New Home GST Rebate

New home purchasing (as opposed to resale) is becoming an option for fewer people and it is not just because of high housing prices. Current GST rebate policies have also had an impact on the affordability of new homes, according to the Canadian Home Builders' Association (CHBA).

As it stands right now, anyone purchasing a new home or condo valued at less than $350,000 will receive a refund of 36% on the GST charged. Sounds good, but what if you live in a large or even medium-sized city where new homes in that price range are hard to come by? Seems you are out of luck. If your home costs between $350,000 and $450,000, the amount of the GST rebate is pegged to the cost of the home, declining proportionally to zero. So if you buy a $400,000 house, the GST rebate will be only 21%. If your house costs more than $450,000, there is no rebate at all.

A tax that makes new home purchasing less affordable is particularly troublesome in today's market, where all predictions point to a significant decline in new home starts. the CHBA is proposing that the federal government follow through on a long ago promise to "adjust the thresholds at least every two years to ensure they continue to reflect changes in housing prices."

Since the GST was introduced in 1991 the Statistics Canada new house price index has increased by more than 57%. If the GST rebates had been adjusted to home purchase prices, the drop-off in rebates would now apply to new homes priced between $550,000 and $750,000 and that $400,000 home would get the full 36% rebate.

Until the policy changes, people considering a new home purchase would do well to mull over this state of affairs and ensure their mortgage covers them in the very likely case that the cost of their house makes them ineligible for a GST rebate.