Category: Commodity Tax (HST)

Common GST/HST Audit Issues in 2025

Posted on by Edixon

GST/HST (Commodity Tax) remains complex and can lead to audits or penalties if not handled by knowledgeable professionals. These are the most frequent audit red flags we see:

  1. Claiming Input Tax Credits (ITCs) without Proper Documentation
    • Ensure vendor invoices include a valid GST/HST number. Request corrections if missing.
    • Credit card statements alone are not acceptable proof.
    • CRA does not permit amending returns solely to claim additional ITCs—missed amounts must be added to a future return.
  2. Invoices Made Out to the Wrong Entity
    • ITCs cannot be claimed by an operating company using a holding company’s invoice.
  3. Intercompany Transactions: Section 156 Elections & Form RC4616
    • A controlling interest alone doesn’t qualify. A 90% ownership threshold (parent/sub relationship) is typically required.
  4. Claiming ITCs for Exempt Revenue
    • No ITCs can be claimed on expenses related to exempt supplies (e.g. residential rent, financial services).
  5. Self-Assessment Errors on Real Estate Acquisitions
    • Scenario A (commercial use): Full ITCs may apply; failure to self-assess could lead to interest reassessment by CRA.
    • Scenario B (exempt use): No ITCs allowed, and HST is owed. Omitting self-assessment still results in interest/penalties.
  6. Overclaiming ITCs on Meals, Entertainment, and Passenger Vehicles
    • Meals and entertainment expenses: Only 50% of ITCs are eligible.
    • Passenger vehicles: ITCs capped at GST/HST on a $38,000 capital cost (up from $37,000).
  7. Failure to Charge GST/HST on Asset Sales
    • Businesses must charge GST/HST when disposing of commercial-use assets.
  8. Updated Invoice Requirements for ITCs
    • Thresholds for invoice detail requirements increased to $100 and $500 depending on expense type.
Important Notes Related to Electronic Filing and Correspondence:

All registrants are required to file GST/HST returns electronically for periods starting in 2024 and onward.  The CRA now defaults to online communications via My Business Account for registrant correspondence. Ensure contact information is up to date.

If your business is faced with a Commodity Tax audit, we can help.  Please contact one of our taxation specialists.

 

GST/HST Implications on Associate Agreements

Posted on by Edixon

Associates are a key part of the healthcare industry, as a large majority of practitioners either are one or have hired one throughout their careers.  It can be a way for someone to gain experience as they start their career or a viable way to mitigate some of the hard costs that go along with running a practice.  As part of this process, practitioners and their associates arrange some form of fee-sharing arrangement with each other to account for the fact that the associate typically must directly bill and collect their OHIP revenues, but also has use of the main practitioner’s office space in order to generate those revenues.  While this arrangement may be somewhat formal in the eyes of the practitioner and associate, it is commonly a verbal agreement and therefore can create some complications, especially when it comes to GST/HST (“HST”) rules.

The starting assumption made by most involved in these fee-sharing arrangements is frequently that since the healthcare services provided to the patients by the associate are HST exempt, the revenues from these services that are transferred in either direction under the associate agreement would also be considered HST exempt.

However, it needs to be considered what the associate is actually paying the main practitioner for and what kind of support exists for that.  The Canada Revenue Agency (CRA) has taken the position in a number of instances that these associate fee payments are effectively rent/admin type fees that the main practitioner is charging the associate for use of the clinic space and therefore there is to be HST charged on this amount, as that is a taxable supply.  The CRA has said that only if there is a bona fide arrangement between the two parties that shows this is simply a fee-sharing arrangement, then HST can be avoided. 

As we have found, many healthcare professionals do not have adequate associate agreements in place to support the “fee sharing” position and avoid potential HST reassessments by the CRA.  In this situation, the more conservative approach is to charge the HST and then have the payor register for HST to at least recover a portion of this cost. 

