on construction costs.
Background
The Goods and Services Tax ("GST") was originally designed to exempt residential rent, however it was intended to apply to "new housing." This had the effect of causing the landlord to pay the GST on the value of the building, rather than the tenants. When a landlord purchases an unused building, they pay GST on the value of the building. If the landlord builds a building they pay when a tenant moves in. The "builder" of a new rental building pays GST on the value of the building at the time that a tenant moves in. In 2001, a rebate was made available for new residential rental property (sometimes called the "landlord rebate"). Under the existing rebate, up to 36% of the applicable GST can be returned to the landlord, however the amount phases out as the value of the units increase, reducing to 0% at $450,000 per unit. For more details on the existing rebate, see the CRA's publication RC4231.
Changes
The expanded new residential rental rebate would increase the amount of this "landlord rebate" to 100% for "purpose-built residential housing." Purpose-built residential housing must have at least four private apartment units or at least 10 private rooms or suites. At least 90% of residential units must also be designated for long-term rental.
It also appears that there will be no phase-out or upper limit on this rebate, unlike the existing one. This has an effect similar to zero-rating the relevant supplies, because input tax credits would still be.
Open Questions
It remains to be seen whether HST provinces will follow suit. Ontario's premiere has indicated he would do so. We also do not yet have clarity around when construction "begins."
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