The Federal Government Should Go Further on their New Housing GST Rebate
Failing to do so would be a missed opportunity
Highlights
Yesterday, a consortium of housing groups, including MMI, sent an open letter to the federal government with a series of recommendations on how to structure a GST rebate for housing, including the removal of a first-time homebuyer requirement. (Read the letter here)
Coincidentally, mere minutes later, the federal government released details of their GST plan for housing. As expected, it contains a first-time homebuyer requirement, which blunts the effectiveness of the measure.
We make four recommendations to the federal government.
Remove the first-time homebuyers requirement, instead retaining the restrictions from the existing GST rebate.
Allow the rebate to apply to homes where possession and ownership have not yet transferred.
Commit to further enhancements, such as inflation indexing.
Encourage the provinces to expand or introduce similar rebates on provincial sales and property transfer taxes.
Making a good GST rebate great
Yesterday, the federal government announced the details of their proposed First-Time Home Buyers’ GST Rebate. This was bittersweet for the MMI team, as we believe it is a move in the right direction, but it does not go nearly far enough to meet the federal government’s housing ambitions. The proposed plan would “provide for a rebate of 100% of the GST on new homes valued up to $1 million…[and] would be phased out in a linear manner for new homes valued between $1 million and $1.5 million.” Unlike the existing GST Rebate, only first-time homebuyers would be eligible.
Limiting the rebate to first-time homebuyers nerfs its effectiveness, as we wrote during the campaign:
Because the GST only applies to new housing, it acts as a development tax (or, if you prefer, a development charge), increasing the cost of homebuilding and causing fewer homes to be built. While both the Liberal and Conservative moves are being framed as reducing the price of homes by 5%, the supply-side effects are vitally important.
The Liberals have limited their plan to first-time homebuyers. In our view, this is a mistake. The goal should be to increase the supply of housing, and such a restriction limits the effectiveness of the program. For example, the existence of the GST on housing discourages seniors from downsizing from their larger suburban homes to smaller, newly constructed senior-friendly housing. By eliminating the GST on housing, we can get more of these senior-friendly homes built and free up larger suburban homes for the next generation of families.
Earlier in the day, a consortium of housing-related groups (see below) sent an open letter providing advice to the federal government on how to implement the GST rebate. MMI was honoured to be included in that letter.
There are four pieces of advice that we believe are still relevant, that we hope the federal government acts upon:
Remove the first-time homebuyer restriction on the rebate. The federal government should take the existing rebate (which requires the home to be used as a primary residence, not an investment property), raise the lower threshold from $350,000 to $1,000,000, raise the upper threshold from $450,000 to $1,500,000, and increase the maximum rebate from 36% to 100%. Adding a first-time buyer restriction is unnecessary and limits the measure's impact.
Make the rebate apply to homes that are currently under construction and those that are complete and unsold. This would ensure the next round of construction can occur as quickly as possible. The existing GST190 Calculation Worksheet has a line that reads “…if the house is located in Nova Scotia, and both possession and ownership of the house were transferred on or after April 1, 2025”. A similar condition can be applied to this rebate, allowing homes where possession and ownership have not yet taken place to qualify.
Commit to further enhancements. Recognize that even these thresholds may not fully address affordability in high-cost regions or future price growth. Implement threshold increases now and launch consultations on inflation indexing and regional adjustments.
Encourage provincial action. Urge provinces to adopt or expand similar rebates, including relief from sales taxes and land transfer taxes on new homes.
We are cautiously optimistic that the government will consider this advice as one step, among many, to help restore the dream of homeownership in Canada.