Department of Finance releases draft regulation on enhanced GST rebates for new purpose-built rental housing

On December 14, 2023, the Department of Finance released draft regulations (the “Regulations”) intended to clarify the enhanced 100% GST rebate for new purpose-built rental housing. The Regulations will be deemed to have come into force on September 14, 2023. For further discussion on the enhanced GST rebate, see our previous blog post.

The Department of Finance originally announced GST relief on new residential rental construction on September 14, 2023. The core legislation relating to the enhanced GST rebate came as part of Bill C-56, which received Royal Assent on December 15, 2023. Bill C-56 amended parts of section 256.2 of the Excise Tax Act (the “ETA”), and added subsections (3.1), (3.2), and (9.1).

The Regulations set out the “prescribed property” and “prescribed conditions” under which the rebate can be claimed.  While, as expected, qualifying units must be held for rental to residential tenants, it is important to note that the “prescribed property” rule requires the units to form a multiple unit residential complex (“MURC”), as defined in the ETA. This definition may deter BC developers from strata-titling their rental developments (as is common) since a strata-titled development falls outside the definition of MURC and thus will not be eligible for the GST rebate.

The Regulations also relieve a concern arising from the initial rebate announcement in September. Specifically, the rebate requires that substantially all of the units (90% or more) in the MURC be held for residential rentals.  The announcement left open whether the “substantially all test” was to be applied in respect of the building as a whole or just with respect to the MURC within the building.  It is common these days for a condominium development to include a social housing component that exists under a separate legal title, but within which the residential units do not have separate titles.  It is clear now that the separate MURC can qualify for the rebate, despite its location within a condominium or commercial building.

A key restriction is that the enhanced rebate applies only to projects for which construction began after September 13, 2023.  Unfortunately, the Regulations do not provide further detail or guidance on when construction is considered to begin for the purpose of the rebate.

Prepared by: Adrian Zee

Adrian is an associate at the firm’s Vancouver office. Adrian’s practice focuses on Canadian commodity tax, including the Harmonized Sales Tax (HST), Goods and Services Tax (GST), provincial sales taxes, and realty taxes (including the B.C. Speculation and Vacancy Tax, City… more »