The maximum rebate that a buyer could receive is $50,000.Jeff McIntosh/The Canadian Press
The federal government’s proposed GST rebate for first-time homebuyers will provide an average subsidy of roughly $27,000 to more than 71,000 buyers, an analysis from the Parliamentary Budget Officer says.
The PBO said that tax relief is expected to cost the government $1.9-billion over six years, although its estimates do not take into account how the cut would affect market behaviour.
The government is proposing to cut its 5-per-cent GST entirely for first-time buyers that are purchasing a new or substantially renovated home valued at $1-million or less, and to partially cut the GST for new homes valued between $1-million and $1.5-million. The maximum rebate that a buyer could receive is $50,000.
The projections were made for the life of the program, which is expected to start in 2025 and end in 2031. The PBO – which provides independent and non-partisan financial analysis of proposed bills – projected that 4.8 per cent of housing completions would be purchased by buyers benefitting from this rebate.
However, Huw Lloyd-Ellis, an economics professor at Queen’s University, said the PBO’s decision to not consider how the tax relief will affect the housing market means its projections are likely conservative and that the policy will cost the government more.
“It’s better than some previous policies in the sense that it’s much more targeted at people who are facing affordability issues,” said Mr. Lloyd-Ellis, adding that the rebate is also targeting new builds.
He said any policy like this is bound to spur demand, and without supply increasing fast enough it could inflate prices.
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Marc Lee, senior economist for the Canadian Centre for Policy Alternatives, also said there is incentive for developers to raise prices and eat into the tax savings.
However, Mr. Lee said the policy is targeted enough at a small portion of buyers that it could benefit people who are trying to enter the housing market.
“It could have some potential benefit, especially given that markets are sagging in Toronto and Vancouver, and in areas with unsold inventory it could help move some, but it’s going to be fairly small in terms of total impact,” said Mr. Lee
The Department of Finance did not immediately respond to a request for comment on the PBO’s report.
Mr. Lee says the GST rebate is yet another example of how the Liberal government’s preferred method of tacking housing affordability has been to try and help first-time buyers enter the market, rather than to reduce the price of housing.
The Liberals have introduced the First Home Savings Account (a tax-free savings account with tax deductible contributions), an income tax credit for first-time buyers and multiple other programs to try and help people attain home ownership.
The federal government’s new proposed GST rebate comes as the original GST rebate for new housing builds largely falls out of relevance.
The original rules provide a 36-per-cent rebate on GST for new construction for any buyer – not just first-time buyers – on homes valued up to $350,000. Smaller rebates are available for homes valued up to $450,000.
The value for this rebate has changed by only a small amount since it was introduced in the 1980s, and as a result numbers from the PBO show that only 4 per cent of housing completions in the largest 17 census metropolitan areas were eligible for the full 36-per-cent rebate in 2024.
Mr. Lee said the introduction of this new form of GST relief calls into question why there should be sales taxes on home purchases at all.
He said taxing a home, which is a long-lived capital asset, the same as a traditional good or service that is bought regularly doesn’t make sense.
