Real Property (GST/HST) Regulations: SOR/2024-157

Canada Gazette, Part II, Volume 158, Number 15

Registration
SOR/2024-157 June 27, 2024

EXCISE TAX ACT

P.C. 2024-848 June 27, 2024

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Real Property (GST/HST) Regulations under sections 277^{footnote a} and 277.1^{footnote b} of the Excise Tax Act ^{footnote c}.

Real Property (GST/HST) Regulations

Interpretation

Definition of Act

1 (1) In these Regulations, Act means the Excise Tax Act.

Meaning of words and expressions

(2) Unless otherwise defined, words and expressions used in these Regulations have the same meaning as in section 256.2 of the Act.

Eligible purpose

2 For the purposes of these Regulations, a residential unit is held by a person for an eligible purpose if the residential unit is held by the person for a purpose set out in clause (a)(ii)(A) or (A.1) of the definition qualifying residential unit in subsection 256.2(1) of the Act.

Excluded renovated housing supply

3 For the purposes of these Regulations, a taxable supply is an excluded renovated housing supply of a residential complex if the residential complex is a substantially renovated residential complex and it is the case that

• (a) the taxable supply is deemed to have been made and received under subsection 191(3) of the Act as a result of the substantial renovation of the residential complex and the residential complex was held or used as a residential complex immediately before the beginning of the substantial renovation;
• (b) the taxable supply is a supply by way of sale of the residential complex to a person that is not a builder of the residential complex and the residential complex
  • (i) has not been occupied by an individual as a place of residence or lodging after the substantial renovation is substantially completed, and
  • (ii) was held or used as a residential complex immediately before the beginning of the substantial renovation; or
• (c) the taxable supply is a supply of an interest in the residential complex and the conditions in respect of the residential complex set out in subparagraphs (b)(i) and (ii) are met.

Rebates for Purpose-built Rental Housing

Prescribed conditions

4 (1) For the purposes of subsection 256.2(3.1) of the Act, the following are prescribed conditions:

• (a) in the case of a taxable supply described in paragraph 256.2(3.1)(a) of the Act,
  • (i) the taxable supply is a supply of an addition to a multiple unit residential complex, or
  • (ii) the taxable supply is a supply of a residential complex, or an interest in a residential complex, and is not an excluded renovated housing supply of the residential complex; and
• (b) in the case of a taxable supply described in paragraph 256.2(3.1)(b) of the Act, the property that is converted for use as the residential complex was, on September 13, 2023,
  • (i) in existence,
  • (ii) not in the process of being constructed, and
  • (iii) not being used as a residential complex.

Prescribed property — residential complex

(2) For the purposes of subsection 256.2(3.1) of the Act, in respect of a taxable supply received by a person that is a purchase from the supplier (within the meaning of subparagraph 256.2(3)(a)(i) of the Act) of a residential complex or an interest in a residential complex or that is a deemed purchase (within the meaning of subparagraph 256.2(3)(a)(ii) of the Act) of a residential complex, the residential complex or interest, as the case may be, is prescribed property if the residential complex is a multiple unit residential complex and the following conditions are met:

• (a) the multiple unit residential complex includes
  • (i) four or more residential units and at least four of those units each contains private kitchen facilities, a private bath and a private living area, or
  • (ii) 10 or more residential units; and
• (b) all or substantially all of the residential units that form part of the multiple unit residential complex are, at the particular time referred to in paragraph 256.2(3)(b) of the Act, qualifying residential units of the person that are held by the person for an eligible purpose.

Prescribed property — addition

(3) For the purposes of subsection 256.2(3.1) of the Act, in respect of a taxable supply received by a person that is a deemed purchase (within the meaning of subparagraph 256.2(3)(a)(ii) of the Act) of an addition to a multiple unit residential complex, the addition is prescribed property if the following conditions are met:

• (a) the addition includes
  • (i) four or more residential units and at least four of those units each contains private kitchen facilities, a private bath and a private living area, or
  • (ii) 10 or more residential units;
• (b) all or substantially all of the residential units that form part of the addition are, at the particular time referred to in paragraph 256.2(3)(b) of the Act, qualifying residential units of the person that are held by the person for an eligible purpose; and
• (c) all or substantially all of the residential units that form part of the multiple unit residential complex and the addition combined are held by the person at the particular time for an eligible purpose.

