Aligning exemptions for similarly focused tax measures
would streamline the budgeting process for new housing.
Funds collected through both the EHT and SVT are
intended to increase the availability and affordability
of housing within Vancouver and the province, but
can ultimately pose as a barrier to the delivery of new
homes. For the AST, development sites that have
a high residential value when they are assembled
can attract this tax while the developer is awaiting
permit approvals. As AST is charged annually, it is
dependent on approvals timelines to determine the
overall cost burden on the project budget. Exemptions
for new developments would eliminate the impact
of the AST on the cost of new housing. In addition,
faster permitting timelines would mitigate the impacts
of annual property taxes in general. Applying the
exemptions allowed in the SVT legislation to the AST
and EHT would improve the complicated application
of these taxes on new housing developments.
Federal Goods and Services Tax (GST)
The Federal Goods and Services Tax (GST) is not a
new cost, but it has substantial impacts on the ability
to deliver much-needed rental housing. For purpose-
built rental builders, it is often the most impactful tax
or fee that is charged on a project. GST rebates were
introduced to incentivize rental development; however,
they are no longer effective in many urban centres.
The qualification thresholds are set at a national level
and the unit values do not vary based on jurisdiction.
Compounding their ineffectiveness, these thresholds
have not been updated since they were introduced
nearly two decades ago.
For rental housing, GST rebates are available for new
residential rental units with a fair market value below
$350,000 and partial rebates for units valued up to
$450,000. There are no rebates available for new rental
housing exceeding $450,000 in value. This is an issue
in jurisdictions that cannot meet the rebate thresholds.
In an estimate completed by a rental housing
developer, a 430 sq. ft. studio unit in a new rental
building in downtown Vancouver could be valued at
approximately $554,000 based on current market
rents in new buildings. Even a studio exceeds the
rebate threshold value and therefore would not meet
the rebate eligibility criteria, larger units in Vancouver
would almost certainly be required to pay the full GST
amount. The GST rebate criteria is a substantial barrier
in areas where demand for rental housing far exceeds
supply and market values are high. This results in a
situation where markets that are most in need of new
rental housing are least likely to receive a GST rebate.
While all levels of government
acknowledge the need to increase
the supply of rental housing, the
way in which the GST is applied is
counter-productive to that goal.
GST is the largest single tax or fee
in a rental project budget.
There has been a substantial increase in market values
over the past 20 years, and the rebate thresholds
for rental development should be revised to reflect
inflation and the rise in housing prices. The GST
rebate should also be varied by local CMA. This
would incentivize rental housing development in
the jurisdictions with some of the greatest housing
availability challenges, such as in Vancouver, the
Capital Region or Okanagan. In the Vancouver rental
analysis, GST could account for nearly 10%, or
$250.60, of the average unit starting rent paid per
month. Removing this charge or offering a rebate
would eliminate one of the most significant barriers to
delivering new rental homes.
Taxing Growth
Monthly Rent
GST
Size
675
Per unit
$2,698
$250.60
GST Allocation in the Vancouver Rental Budget Example
Breaking Down the Taxes & Fees