Incentivizing construction of new rental homes is a key policy priority for Canadian governments. As discussed in an earlier post, the federal Department of Finance issued a news release on September 14, 2023 relating to proposed enhancements to the GST New Residential Rental Property rebate (the “NRRP Rebate”) on certain eligible new purpose-built rental housing (“PBRH”).
In this post, we briefly review this new “PBRH Rebate”, which became law on December 15, 2023 (as part of Bill C-56, the Affordable Housing and Groceries Act) and a series of subsequent developments, including GST/HST Notice 336 and announcements relating to the PBRH Rebate’s application to student residences and to the provincial portion of the HST (in certain participating provinces).
Background
As a reminder, the rental of a residential complex or a residential unit in a residential complex is generally exempt for GST/HST purposes. Accordingly, residential landlords cannot claim input tax credits, notably, to recover GST/HST paid or payable on the purchase of a residential complex from a builder or that they accounted for on the “self-supply” of the complex. However, eligible residential landlords may claim the NRRP Rebate for the GST up to a maximum of 36% of the GST payable on the purchase or self-supply of a qualifying residential unit (an Ontario NRRP HST rebate is also available in that province). The amount of the NRRP Rebate is progressively reduced when the fair market value of the qualifying unit exceeds $350,000 (no NRRP Rebate is available if the fair market value is $450,000 or more).
Pursuant to the PBRH Rebate rules, to the extent the new residential rental project meets certain requirements, the rebate percentage is increased from 36% to 100%. Moreover, the PBRH Rebate does not have any phasing-out rule or the $450,000 fair market value limitation per unit.
The PBRH Rebate
The PBRH Rebate is only available for a residential unit that (i) qualifies for the current NRRP Rebate, and (ii) meets all the following conditions:
- Construction has begun after September 13, 2023, and on or before December 31, 2030;
- Construction is substantially completed by December 31, 2035; and
- It is in a building with at least:
a. Four private apartment units (i.e., a unit with a private kitchen, bathroom, and living areas), or at least 10 private rooms or suites; and
b. 90 per cent of residential units designated for long-term rental.
The PBRH Rebate is not designed to apply to single-unit housing, duplexes, triplexes, or owned houses situated on leased land and sites in residential trailer parks. Stratified/condominium apartment buildings do not qualify as well. However, townhouses that are connected and part of one building could qualify for the PBRH Rebate.
An “addition” to an existing building also qualifies to the extent that such addition includes 4 or more residential units and at least 4 of those units contain private kitchen, bath and living area, or 10 or more private rooms or suites.
With regard to existing buildings that are substantially renovated or converted, although the PBRH Rebate is available for non-residential real estate (such as an office building) converted into a residential complex, existing residential complexes to which substantial renovations are made will not be eligible in order to protect tenants from renovictions. Moreover, the mere conversion of commercial units in an existing apartment building to 4 residential units would also not qualify for the PBRH Rebate.
Recent Announcements and Clarifications
GST/HST Notice 336
On June 20, 2024, the Canada Revenue Agency (“CRA”) published new GST/HST Notice 336 (the “Notice”). In the Notice, the CRA describes technical aspects of the PBRH Rebate and also provides its administrative views in connection with a few unclear elements related to the new measure.
Notably, the CRA takes the position that the construction of a residential complex is generally considered to begin at the time the excavation work pertaining to the complex begins. CRA also implies that the signing of a purchase and sale agreement relating to a newly constructed multiple unit residential complex prior to September 14, 2023 would not preclude its eligibility for the PBRH Rebate if the construction of the complex began after September 13, 2023, but before 2031, and is substantially completed before 2036. CRA also confirms that newly constructed long-term care facilities that otherwise meet the relevant conditions would be eligible for the PBRH Rebate.
Student Residences
Educational institutions (e.g., universities, public colleges, and school authorities) that qualify for the public service bodies’ rebate are not eligible to claim the PBRH Rebate in respect of new student housing they provide (although new subsection 256.2(9.1) of the Excise Tax Act generally allows public service bodies to claim it). The main reason is that the rules require that a unit’s first use be as the primary place of residence for an individual under a lease for a period of at least 12 months. As housing is generally offered to students for shorter periods, this would preclude the availability of the rebate. Moreover, these institutions only incur GST/HST on their construction expenses but are not subject to the self-supply rules applicable to other builders which would also trigger the final tax payment amount on which the PBRH Rebate would then be calculated.
The 2024 federal budget has proposed to allow universities, public colleges, and school authorities operating on a not-for-profit basis to claim the PBRH Rebate, by allowing them to apply the self-supply rules that apply to other builders, in respect of new student housing projects to the extent they also meet the construction timelines. Moreover, leases for a period of at least 12 months will not be required.
Application to provincial components of HST and in Québec
Ontario, Nova Scotia, and Newfoundland and Labrador
Ontario, Nova Scotia, and Newfoundland and Labrador have confirmed that they will mirror the federal PBRH Rebate and provide a 100% rebate for the entire provincial component of HST applicable in their respective province.
These provinces can be expected to provide additional details once the draft Real Property (GST/HST) Regulations become law.
Prince Edward Island
The government of Prince Edward Island has also announced that it would mirror the PBRH Rebate. However, the enhanced provincial rebate would be subject to a maximum amount per unit ($35,000) and a reduced rebate percentage for housing projects completed after 2028.
Québec
Québec Premier François Legault has confirmed that the province will not enact a similar PBRH Rebate from a Québec sales tax standpoint.
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