Rebates — provincial component

5 (1) Subject to subsections (6) and (7), if a person is entitled to claim a rebate under subsection 256.2(3) of the Act in respect of a taxable supply of a residential complex, an interest in a residential complex or an addition to a multiple unit residential complex, if the residential complex is situated in Ontario, Nova Scotia, Prince Edward Island or Newfoundland and Labrador and if subsection 256.2(3.1) of the Act applies in respect of the taxable supply of the residential complex, interest or addition, then, for the purposes of subsection 256.21(1) of the Act, the following rules apply:

• (a) section 47 of the New Harmonized Value-added Tax System Regulations, No. 2 does not apply in respect of the residential complex, interest or addition, as the case may be; and
• (b) the person is a prescribed person and the amount of the rebate under subsection 256.21(1) of the Act in respect of the residential complex, interest or addition, as the case may be, is equal to the total of all amounts each of which is an amount, in respect of each residential unit that forms part of the residential complex or addition and that is a qualifying residential unit of the person at the specified time — being the time at which the tax in respect of the residential complex, interest or addition, as the case may be, first becomes payable in respect of the purchase from the supplier (within the meaning of subparagraph 256.2(3)(a)(i) of the Act) or is deemed to have been paid by the person in respect of the deemed purchase (within the meaning of subparagraph 256.2(3)(a)(ii) of the Act) — equal to
  • (i) in the case of a residential complex situated in Ontario, Nova Scotia or Newfoundland and Labrador, the amount determined by the formula

    A × B

    where

    A

    is the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

    B

    is the unit’s percentage of total floor space, and

    • (ii) in the case of a residential complex situated in Prince Edward Island,
      • (A) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed before 2029, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed before 2029, the lesser of $35,000 and the amount determined by the formula

        C × D

        where

        C

        is the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        D

        is the unit’s percentage of total floor space,

      • (B) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2029, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2029, the lesser of $31,500 and the amount determined by the formula

        E × F

        where

        E

        is 90% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        F

        is the unit’s percentage of total floor space,

      • (C) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2030, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2030, the lesser of $28,000 and the amount determined by the formula

        G × H

        where

        G

        is 80% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        H

        is the unit’s percentage of total floor space,

      • (D) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2031, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2031, the lesser of $24,500 and the amount determined by the formula

        I × J

        where

        I

        is 70% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        J

        is the unit’s percentage of total floor space,

      • (E) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2032, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2032, the lesser of $21,000 and the amount determined by the formula

        K × L

        where

        K

        is 60% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        L

        is the unit’s percentage of total floor space,

      • (F) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2033, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2033, the lesser of $17,500 and the amount determined by the formula

        M × N

        where

        M

        is 50% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        N

        is the unit’s percentage of total floor space,

      • (G) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2034, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2034, the lesser of $14,000 and the amount determined by the formula

        O × P

        where

        O

        is 40% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        P

        is the unit’s percentage of total floor space, and

      • (H) if the conditions set out in paragraph 256.2(3.1)(a) of the Act are met in respect of the taxable supply and the construction or last substantial renovation of the residential complex or addition, as the case may be, is substantially completed in 2035, or if the conditions set out in paragraph 256.2(3.1)(b) of the Act are met in respect of the taxable supply and the construction or alteration necessary to effect the conversion is substantially completed in 2035, the lesser of $10,500 and the amount determined by the formula

        Q × R

        where

        Q

        is 30% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase, and

        R

        is the unit’s percentage of total floor space.

Application for rebate

(2) For the purposes of subsection 256.21(2) of the Act, an application for a rebate, the amount of which is determined under subsection (1), must be filed within two years after the end of the month in which tax first becomes payable by the person, or is deemed to have been paid by the person in respect of the residential complex, interest or addition, as the case may be.

Prescribed circumstances

(3) The following circumstances are prescribed for the purposes of subsection 256.21(1) of the Act in respect of any rebate, the amount of which is determined under this section, to a person:

• (a) if the rebate is in respect of a taxable supply received by the person from another person, the person has paid all of the tax payable in respect of that supply;
• (b) if the rebate is in respect of a taxable supply in respect of which the person is deemed to have collected tax in a reporting period of the person, the person has reported the tax in the person’s return under Division V of Part IX of the Act for the reporting period and has remitted all net tax remittable, if any, as reported in that return;
• (c) no amount of tax included in determining the rebate would otherwise be included in determining a rebate of the person under section 256.1 of the Act or in determining a rebate of the person under section 256.21 of the Act, the amount of which is determined under any of sections 41, 43, 45 and 46 of the New Harmonized Value-added Tax System Regulations, No. 2; and
• (d) no amount of tax that would otherwise be included in determining the rebate is included in determining a rebate of the person under section 259 of the Act.

Application of subsection 256.2(9) of Act

(4) If, in the absence of this subsection, a rebate under subsection 256.21(1) of the Act in respect of real property would not be payable to a person only because all or part of the tax included in determining the amount of a particular rebate in respect of the real property under section 256.2 of the Act would otherwise be included in determining the amount of a rebate of the person under section 259 of the Act, for the purpose of applying this section in respect of the real property, the person is deemed to be entitled to claim the particular rebate.

Restriction

(5) If a person is entitled to include an amount of tax in determining, under this section, the amount of a particular rebate payable under subsection 256.21(1) of the Act in respect of real property and the person includes all or part of the amount of tax in determining the amount of a rebate of the person under section 259 of the Act that is claimed by the person at any time, for the purpose of applying section 256.21 of the Act in respect of the real property, the person is deemed to have never been entitled to include the amount of tax in determining the amount of the particular rebate.

