Prime Minister Mark Carney's proposed GST rebate is a step in the right direction, but still falls short of what’s needed to improve affordability.Blair Gable/Reuters
Austin Thompson is an analyst at the Fraser Institute.
While there are many reasons for Canada’s housing affordability crisis, taxes on new homes – including the federal Goods and Services Tax – remain a major culprit.
The Carney government is advancing legislation that would rebate the GST on some new home purchases, but only for a narrow slice of the market. That falls short of what’s needed to improve affordability. A broader GST rebate extending to more homebuyers and more new homes would cost Ottawa more, but it would likely deliver better results than the billions the government plans to spend on other housing-related programs.
Today, Ottawa already offers some GST relief for new housing: partial rebates for homes under $450,000, full rebates for small-scale rental units (such as condos, townhomes, duplexes) valued under $450,000, and a full rebate for large-scale rental buildings (with no price cap). Rebates can lower costs for homebuyers and encourage more home building.
However, at today’s high prices, these rebate programs mean most new homes, and many small-scale rental projects, remain burdened by federal GST. The government’s new proposal would offer a full GST rebate for new homes – but only for first-time homebuyers purchasing a primary residence at under $1-million (a partial rebate would be available for homes up to $1.5-million).
Any tax cut on new housing is welcome, but these criteria are arbitrary and will limit the policy’s impact.
Opinion: Carney was elected on a wave of tariff panic. Now he has other problems
Vancouver, Toronto are least affordable cities in Canada for renters, report says
Firstly, by restricting the new GST rebate to first-time buyers, the government ignores how housing markets work. If a retired couple downsizes into a new condo, or a growing family upgrades to a bigger house, they typically free up their previous home for someone else to buy or rent. It doesn’t matter whether the new home is purchased by a first-time buyer – all buyers can benefit when a new home appears on the market.
Secondly, by limiting the GST rebate to primary residences, the government won’t reduce the existing tax burden on rental properties – recall, many small-scale projects still face the full GST burden. Extending the rebate to include rental properties would reduce costs, unlock more construction and expand options for renters.
Thirdly, because the proposed GST rebate only applies in-full to homes under $1-million, it will have little effect in Canada’s most expensive cities. For example, in the first half of 2025, 31.8 per cent of new homes sold in Toronto and 27.4 per cent in Vancouver exceeded $1-million. Taxing these homes discourages home building where it’s most needed.
Altogether, these restrictions mean the government’s proposal would help very few Canadians. According to the Parliamentary Budget Officer, of the 237,324 housing units projected to be completed in 2026 – the first full year of the proposed GST rebate program – only 12,903 (5.4 per cent) would qualify for the new rebate. With such limited coverage, the policy is unlikely to spur much new housing or improve affordability.
The proposed GST rebate will cost a projected $390-million per year. However, if the government went further and expanded the rebate to cover all new homes under $1.3-million, it would cost about $2-billion. That’s a big price tag, especially given Ottawa’s strained finances, but it would do much more to improve housing affordability.
Instead, the government plans to spend $3-billion annually on Build Canada Homes – a misguided federal entity set to compete with private builders for scarce construction resources.
The government has earmarked another $1.5-billion per year to subsidize municipal fees on new housing projects – an approach that merely shifts costs from city halls to Ottawa. A broader GST rebate would likely be a more effective, lower-risk alternative to these programs.
Finally, it’s important to note that exempting new homes from GST is not a slam dunk. The tax is one of the more efficient ways for the federal government to raise revenue, since it doesn’t discourage work or investment as much as other taxes. Rebates on GST mean the government may increase more economically harmful taxes to recoup the lost revenue.
Still, tax relief is a better way to increase housing affordability than expensive spending programs. In fact, the government should also reform other federal taxes on housing-related capital gains and rental income to help encourage more home building.
The Carney government’s proposed GST rebate is a step in the right direction, but it’s too narrow to meaningfully boost supply or ease affordability. If Ottawa is prepared to spend billions on questionable programs such as Build Canada Homes, it should first consider a more expansive GST rebate on new home purchases, which would likely do more to help Canadian homebuyers.