The federal Conservatives recently announced a plan to abolish federal sales tax on new homes under $1 million if elected, with the goal of encouraging the provinces to follow suit.
A report from the Canadian Centre for Economic Analysis (CANCEA) found that in Ontario, over 31 per cent of a home’s purchase price is tied to government taxes. Although the federal government’s share is significant across all markets, Ontario’s tax burden is nearly double that of other provinces, with 39 per cent of housing tax revenues going to the federal government.
While the federal government’s move last year to eliminate the GST on purpose-built rentals was a step in this direction, this broader measure would go much further, aligning with the original policy intent when the GST was introduced in 1991. As we’ve noted before, this policy falls well within the federal government’s sphere of influence.
The Conservatives intend to encourage the provinces to take the same step in reducing the HST, estimating this measure could lower the cost of an $800,000 home by $40,000 and spur the construction of another 30,000 homes per year.
To fund this plan, the Conservatives would scrap certain existing housing programs. The $4 billion Housing Accelerator Fund (HAF), which supports municipal governments in removing barriers to spur housing development, would be phased out, with most of these funds likely to be allocated before the next mandated election in October 2025.
The $6 billion Canada Housing Infrastructure Fund (CHIF) would also be discontinued. CHIF is aimed at accelerating the development and upgrade of essential housing infrastructure—such as drinking water, wastewater, stormwater, and solid waste systems—to support new home construction. Provinces and territories can access this funding only if they commit to specific policy actions to boost housing supply. They face a January 1, 2025, deadline to finalize agreements with the federal government under these programs.
If the Conservatives’ plan is implemented, a key question will be whether cities see this as an opportunity to increase their development charges even further. These fees are currently part of the HST cost base and significantly impact housing costs. For example, development charges in Vaughan, Ontario reach $190,000 for a single-detached home and $160,000 for a townhouse. However, the real cost is over $230,000 and $190,000, respectively, assuming a 5 per cent carrying cost for the developer and 13 per cent HST on the purchase price. Will municipalities view the GST cut as an opportunity to raise local fees to fill the funding gap? I wouldn’t bet against it. Given the loss of federal funding under the Conservative plan, it wouldn’t be surprising if some cities felt justified in doing so.
Independent Opinion
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