Special rules

(6) For the purposes of this section, subsection 256.2(8) of the Act applies with any necessary modifications.

Restrictions

(7) In determining under this section the amount of a rebate payable to a person under subsection 256.21(1) of the Act, there shall not be included any amount of tax that the person is, under an Act of Parliament (other than the Act) or any other law,

• (a) not required to pay or remit; or
• (b) entitled to recover by way of a rebate, refund or remission.

Related Amendments to the New Harmonized Value-added Tax System Regulations, No. 2

6 (1) Section 47 of the New Harmonized Value-added Tax System Regulations, No. 2 ^{footnote 1} is amended by adding the following after subsection (3):

Land and building — Newfoundland and Labrador

(4) Subject to subsections (13) to (15), if a person is entitled to claim a rebate under subsection 256.2(3) of the Act in respect of a residential complex, an interest in a residential complex or an addition to a multiple unit residential complex, situated in Newfoundland and Labrador, for the purposes of subsection 256.21(1) of the Act, the person is a prescribed person and the amount of the rebate under that subsection in respect of the complex, interest or addition, as the case may be, is equal to the total of all amounts each of which is an amount, in respect of each residential unit that forms part of the complex or addition and that is a qualifying residential unit of the person at the specified time — being the time at which the tax in respect of the complex, interest or addition, as the case may be, first becomes payable in respect of the purchase from the supplier (within the meaning of subparagraph 256.2(3)(a)(i) of the Act) or is deemed to have been paid by the person in respect of the deemed purchase (within the meaning of subparagraph 256.2(3)(a)(ii) of the Act) — equal to the amount determined by the formula

A × ($450,000 − B)/$100,000

where

A

is the lesser of $12,600 and the amount determined by the formula

A₁ × A₂

where

A₁

is 36% of the total tax under subsection 165(2) of the Act that, at the specified time, is payable in respect of the purchase from the supplier or is deemed to have been paid in respect of the deemed purchase of the complex or addition, and

A₂

is

• (i) if the unit is a single unit residential complex or a residential condominium unit, 1, and
• (ii) in any other case, the unit’s percentage of total floor space; and

B

is the greater of $350,000 and

• (i) if the unit is a single unit residential complex or a residential condominium unit, the fair market value of the unit at the specified time, and
• (ii) in any other case, the amount determined by the formula

  B₁ × B₂

  where

  B₁

  is the unit’s percentage of total floor space, and

  B₂

  is the fair market value at the specified time of the residential complex or addition, as the case may be.

(2) Section 47 of the Regulations is amended by adding the following after subsection (5):

Sale of building and lease of land — Newfoundland and Labrador

(6) Subject to subsections (13) and (14), if a person is entitled to claim a rebate under subsection 256.2(4) of the Act in respect of a residential complex or an addition to a multiple unit residential complex, situated in Newfoundland and Labrador, for the purposes of subsection 256.21(1) of the Act, the person is a prescribed person and the amount of the rebate in respect of the complex or addition under that subsection is equal to the total of all amounts each of which is an amount, in respect of a residential unit that forms part of the complex or addition, as the case may be, and is, in the case of a multiple unit residential complex or an addition to such a complex, a qualifying residential unit of the person at the specified time — being the time at which the person is deemed under section 191 of the Act to have made and received a taxable supply by way or sale of the complex or addition and to have paid tax in respect of that supply — determined by the formula

A × ($450,000 − B)/$100,000

where

A

is the lesser of $12,600 and the amount determined by the formula

A₁ × A₂

where

A₁

is 36% of the tax under subsection 165(2) of the Act that is deemed under section 191 of the Act to have been paid by the person at the specified time, and

A₂

is

• (i) if the unit is a single unit residential complex or a residential condominium unit, 1, and
• (ii) in any other case, the unit’s percentage of total floor space; and

B

is the greater of $350,000 and

• (i) if the unit is a single unit residential complex or a residential condominium unit, the fair market value of the unit at the specified time, and
• (ii) in any other case, the amount determined by the formula

  B₁ × B₂

  where

  B₁

  is the unit’s percentage of total floor space, and

  B₂

  is the fair market value at the specified time of the residential complex or addition, as the case may be.

(3) Section 47 of the Regulations is amended by adding the following after subsection (7):

Cooperative housing corporation — Newfoundland and Labrador

(8) Subject to subsections (13) and (14), if a cooperative housing corporation (in this subsection referred to as the “cooperative”) is entitled to claim a rebate in respect of a residential unit included in a residential complex, situated in Newfoundland and Labrador, under subsection 256.2(5) of the Act, for the purposes of subsection 256.21(1) of the Act, the cooperative is a prescribed person in respect of the residential unit and the amount of the rebate in respect of the residential unit under that subsection is equal to the amount determined by the formula

