With the federal election around the corner, the cost of buying a new home in Canada could change significantly. Check out the full blog by articling student Richard Baker and partner Miles Alperstein to see what this could mean for you.
INTRODUCTION
Due to the hotly contested upcoming Canadian Federal Election on April 28th of this year, the federal Liberal and Conservative parties have introduced competing policy planks with respect to eliminating the Goods and Services Tax ("GST") for certain purchasers of new homes. Better understanding these proposals can provide the prospective purchasers of new homes with the upcoming changes to the real estate market and its effects on their finances.
WHEN GST AFFECTS A HOME PURCHASE
The federal rate of GST is currently 5%, and applies to the purchase of new and substantially renovated residential housing, including those homes that are on leased land, floating, or manufactured. For example, without availing oneself of any of the current or potentially forthcoming means of reducing this GST, an individual would incur GST of $50,000.00 on the purchase of a home for a purchase price of $1,000,000.00.
While some current government policies help to reduce the amount of GST payable on new homes for certain qualifying parties, such as the Federal GST/HST New Housing Rebate program, the proposals by the Liberal and Conservative Parties are a marked increase in financial relief.
THE PROPOSALS
Leader of the Liberal Party of Canada, Prime Minister Mark Carney, stated on March 20th that the Liberal Party intends to "eliminate the [GST] for first-time homebuyers on homes at or under $1 million." This suggests theoretically maximum savings of $50,000.00 on a newly built residential property by a first-time homebuyer worth $1,000,000.00 ($1,050,000.00 including GST), provided that this individual did not avail themself of any currently existing rebates or tax relief measures.
Prime Minister Carney's main opponent this April, Leader of the Conservative Party, Pierre Poilievre, released a statement on March 25th that the Conservative Party will eliminate "the GST on all new homes under $1.3 million." On a hypothetical purchase of a newly built residential property for $1,300,000.00 ($1,365,000.00 including GST), while again availing themselves of none of the current GST relief measures, the buyer could expect maximum savings of $65,000.00 under the Conservative Party proposal.
It is important to parse the language on each of these proposals. Future buyers must understand that both the proposals of the Liberal Party and the Conservative Party only apply to newly built or substantially renovated residential housing, as those are essentially the only homes on which GST applies. Critically, as it stands, the Liberal Party's proposal only applies to first-time homebuyers, whereas the Conservative Party's proposal has no such qualification for who is buying the homes – that is, one does not need to be a first-time homebuyer to receive GST relief under the Conservative Party's proposal.
Nevertheless, it is critical to understand that regardless of which of the two front-running parties ends up forming the next government, the GST on newly built and substantially renovated homes seems to be on its way out in many circumstances.
THE STATISTICS
The Canadian Mortgage and Housing Corporation's Fall 2024 Housing Supply Report (the "Report") indicates that the economic boost that a waiver of GST may provide to the residential real estate market is much needed. The Report reads in part:
"In the first half of 2024, combined new home starts in Canada's 6 largest [Census Metropolitan Areas] reached 68,639 units. This is a 4% increase from the same period in 2023 and the second-highest first-half-year activity since the 1990s.
However, when we account for increases in population (by looking at housing starts per 10,000 population), we see that activity was around the historical average. Given the long history of supply not keeping up with demographic demand, this level of activity isn't enough to reduce the existing supply gap and improve affordability for Canadians.
...
New home construction trends varied significantly across markets, showing greater differences than previously reported in our Housing Supply Report. Calgary, Edmonton, and Montréal saw big increases in total housing starts ranging from 40% to 70%. In contrast, Toronto, Vancouver and Ottawa saw declines ranging from 10% to 20%."
[Emphasis added]
With new housing starts not close to meeting market demand, the push toward greater affordability offered by the competing GST proposals is a step toward solving a problem that those in Canada's larger metropolitan areas know all too well.
THE FUTURE
While the means by which new (or first-time) homebuyers of residential real estate can avail themselves of the seemingly inevitable GST-elimination proposal that has been promised by the frontrunning parties is not yet known, it stands to reason that after April's federal election, more clarity on the precise way that qualifying purchasers of newly built residential properties need to claim GST exemptions will be revealed.
In these uncertain times of tariffs and elections, prospective purchasers of newly built residential real estate can take comfort in the fact that some financial incentives may be on the way to make that new home purchase more manageable. This, in turn, may stimulate new home development toward a positive cycle of greater supply to meet the ever-increasing demand for residential property.
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.
