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27 September 2023

Canada introduces legislation on enhanced GST rental rebate for new rental units

The much-anticipated Bill C-56, Affordable Housing and Groceries Act received first reading in the House of Commons on 21 September 2023, effectively introducing it in Parliament. The bill would amend the Excise Tax Act to implement certain enhancements to the GST new residential rental property rebate (GST rental rebate), which Prime Minister Justin Trudeau announced on 14 September 2023. It also proposes changes to the Competition Act, which focuses on the grocery sector.

Proposed changes

If enacted, Bill C-56 would increase the GST rental rebate on new purpose-built rental housing from the current 36% to 100% with no phase-out thresholds and no limits on the amount of the rebate. The existing GST rental rebate has a phase-out for qualifying residential units valued between $350k and $450k, with no rebate available for units valued at $450k or more. The amendments are intended to encourage the construction of more apartment buildings, student housing and senior residences built specifically for long-term rental accommodation.

The enhancement is a temporary measure that will apply to residential units that qualify for the current GST rental rebate where construction of the building or addition begins after 13 September 2023 but before 2031 and is substantially completed before 2036.

Benefits for public service bodies

Bill C-56 would also expand entitlement to the GST rental rebate to public service bodies that were previously ineligible because they were eligible for the rebate for public service bodies. Public service bodies will now be able to choose the most beneficial of the two rebates. Public service bodies likely to benefit from the proposed measures include certain universities, municipalities, public colleges, charities and non-profit organizations.

Issues to be addressed

Bill C-56 does not contain many details that were part of the Backgrounder released by the Department of Finance on 14 September 2023. Further legislative changes are expected to clarify these details, including regulations that are referenced in Bill C-56. In particular, the Backgrounder notes the following additional details:

  • Qualifying new residential units are intended to be those qualifying for the existing GST rental rebate and in a building with at least:
    • Four private apartment units — that is, a unit with a private kitchen, bathroom and living areas — or at least 10 private rooms or suites, such as a 10-unit residence for students, seniors or people with disabilities
    • 90% of the residential units are designated for long-term rental
  • The enhanced GST rental rebate will not apply to substantial renovations of existing residential complexes.

The Backgrounder also clarified the following:

  • The conversion of existing non-residential real estate into a residential complex may be eligible for the enhanced GST rental rebate where all the other conditions are met.
  • The existing GST rental rebate will continue to apply to properties that are not eligible for the enhanced GST rental rebate, such as individually owned condominium units, single-unit housing, duplexes, triplexes, housing co-ops and owned houses situated on leased land, and sites in residential trailer parks.

Next steps and considerations

Bill C-56 may undergo further changes as it makes its way through the legislative process. Also, regulations will be required to fully implement the enhanced GST rental rebate.

Bill C-56 addresses only the GST and the 5% federal portion of the HST. Other provincial rebates may be available. For example, Ontario currently provides a rebate of 75% of the provincial portion of the HST, up to a maximum of $24,000 per residential unit. If Ontario follows the federal government's lead, a larger potential rebate of the provincial portion could be expected as well.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Montreal

Ernst & Young LLP (Canada), Calgary

Ernst & Young LLP (Canada), Toronto

Published by NTD’s Tax Technical Knowledge Services group; Maureen Sanelli, legal editor

Document ID: 2023-1611

 
 

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