To avoid these difficulties, healthcare practitioners should consider looking at the associate agreements that they have in place to determine if changes should be made.  Qualities of a valid bona fide arrangement are that it:

  • Is a written document signed by both parties involved and is not just verbal;
  • Clearly states that the arrangement is an apportionment of the fee for the healthcare service provided to the individual patient;
  • Should not refer to any of the fee-sharing amounts as payment for use of facilities by the associate;

Lastly, many associate agreements have slightly different terms, depending on the situation.  This could include the agreed-upon percentage of fees to share, further revenues to be shared in addition to the healthcare billings, which party is making the payments, and how frequently the payments are being made.  Most of these differences will not have an effect on the HST obligations, but care should be taken to examine all revenue sources included in the agreement as certain types may in fact require HST to be charged.  For example, an optometrist associate may receive a percentage of the net revenues generated from their sale of eyeglass frames to patients, which is a HST taxable supply.  Therefore that portion of the associate agreement will require HST to be charged and remitted if the principal party is a HST registrant.

Consider involving your lawyer and one of our Professional Specialists in this process to obtain a template agreement and ensure that your agreement will meet the CRA requirements.

My Business Account: No More Paper Mail

Posted on by ssiconolfi

In the Spring of 2025, CRA will change the default method of correspondence for most businesses to online only.  This means that most businesses will receive their notices of assessment, letters, forms, statements, and other documents from CRA through My Business Account rather than by traditional mail. Notifications that new mail is available online will be sent to the email address(es) registered on My Business Account. Business correspondence will be presumed to be received on the date that it is posted in My Business Account.

This change will apply to all of the following:

  • existing businesses registered for My Business Account;
  • businesses who have a representative that access taxpayer information through Represent a Client; and
  • all entities that register for a new business number or program account.

CRA recommended taxpayers sign in to My Business Account to ensure the email address on file is current. There can be up to three email addresses for each program account.

Owners of new businesses should ensure to register for My Business Account and provide a valid email address to ensure that they do not miss notifications or correspondence from CRA.

Impacted businesses can continue to receive paper mail by opting out of the online default by taking one of the following two actions starting in May 2025:

  • selecting paper mail as the delivery option in My Business Account; or
  • filling out and mailing Form RC681 – Request to Activate Paper Mail for Business to CRA.

No information was provided on the required lead time to avoid the transition and continue to receive traditional mail.

This change will not apply to the following who will continue to receive traditional mail:

  • existing businesses not registered for My Business Account through the business owner or an authorized representative (via Represent a Client);
  • charities, unless they sign up to receive online mail; and
  • non-resident businesses that do not have access to My Business Account through their representative or an owner who is a Canadian resident.

Ensure that your email address listed in My Business Account is up to date. Consider opting out of electronic only communications in May 2025, if that is your preference.

GST/HST Tax Holiday: Rebate Applications

Posted on by dflanagan

For the December 14, 2024, to February 15, 2025, period, certain items normally subject to GST/HST should not have GST/HST applied at the point of sale. Businesses selling these goods can still claim input tax credits for the GST/HST they paid on inputs acquired to supply the good, as they are zero-rated.

The types of items covered by this temporary measure include (but are not limited to):

  • children’s clothing, footwear, diapers, and car seats;
  • select children’s toys, jigsaw puzzles, and video games/devices;
  • printed newspapers and books;
  • Christmas and similar decorative trees; and
  • various foods and drinks (including some alcoholic drinks), including but not limited to those provided at establishments like restaurants.

If GST/HST is mistakenly charged on the purchase of one of these goods, the purchaser can request a refund directly from the supplier.

If the supplier does not provide a refund or is no longer in business, the purchaser can apply to CRA for a GST/HST rebate (minimum claim is $2) using Form GST189: Rebate under reason code 1C, “Amounts paid in error.” The application must be filed within two years after the date the amount was paid in error. CRA has suggested that a purchaser consolidate all their claims (including associated receipts) and submit a single rebate application after the GST/HST break period is over.

Ensure to keep receipts for purchases where GST/HST was charged improperly. Multiple claims can be included in a single rebate submission.

Key Tax Measures in 2024 for the Real Estate Market

Posted on by RSM US LLP
Executive summary

The Canadian real estate sector is navigating a period of significant tax reforms, aimed at curbing speculative investments, promoting housing affordability, and encouraging sustainable construction. Real estate stakeholders should be mindful of pivotal changes that will impact tax compliance obligations.

