As we wrote in a previous blog post, the federal government amended subsections 256.2(3.1) and (3.2) of the Excise Tax Act (the "ETA") to introduce an enhanced GST/HST residential rental property rebate applicable to new purpose-built rentals (the "Enhanced Rebate"), which took effect on September 14, 2023.
On July 17, 2024, the Real Property (GST/HST) Regulations (the "Regulations") were published in the Canada Gazette, providing guidance on the implementation of the Enhanced Rebate, including the prescribed conditions and definitions of eligible properties.
What is the Enhanced Rebate?
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(3) – however, it was historically limited to 36% of the GST and subject to a maximum rebate amount of $6,300.
Under the new "Enhanced Rebate", builders are potentially entitled to a 100% rebate of GST/HST paid, with no limits!
Prescribed Requirements under the Regulations
To qualify for the Enhanced Rebate, the Regulations specify a number of additional criteria for "prescribed properties" and "conditions", many of which rely on subsidiary definitions in the Excise Tax Act that, on their own, are extremely difficult to understand.
The Regulations do provide clarity on a number of areas, including whether a substantial renovation of an existing residential complex can qualify, how these rules apply to condominiums and what eligible purposes the builds must qualify for.
However, while the Regulations have provided some clarification on a number of issues, others remain unresolved. For example, subsection 256.2(3.1) of the ETA requires construction to start after September 13, 2023, yet neither the ETA nor the Regulations define when construction "begins", and what that means. (According to the CRA, construction starts with excavation, but this can be confusing since excavation involves many steps, from site assessments, preparations to actual digging.)
Provincial Rebates
The Regulations also outline the requirements for Enhanced Rebate of the provincial component of the HST in Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. In general, the criteria align with the federal requirements. There are no phase-out thresholds and limits on the rebate amount, except in Prince Edward Island, which imposes additional conditions tied to the year construction is substantially completed.
Commentary
The Enhanced GST/HST Rebate for Purpose Built Housing is deceptively complex, particularly given its interaction with other provisions in the ETA and related case law.
As always, the devil is in the details, and property owners and builders planning to use these provisions would likely benefit from legal advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.