A × ($450,000 − B)/$100,000

where

A

is the lesser of $12,600 and the amount determined by the formula

A₁ × A₂

where

A₁

is 36% of the tax under subsection 165(2) of the Act that is payable in respect of the purchase from the supplier (within the meaning of subparagraph 256.2(5)(a)(i) of the Act) of the residential complex or an interest in the residential complex, as the case may be, or is deemed to have been paid in respect of the deemed purchase (within the meaning of subparagraph 256.2(5)(a)(ii) of the Act) of the residential complex or addition to the residential complex, as the case may be, and

A₂

is

• (i) if the unit is a single unit residential complex, 1, and
• (ii) in any other case, the unit’s percentage of total floor space; and

B

is the greater of $350,000 and

• (i) if the residential unit is a single unit residential complex or a residential condominium unit, the fair market value of the residential unit at the particular time at which tax first becomes payable in respect of the purchase from the supplier or tax in respect of the deemed purchase is deemed to have been paid by the cooperative, and
• (ii) in any other case, the amount determined by the formula

  B₁ × B₂

  where

  B₁

  is the unit’s percentage of total floor space, and

  B₂

  is the fair market value of the residential complex at the particular time.

(4) Section 47 of the Regulations is amended by adding the following after subsection (9):

Land leased for residential purposes — Newfoundland and Labrador

(10) Subject to subsections (13) and (14), if a person is entitled to claim a rebate under subsection 256.2(6) of the Act in respect of an exempt supply of land situated in Newfoundland and Labrador, for the purposes of subsection 256.21(1) of the Act, the person is a prescribed person and the amount of the rebate in respect of the land under that subsection is equal to the amount determined by the formula

A × ($112,500 − B)/$25,000

where

A

is

• (i) in the case of a taxable supply in respect of which the person is deemed to have paid tax calculated on the fair market value of the land, 36% of the tax under subsection 165(2) of the Act that is deemed to have been paid in respect of that supply, and
• (ii) in the case of a taxable supply in respect of which the person is deemed to have paid tax equal to the basic tax content of the land, 36% of the provincial portion of the basic tax content of the land at the time at which the person is deemed to have paid the tax in respect of the taxable supply; and

B

is the greater of $87,500 and

• (i) in the case of a supply of land included in paragraph 7(a) of Part I of Schedule V to the Act, the fair market value of the land at the time at which the person is deemed to have paid tax in respect of the taxable supply, and
• (ii) in the case of a supply of a site in a residential trailer park or in an addition to a residential trailer park, the fair market value, at the time at which the person is deemed to have paid the tax in respect of the taxable supply, of the park or addition, as the case may be, divided by the total number of sites in the park or addition, as the case may be, at that time.

(5) Subsection 47(11) of the Regulations is replaced by the following:

Application for rebate

(11) For the purposes of subsection 256.21(2) of the Act, an application for a rebate, the amount of which is determined under this section, must be filed within two years after,

• (a) in the case of a rebate in respect of a residential unit the amount of which is determined under any of subsections (3) to (6), the end of the month in which tax first becomes payable by the person, or is deemed to have been paid by the person, in respect of the unit or interest in the unit or in respect of the residential complex or addition, or interest therein, in which the unit is situated, as the case may be;
• (b) in the case of a rebate the amount of which is determined under subsection (7) or (8), the end of the month in which the person makes the exempt supply referred to in that subsection; and
• (c) in the case of a rebate the amount of which is determined under subsection (9) or (10), the end of the month in which the person is deemed to have paid the tax referred to in that subsection.

Coming into Force

September 14, 2023

7 (1) Subject to subsections (2) and (3), these Regulations are deemed to have come into force on September 14, 2023.

(2) Subsections 6(1) to (3) apply in respect of

• (a) a taxable supply by way of sale of a residential complex or an interest in a residential complex to a person that is not a builder of the residential complex, or of a residential complex or an addition to a residential complex to a person that is, otherwise than by reason of subsection 190(1) of the Act, a builder of the residential complex or addition, as the case may be, if the construction or last substantial renovation of the residential complex or addition, as the case may be, begins after September 13, 2023; and
• (b) a taxable supply by way of sale of a residential complex that is deemed to be made to a person that has converted real property for use as the residential complex and is, as a result, deemed under subsection 190(1) of the Act to be a builder of the residential complex if the construction or alteration necessary to effect the conversion begins after September 13, 2023.

(3) Subsection 6(4) applies in respect of an exempt supply made after September 13, 2023.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Housing availability and affordability remain a major challenge, driven by a shortage of housing supply in the face of strong demand growth — partly driven by high rates of immigration — with acute impacts in major urban centres. To keep up with forecasted population growth and achieve affordability, the Canadian Mortgage and Housing Corporation estimates that Canada will need 3.5 million additional housing units by 2030, beyond what is already projected to be built.^{footnote 2}

The Government of Canada has committed to taking action to drive down the cost of housing across the country, including for renters. To this end, the federal government aims to incentivize the construction of rental homes by removing the goods and services tax (GST) and the federal component of the harmonized sales tax (HST) from new rental housing, such as apartment buildings, built specifically for long-term rental accommodation. The policy is being implemented through a temporary 100% rebate of the GST, or the federal component of the HST, on new purpose-built rental housing.