Key changes include an increased capital gains inclusion rate, a new withholding tax for non-residents, and the introduction of the Underused Housing Tax (UHT). Recent property flipping rules and limitations on short-term rental deductions may impact investment decisions, while new GST/HST rebates are set to offer substantial financial relief for builders.

This article delves into these critical tax measures, providing strategic insights to help real estate clients navigate the evolving landscape while staying ahead of expected changes in 2025.

 

The Canadian tax landscape for the Real Estate (RE) sector has experienced significant shifts, reflecting targeted measures to address skyrocketing housing prices, discourage speculative investment, promote housing affordability, and support sustainable construction. RE clients must prepare for critical tax changes and new compliance requirements that could impact their 2024 filings.

The 2024 tax amendments bring both challenges and opportunities for RE clients. While these changes pose compliance challenges, they also present opportunities for those who adapt proactively. By understanding the key changes and implementing strategic adjustments, stakeholders can navigate the complexities of the new tax landscape while optimizing their financial outcomes.

This article outlines key tax measures introduced in 2024 that affect middle-market RE clients, recent legislative amendments, and practical strategies to navigate these changes effectively.

Changes to the capital gains inclusion rate

Budget 2024 introduced several tax measures aimed at enhancing access to affordable housing for Canadians. One of the most notable amendments is the increase in the capital gains inclusion rate (CGIR) from 50% to 66.67%, effective June 25, 2024, resulting in higher tax liability for the taxpayers disposing of the assets on or after the effective date.

In addition, w.e.f. Jan. 1, 2025, non-residents disposing of their taxable Canadian property (TCP) will face an increased withholding tax rate of 35%, up from the current rate of 25%.

Taxpayers who have disposed of the assets after the effective date must be prepared to pay increased taxes when filing their income tax returns next year. In addition, non-residents planning to sell TCP must consider completing the transaction before the end of 2024 to benefit from the lower withholding tax rate.

Underused housing tax (UHT)

The UHT targets vacant and underutilized residential properties (RPs) held by non-residents and/or non-Canadian entities. UHT requires affected owners to file a return annually and pay a one per cent tax on the property value if the affected owner doesn’t qualify for an exemption. The 2023 federal economic statement exempted unitized (“condominiumized”) apartment buildings from the UHT regime. In addition, starting in the 2024 tax year, individuals or spouses can claim an exemption for only one vacation property under the UHT.

Taxpayers with multiple vacation properties should evaluate their RE holdings to assess which property is most beneficial to claim under the exemption. Furthermore, taxpayers need to recognize that the UHT is a federal tax, unaffected by provincial or municipal taxes. If their property is also subject to local vacancy taxes, they could incur additional liabilities.

Property flipping rules

Effective from Jan. 1, 2023, federal property flipping rules tax gains from selling RPs held for less than 365 days as business income, disqualifying them from taking advantage of the principal residence exemption (PRE) or the lower CGIR in comparison to the marginal tax rate. Sales arising due to life events such as death, marital breakdown or disability may be exempt from such tax implications, but intent remains crucial.

Therefore, the sale of RP due to financial hardship may be exempt from the property flipping rule, but the profits from the disposition may still be classified as business income rather than a capital gain if the property was acquired with the intent to resell for profit, regardless of whether the sale was driven by financial hardship or insolvency.

British Columbia’s home flipping tax (BCHFT)

Similarly to the federal property flipping rules, effective Jan. 1, 2025, BCHFT imposes a separate tax on RPs sold within 730 days of purchase. The BCHFT imposes a 20% tax on sales within the first year, decreasing thereafter, and requires a distinct return to be filed within 90 days of sale.

Taxpayers in BC must evaluate the implications of the BCHFT and federal rules before selling RPs. Taxpayers must consider delaying the sales beyond the two-year threshold to avoid the higher taxes altogether.

Denial of deductions for short-term rentals (STRs)

In an effort to address the housing crisis by disincentivizing STRs and encouraging long-term rentals, deductions for expenses incurred on non-compliant STRs, such as Airbnbs, are denied effective Jan. 1, 2024, if they violate local regulations. Non-compliant STRs are defined as properties rented for less than 90 days that either:

  • are located in regions where STRs are not permitted or
  • do not meet local registration, licensing or permit requirements.

