Removing the 5% federal sales tax on most new homes would drain between $400 million and $2 billion annually from public coffers, according to a new report by the Parliamentary Budget Office.
Blacklock's Reporter says despite the cost, both Liberals and Conservatives are pitching the tax break as a solution to Canada’s worsening housing crisis.
The tax, applied since 1991, was initially intended to affect only luxury homes.
At the time, it applied to properties priced over $450,000 — an amount that covered only the top 5% of sales. But the threshold was never adjusted for inflation or rising housing prices, resulting in most new homes today being subject to the full Goods and Services Tax.
In an Election Proposal Costing, analysts noted the estimate did not factor in potential changes in buyer or developer behavior.
“The cost of the proposed measure is calculated as the difference in sales tax revenue relative to current policy,” the report stated. “No behavioural responses were included.”
The Liberal Party has proposed exempting new homes priced under $1 million, a change projected to cost $378 million in its first year.
“With our plan we will build to make Canada strong,” said Prime Minister Mark Carney.
The Conservative Party’s plan would go further, exempting homes up to $1.3 million from GST, with a projected first-year cost of $1.8 billion.
“We have to axe taxes if we’re going to build homes for a change,” said Opposition Leader Pierre Poilievre. “Over the lost Liberal decade housing costs have doubled,” he added, blaming the increase on rising taxes and bureaucratic delays.
Poilievre argued that taxes and red tape are now the biggest financial burdens in new home construction.
“The number one cost for a new home in Ontario today is taxes: direct taxes, sales taxes, land transfer taxes, development charges,” he said. “The second biggest cost is bureaucracy: delays, zoning, permits, lawyers, accountants, lobbyists—none of whom build any homes.”
He also criticized the longstanding failure to update the original tax exemption threshold.
The Department of Finance once promised biennial reviews of the GST benchmark, but no adjustments have ever been made. “That threshold was supposed to go up but it didn’t,” said Poilievre. “Now, good luck trying to get a house for $450,000. You can’t find anything for that.”
“Everybody basically is paying GST on their new home,” he added. “The GST was not meant to apply to the basic necessities of food and housing. That’s why the exemption existed in the first place.”