The Real Property (GST/HST) Regulations (the Regulations) are needed to establish eligibility conditions and define which properties qualify for the rebate.

Soon after the Government of Canada’s announcement of the temporary 100% GST rebate for purpose-built rental housing, the Government of Ontario, the Government of Nova Scotia, the Government of Prince Edward Island and the Government of Newfoundland and Labrador announced that they would also offer a temporary rebate of the provincial component of the HST for new purpose-built rental housing, which would generally mirror the new federal GST rebate. The Government of Newfoundland and Labrador also announced that it would offer a rebate of the provincial component of the HST that mirrors an existing 36% GST rebate for new rental housing, which does not otherwise qualify for Newfoundland and Labrador’s temporary 100% rebate of the provincial component of the HST for purpose-built rental housing.

These provincial rebates, which those provinces are entitled to have introduced under the terms of HST agreements they have entered into with Canada (the bilateral Comprehensive Integrated Tax Coordination Agreements), would be federally administered. The Regulations are needed to implement these provincial decisions.

Background

Enhanced GST Rental Rebate

On September 14, 2023, the Prime Minister announced measures to incentivize the construction of rental homes by, among other things, removing the GST and the federal component of the HST on the construction of new apartment buildings for renters. In connection with this announcement, the Department of Finance released a backgrounder on an Enhanced GST Rental Rebate for purpose-built rental housing. A draft of the regulations implementing the Enhanced GST Rental Rebate was released for consultation on the Department of Finance’s website on December 20, 2023, for a consultation period that ended on February 5, 2024.

The Affordable Housing and Groceries Act, which received royal assent on December 15, 2023, amended Part IX of the Excise Tax Act (the Act) to enact framework legislation for a 100% rebate of the GST, or the federal component of the HST, for the taxable supply of purpose-built rental housing in respect of which construction begins after September 13, 2023, and before 2031, and in respect of which construction is substantially completed before 2036. With the passage of the Affordable Housing and Groceries Act, Parliament approved that the Regulations would serve as the mechanism for defining the properties that would qualify for the rebate and for setting out any other eligibility conditions.

Provincial HST rebates

The provincial announcements relating to the rebate of the provincial component of the HST in Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador are relevant to the Government of Canada because these provinces are participating provinces in the modernized HST framework. In November 2009, the Governor in Council approved the terms of a Comprehensive Integrated Tax Coordination Agreement (CITCA) between the Government of Canada and the Government of Ontario. In June 2011, the Governor in Council approved the terms of a CITCA between the Government of Canada and the Government of Nova Scotia and the terms of a CITCA between the Government of Canada and the Government of Newfoundland and Labrador. In November 2012, the Governor in Council approved the terms of a CITCA between the Government of Canada and the Government of Prince Edward Island.

The CITCAs are federal-provincial agreements that detail the parameters agreed upon between the parties to govern the imposition of the HST in the participating provinces, under federal legislation and administration, on the same tax base as the federal GST. Under the CITCAs, each participating province is entitled to some elements of provincial tax policy flexibility, such as establishing the rate of their provincial component of the HST, limited point-of-sale rebates for their provincial component of the HST and the provincial rate of some targeted rebates (including rebates in respect of new housing and new rental housing). The CITCAs also include the mechanism by which each party’s share of the national GST/HST revenue pool is estimated and distributed based on a predetermined payment schedule.

With the passage of the Provincial Choice Tax Framework Act on December 15, 2009, Parliament approved the mechanisms to facilitate select changes in the operation of the provincial component of the HST by way of federal regulations. For example, the Provincial Choice Tax Framework Act puts in place a framework to accommodate any province’s decision to change the rate of the provincial component of the HST and the parameters of certain rebates that apply in that province. Federal regulations are therefore the appropriate means by which to implement Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador’s tax policy flexibility in respect of rebates of the provincial component of the HST related to rental housing.

Ontario

On November 1, 2023, the Government of Ontario announced its intention to introduce a 100% rebate of the 8% Ontario component of the HST on new purpose-built rental housing that fully mirrors the parameters of the Enhanced GST Rental Rebate.

Nova Scotia

On October 13, 2023, the Government of Nova Scotia announced its intention to introduce a 100% rebate of the 10% Nova Scotia component of the HST on new purpose-built rental housing that fully mirrors the parameters of the Enhanced GST Rental Rebate.

Prince Edward Island

On October 3, 2023, the Government of Prince Edward Island announced its intention to introduce a rebate of the 10% Prince Edward Island component of the HST on new purpose-built rental housing that largely mirrors the parameters of the Enhanced GST Rental Rebate. The exception is that the Prince Edward Island rebate would be capped at 100% of the HST on the first $350,000 in unit value (i.e. a maximum rebate of $35,000 per rental unit). The 100% rebate rate would apply in respect of projects for which construction is substantially completed before 2029. For projects for which construction is substantially completed after 2028, the rebate rate and related cap would be reduced by 10% per year, reaching 30% (i.e. a maximum rebate of $10,500 per rental unit) for projects for which construction is substantially completed in 2035. No rebate would be available for projects for which construction is substantially completed after 2035.