Taxpayers must ensure compliance with all local regulations to remain eligible to claim for tax deductions related to STRs. For this, the taxpayers may need to modify the rental durations or terms of the rental agreement. In addition, taxpayers planning to sell the properties used for STRs must consider the revised CGIR and any GST/HST implications on the sale. Taxpayers must also keep records of licenses, permits and other relevant documents to substantiate tax positions.

GST/HST new residential rental property (NRRP) Rebate

Effective 2024, the GST/HST NRRP rebate offers landlords and builders full GST relief on qualifying residential rental properties, especially purpose-built rental housing (PBRH). Projects with a fair market value (FMV) under $450,000 are eligible, with a full rebate available for projects having an FMV below $350,000. However, for PBRH projects starting between Sept. 14, 2023, and Dec. 31, 2030, and completed by Dec. 31, 2035, the GST rebate will be 100% irrespective of the FMV, thereby eliminating GST on these projects.

The rebate offers financial assistance to builders of new rental housing. To maximize rebates and minimize self-assessed GST/HST liabilities, builders must maintain accurate records, seek professional appraisals, and comply with the Canada Revenue Agency (CRA) guidelines. Builders required to self-assess and pay GST/HST based on the FMV of the property can now back out GST/HST from the appraised FMV, reducing both the self-assessed GST/HST and any related rebates.

Excessive interest and financing expenses limitation (EIFEL)

The EIFEL rules limit the amount of interest and financing expenses that can be deducted for tax purposes, aiming to prevent excessive deductions that reduce taxable income. Middle-market RE taxpayers should assess the impact of EIFEL rules on their investment structures to avoid denied interest expenses or penalties. Areas of focus may be the use of partnerships in RE development or investment, non-residents with Canadian RE, and sector-specific exemptions.

Foreign accrual business income (FABI)

The new FABI and FABI surplus election regime proposes tax-saving opportunities for Canadians earning RE income through foreign subsidiaries, possibly leading to a neutralization of tax that otherwise would be recognized in Canada on a current basis, and on the repatriation of profits to Canadian shareholders. Although the rules are not enacted yet, middle-market taxpayers with RE operations abroad should be mindful of these changes, and the deadline to file various elections, which could increase deductions against both foreign accrual property income and foreign dividends reported in prior tax years.

Disclosure requirement for RE trusts

Enhanced disclosure requirements for RE trusts now mandate detailed reporting of income distributions and beneficiary information. While initial rules broadened T3 filing obligations for trusts, CRA has since narrowed their scope through proposed amendments issued on Aug. 12, 2024.

From challenges to opportunities

Initiatives like the UHT, property flipping rules and STR deductions, combined with tax relief for new rentals and Budget 2024 strategies, are vital for taxpayers. However, ongoing adaptation and strong partnerships between government and private sectors are crucial to translating these measures into meaningful results for Canadians. Stakeholders must remain informed to navigate and contribute effectively.

Looking ahead in 2025

As we step into 2025, the RE sector is poised to navigate further changes in the tax landscape. The anticipated rollout of green incentives for energy-efficient buildings, discussions around potential adjustments to capital gains inclusion rates and targeted policies addressing housing affordability could shape RE transactions and investment strategies. Additionally, increasing penalties for non-compliance with federal and provincial reporting obligations highlight the need for meticulous record-keeping and proactive tax planning. As evolving regulations will likely continue to influence planning opportunities and compliance obligations in this dynamic sector, taxpayers must take timely action.

This article was written by Chetna Thapar, Nicole Lechter, Mamtha Shree, Neil Chander and originally appeared on 2024-12-02. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/services/business-tax-insights/key-tax-measures-in-2024-for-the-real-estate-middle-market.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

GST/HST New Residential Rental Property Rebates – Where Do We Currently Stand?

Posted on by dflanagan

On September 14, 2023, the Department of Finance announced a new enhanced GST/HST New Residential Rental Property Rebate (“NRRPR”) for certain New Purpose-Built Rental Housing (“PBRH”).  The purpose of the enhanced rebate is to provide relief on the GST costs related to building new residential rental properties in order to assist with stimulating build of PBRH.

