GST rebate on new homes would save typical first-time buyer $27K: Budget officer

The parliamentary budget officer says an eligible first-time homebuyer would save an average of $26,832 in sales tax on the price of a newly built home under Ottawa's latest housing proposal.

In an analysis released Wednesday, the federal government's fiscal watchdog predicts that 71,711 new builds would qualify for GST relief over the lifetime of the program.

The proposal would see the federal portion of the sales tax eliminated on a new home worth up to $1 million if it's bought by a qualifying first-time homebuyer.

The GST rebate would be phased down as the price of the home approaches $1.5 million.

Homes bought from May 27 through to 2031 can qualify for the rebate, as long as construction starts before 2031 and finishes by 2036.

Canadians who have owned a home already are not eligible for the GST relief — with some exceptions. Neither are investors.

The PBO forecasts the program will cost $1.9 billion over six years, while the federal government has pegged the "tax savings" for Canadians at $3.9 billion over five years.

The PBO's latest estimate is about $100 million lower than the figure it cited during the spring federal election, when the GST break was proposed. It attributes that gap to a later implementation date and a different definition used for first-time homebuyers.

A Desjardins Economics analysis of the proposal released Monday offered one explanation for the discrepancy between the PBO's cost estimate and the government's figure: Ottawa might think its program will be more popular than the PBO does. A higher cost estimate suggests more first-time homebuyers purchasing qualifying new builds, in other words.

The GST rebate, which is not yet law, was included in the Liberals' spring election platform as a way to help Canadians break into the housing market.

A home priced at $1 million would receive the maximum rebate of $50,000.

The Desjardins report by economist Kari Norman said that if the program proves popular with first-time buyers, it could spur additional housing construction to meet higher demand.

The PBO said it does not include possible behavioural responses to the program in its analysis.

Norman noted in her report that it's also possible increased demand from homebuyers will push up home prices in the near term.

She estimated that 85 per cent of new homes built in Canada over the program timeframe will be eligible for the full GST break of up to $50,000.

In cases where the GST portion of a new home sale is rolled into the mortgage principal, the typical owner could expect to save $240 per month on mortgage payments, she said. The savings are more direct when a developer charges the GST upfront.

The measure is packaged in legislation that also includes the Liberals' promised income tax cut, which is set to take effect July 1 after it was adopted through a ways and means motion last week.