Ontario removes provincial HST on some new rental builds

Edana Robitaille
Published: November 9, 2023

On November 1, the Government of Ontario announced that it is removing the full provincial amount of Harmonized Sales Tax (HST) for new rental developments.

The measure will apply to new purpose-built rental housing such as apartment buildings, student housing and senior residences built specifically for long-term rental accommodation, that meet the criteria.

The government says the enhanced rebate would apply to qualifying projects that begin construction between September 14, 2023, and December 31, 2030, and complete construction by December 31, 2035.

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To be eligible for the rebate, new residential units must be in buildings with at least four private apartment units or 10 private rooms or suites and have at least 90% of residential units designated for long-term rental.

Province taking some steps to make rent affordable

This is the latest in a series of steps Ontario has been taking to improve affordability following the release of a Housing Action Plan in 2022.

There is currently a New Residential Property Rebate in Ontario but it is only equal to 75% of the provincial portion of HST, up to a maximum amount of $24,000. The newly proposed rebate will be 100% of provincial HST, with no maximum amount.

For example, a two-bedroom rental unit valued at $500,000 would get a provincial tax rebate of $40,000. When combined with the federal rebate in the recent Affordability and Housing Act, worth up to $25,000, this means developers in Ontario could benefit from up to $65,000 in tax rebates.

To help ease some of the pressure on existing renters, Ontario also capped annual rent increases below the rate of inflation. However, this only applies to units that were built before November 2018. Also, even in older units, if a tenant moves out the landlord may raise the rent as high as they like for the next tenant’s first year. This creates a significant affordability obstacle for renters who are arriving from overseas or anyone who needs to move into a new apartment period.

Immigration in Ontario

The most recent data from Rentals.ca, a popular apartment hunting website, shows that eight Ontario cities are on the list of the top 10 most expensive cities to rent in Canada.

Ontario’s government hopes the rebate will help incentivize developers to build more affordable rental units in Ontario, which has the most newcomers of any province in Canada. Census 2021 data shows that in 2021, close to half (46.6%) of the population living in Toronto, Canada’s largest city, were immigrants.

Also, according to a recent report by Desjardins, there is not enough supply in Ontario to meet the high demand, especially as it is likely to grow. This means that many younger newcomers and other top talent may not choose to settle in Ontario and the provincial economy could suffer in the long run.

Immigration in Canada will rise

Canada’s population reached a milestone of 40,000,000 people earlier this year, a growth of over one million people in a single year.

Further, Immigration Refugees and Citizenship Canada (IRCC) recently released the Immigration Levels Plan for 2024-2026, which outlines immigration targets for the next three years. In both 2025 and 2026, Canada expects to admit 500,000 new permanent residents. This doesn’t account for any temporary workers or international students.

IRCC has also recently released a new Strategic Immigration Report which says moving forward, the department’s immigration targets and policies need to be more comprehensive and include consultations with stakeholders who can help the department match immigration numbers to existing infrastructure such as housing.

The report also mentions the possibility of creating more immigration pathways for newcomers with experience in construction, which can help expedite the construction of more housing.

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