Background

The rental of a residential complex or a residential unit in a residential complex is generally exempt for GST/HST purposes. Therefore, builders cannot claim HST paid in relation to these properties.  Typically, the major GST/HST cost is 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 builders can file for 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 (“FMV”) of the property exceeds $350,000 (no NRRP Rebate is available if the fair market value is $450,000 or more).  Further, the Ontario NRRP Rebate becomes capped at $24,000, which can result in significant GST/HST costs to builders.

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.

PBRH – What Properties Qualify?

The PBRH Rebate is only available for a residential unit that qualifies for all the following conditions:

  1. Construction has begun after September 13, 2023, and on or before December 31, 2030;
  2. Construction is substantially completed by December 31, 2035; and
  3. 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% of residential units designated for long-term rental.

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).

The purpose of this legislation is to increase the supply of new residential properties, therefore, existing residential complexes that undergo a substantial renovation do not qualify for the PBRH.

What is Considered “Construction” to the Canada Revenue Agency (“CRA”)?

Those involved in the construction industry will know there are various stages of “construction”, and this is a crucial element of builders being eligible for the PBRH.  The term “construction” is not defined in the Excise Tax Act (“ETA”) which has left many builders wondering what CRA considers “construction”.

On June 20, 2024, the CRA published new GST/HST Notice 336 (“336”). Included in 336 is the CRA’s comments and administrative view that states CRA’s position is that the construction of a residential complex is generally considered to begin at the time the excavation work pertaining to the property. CRA also implies that the signing of a purchase and sale agreement relating to a newly constructed units prior to September 14, 2023, would not prevent the builder’s eligibility for the PBRH Rebate if the construction of the complex began after September 13, 2023, but before 2031. CRA also confirms that newly constructed long-term care facilities that otherwise meet the relevant conditions would be eligible for the PBRH Rebate.

Although the CRA announcement from June of 2023 is welcomed, there is still remains some subjectivity.  The CRA announcement is an administrative position, meaning, it isn’t legislation – which comes with some element of risk.  For instance, there are many stages of excavation work, including the initial clearing of land.  It appears that further clarification will still be required, which will likely come in the form of taxpayer’s disputing what “construction” is, as CRA challenges these rebate filings.

 

How Does GST/HST Apply to Airbnb/Short-term Rentals?

Posted on by Edixon

The popularity of Airbnb, short-term rental pools for cottages and vacation properties continues to grow.  One aspect of venturing into the short-term rental game is how GST/HST applies.  The volume of rental income and the length of the rentals is the determining factor on whether you will need to charge GST/HST.

Essentially, long term-rentals are exempt from GST/HST, while short-term rentals are subject to the tax.

What is considered a short-term rental?

A short-term rental is generally one where the period of occupancy is less than one month and the consideration for the supply is more than $20 a day.

Am I considered a small supplier?

If you are supplying short-term rentals, you will need to determine if you are considered a small supplier for GST/HST purposes.  A small supplier is one whose worldwide annual GST/HST taxable supplies, (including zero-rated supplies and including the sales of any associated parties) are less than $30,000, or less than $50,000 for public service bodies (colleges, non-profit organizations, charities, hospitals).

One of the most common oversights we see is forgetting to include any other associated business revenue into the small supplier test.

Should I voluntarily register for GST/HST?

If you are under the $30,000 of taxable supplies for your associated group, you can elect to voluntarily register for GST/HST.  The benefits of this would be to enable the claim of any GST/HST paid on expenses related to your short-term rental income.  It may also permit you to recover some or all of the GST/HST you may have paid on the unit.

But be aware – if you choose to register, you will be required to collect and remit the GST/HST on your short-term rental income.

There are many factors to consider when venturing into this market; especially if you will be using a portion of your principal residence.

ENHANCED GST RESIDENTIAL RENTAL REBATE: Increased Incentives

Posted on by Edixon

On September 14, 2023, the Department of Finance provided details on a proposal to enhance the existing GST rental rebate. In general, the existing rebate provides a 36% rebate of the GST component of the price paid by landlords to construct, or purchase newly constructed, rental property. The existing rebate begins to be phased out for properties valued at over $350,000 and is eliminated at $450,000.

