Under current law, the sale of newly constructed or substantially renovated residential housing is subject to a 5 per cent federal sales tax through the Goods and Services Tax/Harmonized Sales Tax (GST/HST).
The GST/HST New Housing Rebate allows Canadian citizens and permanent residents to recover a portion of the tax paid for a new or substantially renovated house or apartment intended to be the primary place of residence of the buyer or their relative. The rebate is usually claimed by the builder on the buyer’s behalf, with the rebate appearing as a credit on the purchase price of the home.
For houses and apartments valued at or below $350,000, the rebate covers 36 per cent of the total GST paid, up to a maximum of $6,300. The maximum rebate is gradually phased out for homes valued between $350,000 and $450,000, and no rebate is available for houses valued at $450,000 or more. The Mulroney government recognized that inflation would erode the rebate’s value over time and committed to “review[ing] these thresholds at least every two years and adjust[ing] them as necessary to ensure that they adequately reflect changes in economic conditions and housing markets.” However, since these thresholds have never been adjusted, nearly all buyers today are ineligible for this rebate, as the average home price now exceeds $700,000.
According to the Parliamentary Budget Office (PBO), the value of GST/HST rebates declined from $212 million in 2017 to $71 million in 2022. Over the same period, the number of houses and apartments receiving the rebate dropped from 43,280 in 2018 to 17,810 in 2022.
Bill C-4 proposes a full GST rebate for first-time home buyers purchasing new homes valued up to $1 million. The maximum benefit would be linearly phased out between $1 million and $1.5 million. According to the PBO’s recent assessment, the rebate is expected to cost $1.9 billion across the six-year projection period and support approximately 71,711 new home purchases – an average subsidy of $26,832 per home, for 4.8 per cent of housing completions over this period.
Source: Office of the Parliamentary Budget Officer
The narrow scope of this impact on the housing market is due to three factors:
- Eligibility – the rebate is only available for first time home buyers.
- Housing construction focus – Government programs are largely focused on building rental units rather than entry-level homes.
- Rebate phase-out – In high-priced markets like the GTA and GVA, where average home prices exceed $1 million, the rebate is reduced or eliminated entirely due to the phase-out threshold.
Some analysts have proposed expanding the rebate to include seniors looking to downsize. According to CTV News, “The Canadian Centre for Economic Analysis estimates that there are 4.4 million empty rooms in Ontario alone, in part because of seniors and empty nesters who won’t, or in some cases, can’t afford to downsize.” This adds to the housing supply challenge, particularly as limited construction of single-family homes makes it increasingly difficult for young families to find larger homes.
CMHC conducted a study in 2023 examining the impact of senior households on the housing market. The study found that “a large proportion of senior households (especially younger ones) are deciding to age in their home rather than put it on the market.” The percentage of Canadians aged 75 and older who sold their homes declined steadily from 41.6 per cent between 1991 and 1996 to 36 per cent between 2016 and 2021. While condominiums are becoming more popular with seniors in theory, CMHC found that “actual movement toward this type of housing is quite limited.” With the recent focus on building small 500-square-foot units in major centres like Toronto and Vancouver, it’s unlikely this type of housing will meet the needs or preferences of most seniors.
There is clearly a mismatch in the efficient use of the existing housing stock, yet governments have not done a good job identifying the housing characteristics that would appeal to seniors and motivate them to move. Understanding the key housing attributes that seniors are looking for, either in their existing home or a new one, is essential. Key considerations include:
- Location – Proximity to family and support networks.
- Services – Access to transportation, health care, wellness services, etc.
- Condo features – Amenities that cater to seniors’ needs and lifestyles.
- Cash flow support – Availability of tax assistance programs that make downsizing financially feasible.
- Reverse mortgages – Many seniors with reverse mortgages are unlikely to move until a transition to long-term care is necessary.
While encouraging senior mobility could free up more single-family homes for younger families, it’s important to acknowledge that not all seniors are willing—or financially able—to downsize before eventually moving into senior living facilities.
If many seniors prefer to age in place before eventually moving into a senior living facility, how can we encourage more effective use of existing housing space? Programs like Canada HomeShare and SpacesShared offer one solution – pairing students in need of affordable housing with seniors who can provide a room in exchange for companionship and light support. This model works particularly well in communities with colleges and universities. While CMHC has supported test pilots for these types of housing arrangements, there has never been a consistent national program.
There is certainly a mismatch in how existing homes are being used by seniors, but before introducing financial incentives to encourage them to move, we need a better understanding of what motivates seniors to downsize – and ensure the right housing options are available to support that transition.
Independent Opinion
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