Experts say that the $50,000 CAD new home rebate in Canada can effectively reduce the cost of purchasing a home

A new federal tax rebate for first-time homebuyers could significantly reduce home purchase costs, although experts say this measure alone is insufficient to address Canada’s housing affordability crisis.

On Tuesday, the Canada Revenue Agency opened applications for this rebate. Eligible homebuyers can receive up to $50,000 by reclaiming the federal portion of the Goods and Services Tax or the Harmonized Sales Tax when purchasing a newly built home or a house that has undergone substantial renovations valued up to CAD 1 million.

“This is a very meaningful change,” said John Pasalis, president of Realosophy Realty. “It will certainly provide some cost savings for first-time homebuyers.”

Pasalis noted that there have been few rebates like this in the past, as home prices have been consistently rising, and the government has never needed to “stimulate” housing demand.

“This is because home prices have already fallen,” Pasalis said. “Currently, it is not economically viable for developers to build homes. So they are using these tax policies as a way to make new homes more affordable for buyers.”

The latest data from the Canadian Real Estate Association shows that the Canadian real estate market experienced a cooling period in February, with transaction volumes down 8.1% compared to the same time last year. Seasonally adjusted month-over-month data shows a decline of 1.3%.

It may help developers and support new home construction

The Canada Revenue Agency stated that developers can apply the rebate directly at the time of closing to reduce the final purchase price of new homes, just like the existing housing rebates.

Pasalis indicated that while this rebate may not significantly change buyer behavior, it could give developers more leeway to lower prices on homes that are difficult to sell.

“This allows them to bring prices down to levels that may be more attractive to first-time buyers,” he said.

Housing policy expert and founding director of the Missing Middle Housing Initiative, Mike Moffatt, stated that since the rebate is limited to newly built homes, it will not increase prices for existing homes.

“It can actually promote new home construction while not increasing demand for existing assets,” Moffatt said. He added that this amount helps “balance” the competitive landscape between new homes and resale homes.

“If you buy a newly built home, you have to pay the Goods and Services Tax, which makes new homes more expensive than resale homes,” he said.