Newfoundland and Labrador

On October 16, 2023, the Government of Newfoundland and Labrador announced its intention to introduce a 100% rebate of the 10% Newfoundland and Labrador component of the HST on new purpose-built rental housing that fully mirrors the parameters of the Enhanced GST Rental Rebate.

On October 16, 2023, the Government of Newfoundland and Labrador also announced its intention to introduce a partial rebate of the 10% Newfoundland and Labrador component of the HST for new rental housing that mirrors the existing GST/HST New Residential Rental Property Rebate, as described below. The rebate would apply to rental housing in respect of which construction begins after September 13, 2023, which does not otherwise qualify for the Newfoundland and Labrador purpose-built rental housing rebate.

Existing GST/HST New Residential Rental Property Rebate

Under the GST/HST, tax applies to a new residential rental property when the property is acquired by a landlord from a builder. Alternatively, when the builder is also the landlord, the builder must instead self-assess and remit tax on the fair market value of the completed building. Purchaser-landlords and builder-landlords can recover a portion of the federal tax paid by claiming the federal New Residential Rental Property Rebate (the NRRPR), which is available for newly constructed, substantially renovated, or converted residential rental accommodation. The NRRPR is equal to 36% of the GST, or the federal component of the HST, to a maximum of $6,300 per rental unit. The full 36% rebate is available for rental units valued up to $350,000. For rental units valued between $350,000 and $450,000, the rebate is gradually phased out in a linear manner. No rebate is available for rental units valued at $450,000 or more.

With the passage of the Affordable Housing and Groceries Act, the Act will now also provide for the Enhanced GST Rental Rebate, which is a temporary 100% rebate of the GST, or the federal component of the HST, on purpose-built rental housing in respect of which construction begins after September 13, 2023, and before 2031, and in respect of which construction is substantially completed before 2036.

Although the Enhanced GST Rental Rebate is higher in rate than the NRRPR (i.e. 100% vs. 36%) and without any phase-out range, the new measure is narrower in scope than the NRRPR in terms of the types of rental properties it applies to and the conditions that must be met. To qualify for the Enhanced GST Rental Rebate, the framework legislation provides that a property must first satisfy the conditions of the NRRPR. Furthermore, the property must be “purpose-built rental housing” — which is property prescribed by regulations — and conditions prescribed by regulations must be met in respect of the supply. The Regulations are needed in order to fully implement the rebate by prescribing the types of properties considered to be purpose-built rental housing and the conditions that must be met to qualify for the rebate.

Objective

The objective of the Regulations is to contribute to rental housing supply by setting out the rules needed to implement the Enhanced GST Rental Rebate. The Regulations are also necessary for Canada to fulfill its obligations under the CITCAs in respect of the application of the HST in the provinces of Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. With these Regulations, the federal government aims to incentivize the construction of rental homes by removing the GST and the federal component of the HST from new purpose-built rental housing, such as apartment buildings built specifically for long-term rental accommodation.

Description

Enhanced GST Rental Rebate

To qualify for the Enhanced GST Rental Rebate, the Act provides that a property must first satisfy the conditions of the legacy NRRPR. Furthermore, the property must be “purpose-built rental housing” — which is property prescribed by regulations — and conditions prescribed by regulations must be met in respect of the supply. The Regulations set out those detailed rules and conditions.

Prescribed property

If the property that is supplied is a multiple unit residential complex (this could be a newly constructed property or a property converted from a non-residential purpose to a residential one), the Regulations provide that it is prescribed property and, therefore, potentially eligible for the Enhanced GST Rental Rebate, if two conditions are met.

The first condition is met if the multiple unit residential complex either includes four or more residential units and at least four of those units contain private kitchen facilities, a private bath, and a private living area or includes 10 or more residential units (e.g. residential units that may have shared bathrooms, kitchens or living areas).

The second condition is met if all or substantially all of the residential units in the multiple unit residential complex are “qualifying residential units” held for an “eligible purpose.”

“Qualifying residential unit” is a defined term under the Act. A qualifying residential unit is a self-contained residence that is held for purposes specified in the Act. In addition, generally, it must reasonably be expected that the first use of the unit is for rental for a period of at least one year and will be the primary place of residence of the lessee.

“Eligible purpose” has the meaning set out in the Regulations, which limit the existing purposes (i.e. purposes applicable to the NRRPR) contained in the definition of qualifying residential unit to two purposes: (1) making exempt supplies of property or a service that includes giving possession or use of the unit to a person under a lease for purposes of occupancy by an individual (i.e. rental); or (2) making certain exempt supplies set out in the definition of qualifying residential unit.

