Removal of GST on purpose-built rental addresses long-standing barrier

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By Nicole Storeshaw, Director, Government Relations, CHBA

After years of consistent advocacy from the Association and our members, the federal government announced the removal of the Goods and Services Tax (GST) on purpose-built rental (PBR) projects as of Sept. 14, 2023. This measure will go a long way to improving the viability of PBR, an important part of the housing continuum. Even before the onset of higher interest rates, the previous
business model for PBR simply did not make financial sense compared to condominium projects.

“High interest rates have further eroded the practicality of purpose-built rental projects, shelving much needed new housing supply. The elimination of the GST should help get those projects back on track,” says CHBA CEO Kevin Lee. “This is something that has been so important to our developer members that CHBA made it a key feature of our Day on the Hill in May, as well as in our pre-budget submission. We are very pleased that the federal government has removed a large barrier that contributed to supply challenges.”

With the elimination of the GST on PBR at the federal level, it will now be very important that provincial governments follow suit with their own taxes on PBR. Currently, Ontario and Quebec are the provinces that provide partial rebates for new rental developments. Also very critical is the need for municipalities to reduce their development taxes, not only on PBR but on all housing.

Next steps

While the home development industry is pleased to see the removal of the GST, the sector is disappointed that the government’s announcement did not include projects already underway when the announcement was made. By not applying this to PRB projects currently under construction, it puts those projects under risk of potentially being converted into for-sale condominium business plans mid-construction because of the current high interest rate environment.

In other instances, construction has started and then stopped given the pressure from costs and interest rates. A project could be idle for a long period, converted to condominiums/strata, or the site sold. If the removal of the GST is only applied to apartments that have not commenced construction, this new policy will take at least two to three years to take effect given the slow building permit processes in major urban centres across Canada. This does not include planning approval, which adds more time. Construction schedules for rental apartments are also typically one to two years.

To ensure these projects get delivered as rental buildings, CHBA is urging the government to revise the language of the effective date to include PBR projects currently under construction. This will go a long way to getting more PBR projects completed as soon as possible.

The federal government’s announcement on the removal of the GST on PBR has now been drafted into legislation referred to as Bill C-56, An Act to Amend the Excise Tax Act and the Competition Act. The Bill is currently working its way through the House of Commons and will need to go through several steps before it becomes law. CHBA will continue to engage with federal policymakers to encourage necessary changes to the legislation, and the following regulations, to ensure a strong policy that contributes to the building of much-needed purpose-built rental projects.