Tax break for new home purchasers nears its expiration date
In a significant move, the Canadian government, led by Mark Carney, is preparing to abolish the Goods and Services Tax (GST) for first-time buyers of new homes worth $1 million or less. This announcement comes as part of a larger housing reform, which includes changes to the Quebec Sales Tax (QST) refund for new home purchases.
The QST refund, however, remains unchanged despite inflation. The government has no plans to index this refund to inflation, a decision that has been met with suggestions for reform from industry experts. David Goulet, the director of the economic service of the Association of Construction and Housing Professionals of Quebec (APCHQ), has proposed updating the thresholds for the QST refund to allow more people to benefit from it.
The cost of the QST refund to the government has decreased significantly over the years. In 2012, the cost was $163 million, but by 2022, it had dropped to $17.5 million. This decrease can be attributed to a decrease in the number of claims made for the QST refund, which has dropped from over 29,000 in 2012 to just over 3,800 in 2022. The average refund amount has also decreased, from $5,582 in 2012 to $4,545 in 2022.
The APCHQ attempted to estimate what proportion of new homes were eligible for a partial QST refund by combining data from starts and deliveries from the Canada Mortgage and Housing Corporation (CMHC). In 2010, 2011, and 2012, around 75% of new properties delivered were eligible for a certain QST refund. By 2022, this figure had decreased to 16%.
The government's preference seems to lie in investing in other methods to improve access to property ownership rather than increasing the QST refund. The Legault government, for instance, has doubled the tax credit for the purchase of a first home, reaching up to $1,400 at the provincial level.
The federal government's proposed reform will also allow a partial refund of the provincial tax on the first $400,000 of a new home in Ontario, regardless of its total value. This reform, if adopted, will apply retroactively to all eligible homes sold after May 27, 2025.
It's important to note that the costs of these reforms are not insignificant. The costs of the proposed federal reform are estimated at $1.9 billion over six years. The combined cost of the aforementioned measures in Quebec is estimated to be around $130.6 million in 2024, according to figures from the University of Sherbrooke's Chair in Taxation and Public Finance.
The Home Ownership Savings Plan (REER-P) has also been modified to allow new buyers to withdraw up to $60,000, an increase from the previous limit of $35,000. This change, along with the proposed GST and QST reforms, aims to make homeownership more accessible for Canadians.
Despite these changes, the QST refund only applies to purchases of less than $300,000, a value that has not been indexed over the years. The text of Bill C-4 uses the low number of claims made in recent years as an argument to justify the reform, suggesting that the QST refund is barely claimed.
In conclusion, the Canadian government's housing reforms aim to make property ownership more accessible, particularly for first-time buyers. While the QST refund remains unchanged, other measures such as the Home Ownership Savings Plan and tax credits have been modified to help more Canadians achieve homeownership.
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