GST Holiday for Apartment Builders Will Cost $1B More Than Initially Estimated: PBO

Construction workers build new homes in a development in Ottawa in this file photo. (Sean Kilpatrick/The Canadian Press)

A GST holiday for apartment builders will cost around $5.8 billion, compared to the federal finance department’s initial $4.5 billion estimate, according to the Parliamentary Budget Office (PBO).

“The fiscal cost of the enhanced GST rebate depends on the number of units constructed and the value of these units,” wrote analysts in the PBO report, which was first obtained by Blacklock’s Reporter.

“There is a large amount of uncertainty regarding these factors.”

Bill C-56, An Act To Amend The Excise Tax Act, introduced a GST holiday on new “purpose-built rental housing” constructed by 2036. The department of finance told the Senate national finance committee last October that the tax break would cost around $4.5 billion over the next five years.

The May 10 PBO report estimates the total costs would be closer to $5.8 billion between 2024 and 2029. The report also noted that only certain types of new rental units would be eligible, such as units in buildings with at least four individual apartments, 10 rooms, or in suites such as dorm rooms in post-secondary residences.

“The buildings must also rent 90 percent of their total units to long-term tenants. Units can be newly constructed or converted into apartments from real estate that was previously used for non-residential purposes,” analysts wrote.

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Finance Minister Chrystia Freeland on April 12 said the federal government would expand the sales tax holiday to include purpose-built student residences constructed by colleges and universities. The campus amendment has not been costed.

To date, neither Ottawa nor the Canada Mortgage and Housing Corporation has calculated how many new homes it expected to be built because of the GST holiday.

“I don’t have a specific figure to give you, to say this will result in the creation of ‘x’ number of units,” Bob Dugan, chief economist for the CMHC, told the Senate National Finance Committee back in September 2023.

When Bloc Québécois MP Gabriel Ste-Marie asked in an Inquiry of Ministry for access to studies as well as the “source of documents that led the minister of finance to conclude that removing the GST would lower the cost of housing,” Ms. Freeland said the data was confidential.

“The Department of Finance applies the principles set out in the Access To Information Act and certain information has been withheld on the grounds the information constitutes cabinet confidences,” Ms. Freeland wrote in the Inquiry document.

Prime Minister Justin Trudeau said on Sept. 14, 2023, that the measure would result in “millions of people, thousands of people, getting into new apartments.” Housing Minister Sean Fraser also said cabinet could “not put an exact number on exactly how many homes will be constructed.”

“By removing the GST, I have seen estimates as high as 200,000 to 300,000 new homes for Canadians over the next ten years,” Minister Fraser testified last September 27 at the Commons human resources committee.  “We are dealing with builders who have by the way hundreds of thousands of units that are already approved across Canada.”