Canada’s GST Rebate is Based On 1991 Home Prices-WTF!?!

How the GST rebate for new home construction lost its effectiveness.

Meredith Martin

Mike Moffatt

, and

Sabrina Maddeaux

Jun 25, 2025

In this episode, Sabrina Maddeaux and Mike Moffatt tackle the ongoing debate around GST New Housing rebates, how rebate reform could save homebuyers over $100,000 on the cost of a new home, and show how inflation has quietly eroded the value of the existing rebate.

With fresh rebate structures now on the table—especially for first-time buyers—they examine what’s working, what’s not, and what’s politically possible. And, of course, they have some suggestions on how policy could be shaped to benefit everyone.

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Below is an AI-generated transcript of the Missing Middle podcast, which has been lightly edited.

Mike Moffatt: So, Sabrina, I'm going to put you on the spot a little bit and give you this hypothetical scenario. So imagine I hire you to be my real estate agent, and I ask you to find me a newly built home in the GTA. It could be any type, single detached, high-rise condo units, go wild. I'm only going to give you one restriction, and that it has to be newly built or pre-construction. I don't want something that somebody else has already lived in. I'm picky that way. Well, actually, there's one other restriction. It has to be priced at $450,000 or less. What do you think you're going to be able to find me?

Sabrina Maddeaux: Mike, literally nothing. It does not exist. Like, there's a shoebox around the corner hanging out on the corner of the street that's more expensive than that. So this is not a realistic price range for new buyers to work with at all.

Mike Moffatt: Yeah, I mean, either I need to pick up a newspaper or I need a psychiatrist, not a real estate agent. I'm not going to find anything. But according to the federal government, anything priced higher than that, they consider to be a luxury home, and it doesn't qualify for a GST new housing rebate, which is absolutely wild - $450,000 is considered luxury. But you're telling me, as my real estate agent, that I'm not going to be able to find anything that isn't luxury?

Sabrina Maddeaux: Not only anything that isn't luxury, anything at all. So obviously, this is nuts, but let's back it up just a little bit. Can you tell us what exactly a GST rebate is and how it works?

Mike Moffatt: Yeah, absolutely. So when the Mulroney government introduced the GST back in the late 80s and it went into effect in 1991, they were actually concerned that the GST would slow down home construction, right? Because you're placing this tax on housing.

So they said, ‘OK, let's reduce that tax a little bit.’ And what they came up with was this system where if you bought a house that was under $350,000, you would get a rebate of 36% of the GST that you paid. And that phased out down to $450,000. That was put into effect in 1991. Most homes back then - the vast majority of homes qualified.

Similarly, in Ontario…and it's different between every province, but we're here in Ontario, so we'll talk about that. When the province signed up for the HST, when we harmonized our sales tax with the federal one, they also introduced a rebate. It's a little bit more generous. It's 75%, but you only get the max rebate for a home worth about $400,000. After that, it works a little bit differently. It doesn't phase out, but your rebate doesn't increase any. It just kind of maxes out at $400,000. And then it's the same. It could be a $400,000 home, a $4 million home, anything in between. You get the same sized rebate. So that's how it works. And again, because governments recognize that these sales taxes, if they were too high, would slow down housing construction.

Sabrina Maddeaux: A maximum home price of $450,000 is obviously completely out of touch with reality. I mean, down payments these days for a very average home are over $200,000, let alone the final price. So why are these numbers so small?

Mike Moffatt: So the short answer here is inflation. And they recognized at the time that this would be a problem. So when Michael Wilson was designing the GST in the Mulrooney government, he actually said that, ‘Hey, we're going to have to update this every two years for inflation. We're going to have to update these thresholds.’

Well, the GST came into effect in 1991. In 1993, there was an election, the Progressive Conservatives lost and the Liberals won. And Michael Wilson wasn't around anymore to fulfill his own promise. And the incoming government just kind of abandoned it. So this rebate basically was never adjusted for inflation.

And back in 1991, everyone who bought a new home - and I shouldn't say everyone who bought a new home, it's only people, owner-occupiers of new homes - almost all of them qualified for the rebate.

In Ontario in 2023, we got some data from the CRA. Only 2,000 home purchasers qualified for that rebate, despite the fact we built something like 75,000 homes. They either didn't qualify because it was a rental or because they weren't an owner-occupier. But the biggest reason why is that nothing under 450,000 exists.

We don't have geographic data on this. But I would guess that those 2,000 homes are probably in Northern Ontario where home prices are still relatively reasonable.

But that's the short answer. It's inflation. We had this system that worked back in the 1990s, but we never adjusted it for inflation.

