As a first-time property investor in Canada, you are in for some good news. The Prime Minister of Canada announced the new Goods and Services Tax (GST) Rental Rebate on September 14, 2023. This rebate is applicable only to purpose-built rental housing and aims at reshaping the rental property landscape in the country.
What You Need to Know About the New GST Rental Rebate?
It is a strategic move by the federal government to encourage the construction of rental homes, and address the pressing need for more rental housing in Canada. Types of properties to benefit the most from this rebate include: apartment buildings, student housing, and senior residences.
Key Features of the Rebate:
- Increase in Rebate Percentage: Before the announcement, rebates were capped at 36% but will now cover $100 of the GST/HST payment made.
- Removal of Phase-Out Thresholds: any existing threshold has been omitted.
- Effective Dates: Any projects starting construction between September 14, 2023, and December 31, 2030, and completed by December 31, 2035 are eligible for this rebate.
Let’s calculate this tax relief for a two-bed unit costing $600,000.
Standard GST rate in Canada is 5%.
GST (5% of Purchase Price): $600,000 x 5% = $30,000
Under the enhanced GST Rental Rebate, 100% of the GST paid is eligible for the rebate.
Rebate Amount: 100% of $30,000 = $30,000
Who Qualifies and Who Doesn’t?
To qualify for this rebate, new residential units must be in buildings with at least four private apartment units or at least 10 private rooms or suites, with 90% of units designated for long-term rental. It is also applicable to projects converting non-residential real estate into residential complexes, provided they meet the specified conditions.
However, the enhanced GST Rental Rebate does not apply to individually-owned condominium units, single-unit housing, duplexes, triplexes, housing co-ops, and owned houses on leased land in residential trailer parks.
It is not applicable to renovation of existing properties as it solely focuses on increasing supply for affordable rentals in the market.
Fair Market Value and GST/HST New Residential Rental Property (NRRP) rebate
To calculate the exact amount you’re eligible for, the government uses a term called fair market value (FMV). When you’re a builder of a residential complex or an addition to a multiple-unit residential complex, the NRRP rebate calculation hinges on the FMV of your qualifying residential unit at the time the GST/HST becomes payable on your deemed self-supply. If you’re purchasing a residential complex, the FMV at the time the GST/HST becomes payable on your purchase is used.
The FMV includes the value of the building, the applicable land, and any other structures necessary for the residence’s use and enjoyment. For units with an FMV between $350,000 and $450,000, the rebate is progressively reduced, and no rebate is available for units with an FMV exceeding $450,000. This threshold, however, does not apply to the Ontario NRRP rebate.
How does the Ontario NRRP rebate work?
The Ontario New Residential Rental Property (NRRP) Rebate is a financial incentive designed to offset some of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) paid for new or substantially renovated rental properties in Ontario, Canada.
It is designed to help landlords and investors who construct or purchase new residential rental properties, or who undertake substantial renovations on existing properties.
Unlike the federal NRRP rebate, the Ontario NRRP Rebate may still be available for properties with an FMV of $450,000 or more, subject to a maximum amount.
The rebate is gradually reduced for properties with an FMV between $350,000 and $450,000. Properties up to $350,000 will receive a full rebate.
I hope this blog offers you some clarity on the GST Rental Rebate on New Builds. If you have any questions, please feel free to reach out to me at cnacar.realtor@gmail.com.