Rental Property HST Rebate vs. Input Tax Credits in Ontario

If you own a rental property in Ontario, you may have noticed that GST/HST works differently for you than for a business that charges tax. You pay tax on some costs, but you do not charge it on rent, and you may not be able to get it back the way a shop or contractor can.

This article explains why input tax credits are usually off the table for long-term residential rentals, what the rebate does in their place, and where the two sometimes get confused. Your own situation may include short-term rentals or commercial space, so check the details with an accountant.

What input tax credits are, and why they usually do not apply

An input tax credit is how a registered business gets back GST/HST it paid on things it buys to earn taxable income. It works because the business charges tax on its own sales and only remits the difference.

Residential rent does not work that way. Long-term residential leases are exempt supplies for GST/HST, and a residential landlord generally cannot claim input tax credits on GST/HST paid on housing that was bought or self-supplied. More broadly, registrants generally cannot claim input tax credits for GST/HST paid on property and services acquired to make exempt supplies, which includes long-term residential rentals.

When a residential rental counts as exempt

A rental of a residential unit to an individual as a place of residence is exempt from GST/HST if the continuous occupancy by the same individual is one month or more. Rentals at $20 per day or less are also exempt.

That wording shows why the type of rental matters. A short stay that does not meet the one-month test, and is above the daily threshold, may be treated differently. Mixed-use buildings, short-term stays and commercial space each raise their own questions, and none can be answered without the facts.

What the rebate does instead

Because credits are closed off, the new residential rental property rebate is the CRA's mechanism for recovering part of that tax. It is not a credit on your day-to-day costs. It relates to tax on new or substantially renovated residential rental housing.

Who can claim depends on how you got the unit. A person who built or substantially renovated rental housing and reported a self-supply can claim it, provided the self-supply was reported on a GST/HST return and all net tax on that return was remitted. A purchaser from a builder is a person who paid GST/HST on the purchase.

If you built the unit yourself, the Excise Tax Act treats the builder as having made a taxable sale and purchase when the unit is leased for residential occupancy or, for an individual builder, occupied as a residence.

How much the rebate can be

The federal rebate is A x ($450,000 minus B) / $100,000. A is the lesser of $6,300 and 36% of the GST/HST payable. B is the greater of $350,000 and the unit's fair market value. It phases out between $350,000 and $450,000 and is nil at $450,000 or more.

The CRA guide states the Ontario rebate as 75% of the provincial tax, up to $24,000, available regardless of fair market value.

Purpose-built rental housing can fall under a different rebate: the total tax multiplied by the unit's share of floor space, with no $6,300 cap or phase-out. Construction or the last substantial renovation must begin after September 13, 2023 but before 2031, and be substantially completed before 2036.

• Fair market value is set per unit, and the CRA may ask for a professional appraisal.
• The application is due within two years after the end of the month in which tax first became payable or the self-supply occurred.
• The main form is GST524, with GST525 for co-op and multiple-unit cases.

What to do next

Start by sorting out how you acquired each unit, because that decides whether you are treated as a builder or a purchaser. Then confirm what kind of rental you run, since the exemption depends on the length of occupancy and the rent level.

• List each unit and note whether you built it, renovated it or bought it from a builder.
• Keep purchase agreements, closing statements and proof of GST/HST paid.
• Note the date tax first became payable or the self-supply occurred, and set a reminder for the two-year deadline.
• Check whether any units are rented short-term or for commercial use.
• Ask an accountant whether the capped rebate or the purpose-built rental regime applies.

Frequently asked questions