A piece that I wrote on Substack, we call this a vestigial tail. It's something that evolution has rendered kind of useless. That we have a rebate that on paper you can qualify for, but in practice, in reality, at least in Ontario, nobody gets the federal rebate.

Sabrina Maddeaux: That is wild to me that it hasn't been updated for inflation, let alone, and I think the key here is asset inflation, specifically home price inflation, which has far outpaced regular inflation. I mean, just even the last few years, you were seeing home price increases 10%, 20% in some jurisdictions. Meanwhile, this limit has stayed exactly the same.

But shifting gears a bit, as part of Bill C-4, which is the federal government's Making Life More Affordable for Canadians Act, that would introduce a new GST rebate, but only for first-time homebuyers. How exactly would that one work?

Mike Moffatt: Yeah, so they're basically taking the current system, which, again, is only for owner-occupiers and so on, but they're introducing a new category, a first-time homebuyers category. And how it would work is that they're offering a 100% rebate on homes under a million dollars. Since we have a 5% GST, that means that you would get $50,000 off the price of a home that's priced at a million dollars. Between a million and a million five, it kind of phases out over time. That $50,000 reduces. Once you hit 1.5 million, it goes down to zero.

So this is fantastic. It lowers the price of a new home. It's really important to recognize that GST is only assessed on new homes. So that's why new homes would get the rebate. So overall, that sounds great. Okay, let's give first-time homebuyers a break. But the problem is it misses important groups. It misses what our colleague at MMI calls second-time homebuyers. Those folks who bought a condo, but they want to start a family, they want to have kids, they want to go into something larger, and they're just priced out. It blocks them. But it also blocks the seniors who are downsizing, who might want to buy something smaller. Because if you think about it, if you are a senior, you're living in your home - it's like, yeah, okay, fine - you've got 40 years of capital gains and that's great, but you might want to downsize. You look at the math and go ‘Okay, let's say I buy a new condo in Toronto. I'm going to get hit with an 8% PST, 5% GST, 2% provincial land transfer tax, and a 2% municipal land transfer tax. So I'm paying 17% tax up front to downsize.’ And we wonder why seniors don't downsize!

Nobody is going to voluntarily pay a 17% tax. People will just say, ‘Well, look, I'll just stay in this giant home that I'm in and continue to get the capital appreciation from it rather than getting dinged by this level of tax.’

And the ironic thing is that because seniors don't downsize, those first-time homebuyers don't become second-time homebuyers, which clogs up the system, and it actually prevents more first-time homebuyers from getting into the market. So one of the best things that we can do for first-time homebuyers is help those second-time homebuyers, actually help those downsizers go into newly constructed homes, and that just helps the whole system work together.

Sabrina Maddeaux: Yeah, you're right. It's a chain effect. And one of our big issues is you have all these seniors sitting in these family-sized homes in the suburbs without families in those homes anymore. So, how do you actually get them to downsize?

I think this is a good incentive. And you're bringing more supply online, which trickles down, right? And we have been critical before on this podcast of that $1 million to phasing out to $1.5 million limit, because you look at areas like Toronto, like the GTA, that's still very limiting in terms of what you can buy. And so many people who have been shut out for their 20s, their 30s, and are maybe looking for their first home when it's time to have a child, or a second child even, there's just nothing in that price range that makes sense for them.

Most people aren't necessarily starting with that bachelor pad or one-bedroom condo than working their way up anymore. They're starting at a later rung on the ladder.

Now, you've been quite active in the media and on Substack, calling on the federal government and provincial governments to introduce more generous GST rebates. What exactly would you like to see happen?

Mike Moffatt: Yeah, I think this is one of the best ways that we can get more homes built. Because we have to recognize that the GST is a construction tax because it only applies to new homes. So the goal here should be to reduce the cost of home building to get more homes built. The GST is one of the cleanest, fastest ways to do that by reducing it by offering rebates. So what I'd like to see is the federal new homebuyers plan extended to all owner-occupiers, just like the existing rebates are. And I'd like to see this both federally and provincially. So I'd like to see the feds reform, but I'd like to see the province match as well. Because if they do that, if they go to the full 100% on a million-dollar home, you're knocking 13% off the top. And we have a Substack post, and we'll link to in the show notes, that shows that this will knock off $100,000 on a $900,000 home instantly. And that even includes the effect of eliminating the old rebates and making them more generous.

