On September 14, 2023, the Federal Government announced that it will introduce legislation to enhance the current Goods and Services Tax (GST) rebate on new purpose-built rental housing.
The announcement provides that the existing GST rebate for qualifying purpose-built rental housing projects will be increased from 36% to 100%. This includes various types of rental properties such as apartment buildings, student housing and senior residences designed specifically for long-term rental accommodation. The draft legislation received its first reading in the House of Common on September 21, 2023.
Under what is known as "self-supply" rules, developers must charge or remit 5% GST on the fair market value of the rental housing project upon substantial completion or first occupancy of the development. Because rental payments are an exempt supply that do not incur GST, developers have been effectively stuck with paying the GST for rental units in development. Conversely, where developers construct units for sale, such GST costs are generally passed along to buyers.
The proposed legislation eliminates this disincentive by increasing the GST rebate to 100% for purpose-built rental housing projects provided certain criteria are met.
The enhanced GST rental rebate will apply to projects that commence construction between September 14, 2023 and December 31, 2030, with construction completion by December 31, 2035.
To qualify for the enhanced GST rental rebate, new residential units must also meet the following criteria:
- The developer must qualify under the existing GST rental rebate, the primary requirement of which is that the developer must reasonably expect that the tenant will use the rental as its primary place of residence for at least one year.
- The development must contain either a minimum of four private apartment units (each with a private kitchen, bathroom, and living areas) or at least ten private rooms or suites (i.e., student residences and suites for seniors or people with disabilities).
- 90% of residential units must be designated for long-term rental.
Notably, projects to convert existing non-residential real estate into residential complexes would be eligible for the enhanced rebate provided the above criteria are met.
The existing GST rental rebate phase-out thresholds on the dollar value of purpose-built rental housing projects will be completely eliminated, meaning that there will be no cap on the value of a unit which may qualify for the rebate.
The announcement notes that the enhanced GST rental rebate will not apply to the following (although the current GST rental rebate will continue to apply where conditions are met):
- Individually-owned condominium units
- Single-unit housing
- Duplexes and triplexes
- Housing co-operatives
- Owned houses situated on leased land
- Sites in residential trailer parks
What We Don't Know Yet
The supporting legislation Bill C-56 received its first reading in the House of Common on September 21, 2023 and does not contain many details. Accordingly, the following questions remain open with respect to the proposed new rules:
- How will the legislation define whether projects have "commenced construction" within the window of September 14, 2023, and December 31, 2030 to determine if they are eligible for this enhanced rebate?
- Will the legislation provide any relief for developments that are already under construction that would otherwise qualify?
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