If, instead, the property that is supplied is an addition to an existing multiple unit residential complex, the Regulations provide that it is prescribed property and, therefore, potentially eligible for the Enhanced GST Rental Rebate, if the following three conditions are met.

The first condition is met if the addition either includes four or more residential units and at least four of those units contain private kitchen facilities, a private bath, and a private living area or includes 10 or more residential units.

The second condition is met if all or substantially all of the residential units in the addition are qualifying residential units held for an eligible purpose, as described above.

The third condition is met if all or substantially all of the residential units in the preexisting multiple unit residential complex (i.e. the original complex to which the addition was added) and the addition combined are held for an eligible purpose.

Prescribed conditions

If the taxable supply of property is a supply by way of sale of a residential complex or an interest in a residential complex, it is a prescribed condition that the supply must not be an “excluded renovated housing supply.”

An excluded renovated housing supply is a term defined in the Regulations. It has the effect of preventing the application of the Enhanced GST Rental Rebate to a substantially renovated residential complex that was, immediately before the renovation began, used as a residential complex, including, for example, a “renoviction.”

If the supply arises as a result of a conversion of real property from non-residential use to residential use, it is a prescribed condition that, on September 13, 2023, the building was in existence, was not in the process of being constructed and was not being used as a residential complex. It has the effect of, for example, ensuring that new buildings that would not otherwise qualify for the Enhanced GST Rental Rebate (e.g. because construction commenced before September 14, 2023) cannot qualify by first establishing a non-residential use and then converting the property to residential use thereafter.

The Regulations are deemed to have come into force on September 14, 2023, consistent with the earliest date on which the Enhanced GST Rental Rebate could apply.

Rebates of provincial component of HST

The Regulations also implement a similar rebate in respect of the provincial component of the HST for purpose-built rental housing situated in Ontario, Nova Scotia, Prince Edward Island or Newfoundland and Labrador. The rebates will reduce the cost of constructing or purchasing new purpose-built rental housing in those provinces.

As with the Enhanced GST Rental Rebate described above, to qualify for a rebate in respect of the provincial component of the HST in those provinces, a property must first satisfy the conditions of the legacy NRRPR. Furthermore, the property must be “purpose-built rental housing”— which is property prescribed by regulations —and conditions prescribed by regulations must be met in respect of the supply. The property that is eligible and conditions that must be met for these provincial rebates are the same as those for the Enhanced GST Rental Rebate, as described above.

The other parameters of the provincial rebates (i.e. the decision with respect to the rebate rate and any thresholds or phase outs) were determined by the provinces of Ontario, Nova Scotia, Prince Edward Island or Newfoundland and Labrador.

While the parameters of the purpose-built rental housing HST rebates in Ontario, Nova Scotia and Newfoundland and Labrador match the parameters of the federal rebate (i.e. a rebate of 100% of the provincial component of the HST paid on the construction or purchase of purpose-built rental housing in respect of which construction begins after September 13, 2023, and before 2031, and in respect of which construction is substantially completed before 2036), the parameters of the purpose-built rental housing HST rebate in Prince Edward Island are slightly different.

The Government of Prince Edward Island chose to cap the amount of HST that could be rebated in respect of a newly built rental unit. The maximum rebate per unit is the lesser of 100% of the Prince Edward Island component of the HST attributable to the unit and $35,000, provided that construction is substantially completed before 2029. The amount of the rebate would be reduced further if construction is substantially completed between 2029 and 2035 (i.e. in 2029, 90% of the HST attributable to the unit, to a maximum of $31,500; in 2030, 80% of the HST attributable to the unit, to a maximum of $28,000; in 2031, 70% of the HST attributable to the unit, to a maximum of $24,500; in 2032, 60% of the HST attributable to the unit, to a maximum of $21,000; in 2033, 50% of the HST attributable to the unit, to a maximum of $17,500; in 2034, 40% of the HST attributable to the unit, to a maximum of $14,000; and in 2035, 30% of the HST attributable to the unit, to a maximum of $10,500).

The Regulations also implement the Government of Newfoundland and Labrador’s decision to introduce a partial rebate of the 10% Newfoundland and Labrador component of the HST for new rental housing that mirrors the legacy NRRPR. The rebate would apply to rental housing in respect of which construction begins after September 13, 2023, that does not otherwise qualify for the enhanced rental rebate in Newfoundland and Labrador, as described above.

Regulatory development

Consultation

A draft of the Regulations implementing the Enhanced GST Rental Rebate was released for consultation on the Department of Finance website on December 20, 2023, for a consultation period that ended on February 5, 2024. Feedback was received from a number of stakeholders, including Canadian universities, long-term care associations, the Canadian Home Builders’ Association, the Canadian Mortgage and Housing Corporation and the Province of Nova Scotia.

The majority of the feedback was not specific to the draft of the Regulations but rather focused on the scope of the Enhanced GST Rental Rebate. This included, for example, requests that the relief be broadened to apply to projects already under construction prior to September 14, 2023, to student residences that would not otherwise meet the eligibility conditions for the rebate and to duplexes and triplexes. Some stakeholders sought feedback on how the Enhanced GST Rental Rebate would apply to specific projects, including long-term care facilities.