So overnight, a $900,000 home, a new home, became an $800,000 home. If you do that, you are going to get a lot more new homes built because there are a lot of folks who can't qualify for a mortgage at nine, but they might be able to at eight. So you're going to see more developments happen, more sales of new homes, more supply coming to the market. So I think this is the biggest single thing that the federal and provincial governments can do to get shovels in the ground right now.

Governments have all kinds of great plans on building Canadian homes and this and that. None of that is really going to make a difference in the next three to five years. But you could eliminate the GST tomorrow, or you can make these rebates on the GST more generous tomorrow and start getting new construction right away.

Sabrina Maddeaux: Okay, but here's the big question. Do you actually think there's a chance this will happen?

Mike Moffatt: I do. I'm an optimist by nature. I think that's part of the gig here.

The federal government has been reluctant to do so. But I do think if housing starts continue to fall, if things get weaker in Toronto, in Vancouver - we've had announcements of layoffs in the home building industry in both Toronto and Vancouver in recent weeks. If that continues to get worse, I don't see how the federal government can't act and do something.

Now, provincially, this gets really interesting. And I want to give a shout out to Barbara Patricinio at QP Briefing, who's done some really wonderful work on this and has asked Premier Ford at several press conferences if he would consider doing this. And interestingly, he didn't say “no.” What he's been saying very consistently is ‘If the feds do it, we'll do it.’ That they don't want to go solo, but they would match a federal rebate.

And I get the sense right now, it almost feels like the federal government and provincial governments are playing chicken a little bit. So it'll be interesting to see who blinks first. But I really think that this is going to happen.

I do have some knowledge of how the federal government works. I have less insights to either the provincial government or in general conservative thinking. But luckily, you're closer to conservative politics than I am. So, my view, as a failed liberal academic, I think this is a no-brainer for the Ford government.

So I'm going to flip the question. Do you think there's any chance they'll move on this?

Sabrina Maddeaux: I do think there's a good chance. And I actually like that he's pressuring the federal government to move on it alongside him, because that's where you're really going to get the impact, right? You need all levels of government working hand in hand. And if he can push the federal government to do this, because he's a popular politician who obviously gets a lot of media clips, and Carney has talked a lot about housing and wanting to make it more affordable, then this is the time for Carney to step up and take this offer. And hopefully they both go for it.

I think that this is certainly an easier move to affordability than some other options. When they're talking about zoning reforms or the Green Belt, there's a lot more public opposition to those things. And I'm sure they get a lot more angry letters - now, I think they should ignore those angry letters as well - but this is one where they can probably make a fairly sizable difference without too much public pushback. So I would say chances are good.

Now, there have been, though, some concerns in the media that more generous rebates could be inflationary or that they're just going to add even more demand into the system. Is this a legitimate concern in your view?

Mike Moffatt: Yeah, I see where people are coming from. But I think we really need to distinguish between programs that incentivize people to buy any home and programs that are laser-targeted at new housing. I think that's a very important distinction. If this were a rebate that applied to everything. I think that would be an issue. And we need to make that distinction, and we have a piece in the sub-stack that talks all about it. And I'll use an example here. Let's say the federal government had some kind of tax incentive program for people to go out and buy vintage baseball cards like this 1967 OPG Mickey Mantle.

Sabrina Maddeaux: Any opportunity to bring out the baseball card, Mike?

Mike Moffatt: Any opportunity to flash a baseball card. This is from 1967. They're not making any more of these.

So, if you give some kind of beneficial tax treatment or tax savings, that will increase the demand for that and cause the price to go up because there is a limited supply. But there's not a limited supply of new housing. New housing is a function of cost. And at the end of the day, the GST acts as a construction tax. If you lower that tax, you lower the cost of construction, and you get more new homes built. And I think that's the important piece.

We have to make sure that all of those other things are in place to allow new construction to happen. So we've got to continue working on approvals processes and land use policies and so on. All of that needs to happen. But because this is laser-focused on new housing and laser-focused on reducing the cost of construction, this is not one of those pure-play demand-type policies that really ramps up the price of existing homes. If anything, it lowers the pressure on existing homes because you're making new homes cheaper. You go, ‘Well, okay, why would I buy that existing home if now I get $100,000 off the new home?’

So I get where people are coming from, but this really has supply-side impacts. This is not just about juicing demand.

Sabrina Maddeaux: Well, we'll see if Carney takes forward up on his offer and if we get any movement soon.

Thank you so much, everyone, for watching and listening and to our amazing producer, Meredith Martin.

Mike Moffatt: And if you have any thoughts or questions about the 1967 Mickey Mantle O.P.G. Baseball Card, please send us an email to [email protected]

Sabrina Maddeaux: And we'll see you next time.