Desjardins says monthly mortgage payments would likely fall under Carney's plan
A proposed tax measure aimed at reducing the cost burden for first-time homebuyers in Canada may influence affordability in key markets but could also create new pressures on housing supply, according to a new analysis by Desjardins Economics.
The Liberal government introduced legislation on June 5 to remove the 5% goods and services tax (GST) from newly constructed or substantially renovated homes purchased by first-time buyers.
The full exemption would apply to homes priced at $1 million or less. Homes between $1 million and $1.5 million would receive partial relief, with the tax break phased out entirely beyond that threshold.
Under this policy, qualifying buyers could see savings of up to $50,000 per home. The Desjardins report estimates that a buyer purchasing a $1 million home could see a monthly mortgage payment reduction of up to $240, assuming the tax had been included in the mortgage. A smaller down payment may also be required depending on how the builder structures the sale.
Some developers include GST in the purchase price, which is then amortized within the mortgage. Others require the tax upfront, meaning the rebate could lower immediate closing costs. Desjardins noted that such a change might ease access for certain buyers entering high-cost markets.
Kari Norman, the economist behind the report, said the effect of the GST exemption is likely to be more significant in markets such as Toronto and Vancouver. Approximately 92% of new builds in Toronto and 75% in Vancouver are projected to qualify for either full or partial tax relief. Nationally, nearly 85% of new home sales could meet the criteria, according to estimates.
The new measure expands on the existing federal New Housing Rebate, which has a lower home price cap of $450,000 and is available to a broader group of buyers. The GST waiver was one of several housing-related promises included in the Liberal platform during the last federal election.
The government estimates the policy will cost $3.9 billion over five years. The Parliamentary Budget Officer puts the cost closer to $2 billion. Desjardins suggested the gap may reflect differing expectations about how many new buyers will make use of the incentive and how the market responds in terms of construction activity.
However, the report also points to a number of constraints that could limit new housing starts, including high financing and construction costs, aging labour pools, and delays in regulatory approvals. It further warned that some developers might raise prices or costs in anticipation of increased buying power.
The Desjardins report recommends indexing the $1 million qualifying threshold to inflation to ensure the policy remains effective over time.
The tax relief would apply to homes purchased between May 27, 2024, and 2031, with construction starting before 2031 and completing by 2036. The proposal is bundled with a planned income tax reduction scheduled to begin on July 1. The bill is still pending approval in Parliament.