While these comments did not result in any changes to the draft of the Regulations, they may be used to inform future policy developments.

Budget 2024 announced that the eligibility conditions for the removal of GST on new student residences would be relaxed for not-for-profit universities, public colleges and school authorities, which was one of the requests made by Canadian universities in their feedback. The implementation of this measure would necessitate legislative changes.

No further consultations are planned.

The Regulations were exempted from prepublication in the Canada Gazette, Part I, because the measures were previously announced. Given their prior announcement, it is highly unlikely that further consultations would result in any amendments to the Regulations. Accordingly, no benefits would result from prepublication.

Modern treaty obligations and Indigenous engagement and consultation

An assessment of modern treaty implications was conducted, and the Regulations are not expected to have any impact on rights protected by section 35 of the Constitution Act, 1982, modern treaties or international human rights obligations.

Instrument choice

With the Affordable Housing and Groceries Act (Bill C-56) receiving royal assent on December 15, 2023, Parliament provided the Governor in Council with the authority to define the properties that would qualify for the Enhanced GST Rental Rebate and for setting out any other eligibility conditions. Similarly, with the royal assent of the Provincial Choice Tax Framework Act on December 15, 2009, Parliament approved the mechanisms to facilitate select changes in the operation of the provincial component of the HST by way of federal regulations. Regulatory changes are therefore the appropriate mechanism under the Act to implement the rules set out in the Regulations.

Regulatory analysis

Benefits and costs

The Regulations set out which rental projects are eligible for the new Enhanced GST Rental Rebate. However, the financial impacts of the rebate are attributable to the Act, rather than the Regulations.

The Regulations do not increase or decrease administrative or compliance costs. The Regulations clarify certain concepts for the application of provisions under the Act, but do not impose new administrative requirements on stakeholders.

Neither the Regulations nor the Act impose a mandatory compliance burden on governments, consumers, businesses or other organizations. Applying for the Enhanced GST Rental Rebate is optional, but would maximize relief for eligible taxpayers.

The Canada Revenue Agency (CRA) will need to modify some forms and update guidance as a result of the detailed definitions included in the Regulations. The marginal cost of this work is anticipated to be minor and completed within the regular function of administering and enforcing the GST/HST system.

Small business lens

The Regulations relate to the eligibility criteria for the Enhanced GST Rental Rebate, which is generally expected to be accessed by larger property developers that are considered medium and large businesses. To the extent that small businesses claim the rebate, the Regulations do not result in new cost impacts on small businesses.

One-for-one rule

The one-for-one rule does not apply, as there is no incremental change in administrative burden on businesses and no regulatory titles are repealed or introduced.

Regulatory cooperation and alignment

With the passage of the Provincial Choice Tax Framework Act on December 15, 2009, Parliament approved the mechanisms to facilitate select changes in the operation of the provincial component of the HST by way of federal regulations. For example, the Provincial Choice Tax Framework Act puts in place a framework to accommodate any province’s decision to change the rate of the provincial component of the HST and the parameters of certain rebates that apply in that province. There is therefore no other alternative to implement Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador’s tax policy flexibility in respect of the provincial component of the HST than by way of these Regulations.

The Regulations enable the implementation of the rebates in respect of the provincial component of the HST in accordance with the CITCAs between Canada and each of the provinces of Ontario, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Strategic environmental assessment

A preliminary strategic environmental assessment scan was conducted for the Regulations. The preliminary scan concluded that the Regulations are unlikely to have important environmental effects. A strategic environmental assessment is not required. Furthermore, any impacts are attributable to the Act itself rather than the Regulations because the Regulations merely clarify certain concepts for the application of provisions under the Act.

Gender-based analysis plus

The impacts of the Enhanced GST Rental Rebate are attributable to the Act itself rather than the Regulations because the Regulations merely clarify certain concepts for the application of provisions under the Act.

The Enhanced GST Rental Rebate has direct benefits for real estate developers and investors (as these individuals would apply for the rebate). The reduction in costs for the construction of purpose-built rental housing may have indirect benefits for renters to the extent that the reduction in the cost of construction is met by a corresponding reduction in rents.

While there is no demographic data on investors or developers of purpose-built rental housing, there is data available on real estate investors (defined as those who own two or more properties). According to Statistics Canada, investors generally have higher incomes, are older (the majority of investors are 55 and older), and are gender balanced.^{footnote 3} Renters, relative to homeowners, tend to be younger, have lower incomes, and proportionately composed of more recent immigrants.^{footnote 4}

Implementation, compliance and enforcement, and service standards

The Regulations will be administered and enforced by the CRA. This measure is currently being administered by the CRA on a provisional basis and has a retroactive coming-into-force date of September 14, 2023, which is authorized under the Act.

Contact

Amanda Riddell
Sales Tax Division
Tax Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5