The proposal would increase the rebate from 36% to 100% and remove the phase-out thresholds for properties with a value over $350,000. The proposal would apply to certain rental housing projects that begin construction between September 14, 2023, and December 31, 2030, inclusive, and complete construction by December 31, 2035.

To qualify for the enhanced rebate, new residential units would need to meet the requirements for the existing rental rebate and be in buildings meeting the following criteria:

  • the property must contain at least four private apartment units (units must have a private kitchen, bathroom, and living area) or at least 10 private rooms or suites (examples of residences for students, seniors, and people with disabilities were provided); and
  • at least 90% of the residential units in the building must be designated for long-term rental.

Projects that convert existing non-residential real estate, such as an office building, into a residential complex would also be eligible if all other conditions are met. Public service bodies would also be eligible to access the enhanced rebate.

The enhanced rebate will not apply to other properties, such as individuallyownedcondominiumunits, single-unithousing, duplexes, triplexes, or housing co-ops; however, the existing rebate would still be available. Substantial renovations of existing residential complexes would not be eligible.

On September 21, 2023, the Bill to enact these measures was introduced in the House of Commons. This Bill did not include all the criteria for eligible projects but provided that the remaining specifics would be set by regulation in the future.

ACTION: If involved in developing multi-unit residential rental property, consider whether you are eligible for this enhanced GST rental rebate.

Association and HST

Posted on by Edixon

In the tax world, association can have a significant impact on your income taxes, but it can also impact your GST/HST as well.   When it comes to having to register for GST/HST, the small supplier threshold of $30,000 (or $50,000 for public service bodies) applies to a company and its associates.  Association is defined in section 127 of the Excise Tax Act (ETA) and subsections 256 (1) to (6) of the Income Tax Act (ITA).  The rules of association for ITA purposes can be found at:  http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-256.html

When it comes to association and GST/HST, a common error is not factoring in all of the taxable sales of all associated parties when looking at the small supplier test.  Unlike the ITA definition of association, which applies to corporations only, the ETA extends this definition to apply to other persons (such as individuals).  It is common for an individual who controls a corporation to charge management fees or commercial rent to their corporation.  Assuming the corporation they control is not a small supplier, due to the association rules, these fees would be taxable for GST/HST.  Having the individual registered and charging for these services is often overlooked on the incorrect assumption they are not taxable if under $30,000 of taxable supplies.  Please note the appropriateness and income tax consequences of such management fees are beyond the scope of this article.

It should also be noted that, as a trust and a partnership is a person for GST/HST purposes, they should also be factored into association with any corporations with common ownership.

If you have a corporate group with transactions amongst all of the entities and shareholders, it would be prudent to have a GST/HST review done to ensure that all taxes are being charged appropriately.

Removal of GST on Purpose-Built Rentals in Canada

Posted on by Edixon

In a significant step toward improving housing affordability and accessibility, the Canadian government recently announced the removal the Goods and Services Tax (GST) on purpose-built rentals.  The GST is being removed by an increase to the GST New Residential Rental Property rebate from 36% to 100%.

Why Remove GST on Purpose-Built Rentals?

The decision to eliminate the GST on purpose-built rentals stems from the government’s commitment to address the housing crisis in many parts of Canada. High housing costs and limited availability have made it increasingly challenging for individuals and families to secure housing. Removing the GST on purpose-built rentals helps contribute to making housing more accessible and affordable for Canadians.

Impact on Property Developers

For property developers, the removal of the GST on purpose-built rentals encourages investment in rental properties, which were previously seen as less profitable due to the GST and HST burden, as neither were fully recoverable and therefore resulted in sunk cost.

This move could lead to an increase in the construction of purpose-built rental units, thus expanding the housing supply and helping to meet the growing demand of Canadians.

Impact on Renters

Canadian renters, especially those in urban areas, have grappled with the rising cost of housing. By eliminating the GST on purpose-built rentals, the government is helping to ease the financial burden on renters. This move will likely result in more affordable rents.

Important date – the enhanced rebate will apply to projects on or after September 14, 2023, and on or before December 31, 2030, and complete construction by December 31, 2035.

While this policy change alone may not solve all housing-related challenges, it is a step in the right direction.