Ottawa’s GST rebate on new homes would save typical first-time buyer $27K: PBO

The latest housing proposal by the federal government, as analyzed by the parliamentary budget officer, offers significant savings for eligible first-time homebuyers. Under this proposal, a first-time homebuyer could save an average of $26,832 in sales tax on the price of a newly built home. The fiscal watchdog predicts that 71,711 new builds would qualify for GST relief over the lifetime of the program.

The proposal entails the elimination of the federal portion of the sales tax on a new home worth up to $1 million if purchased by a qualifying first-time homebuyer. The GST rebate would be phased down as the price of the home approaches $1.5 million. Homes purchased between May 27 and 2031 can qualify for the rebate, as long as construction begins before 2031 and is completed by 2036.

It is important to note that Canadians who have previously owned a home are not eligible for the GST relief, with a few exceptions, and investors are also excluded from the program. The parliamentary budget officer estimates that the program will cost $1.9 billion over six years, while the federal government anticipates that Canadians will save a total of $3.9 billion over five years.

The Desjardins Economics analysis of the proposal suggests that the government’s cost estimate may be higher than the PBO’s due to the potential popularity of the program among first-time homebuyers. The report indicates that increased demand from homebuyers could lead to additional housing construction to meet the higher demand.

While the GST rebate is aimed at helping Canadians enter the housing market, it is worth noting that the economic impact of the tax cut is not factored into the analysis. It is possible that the increased demand from homebuyers could drive up home prices in the short term. However, it is estimated that 85% of new homes built in Canada over the program’s timeframe will be eligible for the full GST break of up to $50,000.

In cases where the GST portion of a new home sale is included in the mortgage principal, homeowners could potentially save $240 per month on mortgage payments. The savings are more immediate when developers charge the GST upfront. The housing proposal is part of legislation that also includes the Liberals’ promised income tax cut, set to take effect on July 1 after being adopted through a ways and means motion last week.