Authors: Michael Bussman, Partner & Rosa Lupo, Partner
In the lead-up to the recently released Ontario Budget 2026, the Ontario Government announced its intention to fully rebate the 13% HST on sales of new detached and semi-detached houses, condominium units, townhouses and rowhouses, purchased as a primary place of residence or for long-term rental.
The new rebate will apply for one year to agreements of purchase and sale entered into with a builder between April 1, 2026, and March 31, 2027. For homes purchased as a primary place of residence, construction must begin on or before December 31, 2028, and reach substantial completion by December 31, 2031. For homes purchased for long-term rental, construction must reach substantial completion by December 31, 2029.
The new rebate is intended to supplement the existing rebates for the federal and provincial components of the HST, which rebate 1.8 of the 5% federal component of the HST (subject to a linear reduction for homes with a purchase price between $350,000 and $450,000), and 6.0 of the 8% provincial component of the HST (subject to a rebate cap of $24,000).
The new rebate will reach a cap of $130,000 for homes with a purchase price of $1 million. In addition, it will be subject to a linear reduction for homes with a purchase price of between $1.5 million and $1.85 million. At a purchase price of $1.85 million, the rebate will be $24,000, which will apply regardless of the price above $1.85 million.
The new rebate was introduced after the Federal and Ontario Government had announced a first-time homebuyer’s rebate[1] for the full 13% HST for homes with a purchase price of less than $1 million. The first-time homebuyer’s rebate is subject to linear reduction for homes with a purchase price of between $1 million and $1.5 million. As such, the newly announced rebate is more generous for homes with a purchase price of between $1 million and $1.85 million.
Of these various rebates, only the Federal Government’s first-time homebuyer rebate for 5.0 of the 5% federal component of the HST has been enacted. It is noteworthy that the first-time homebuyer rebate applies to agreements of purchase and sale entered into as early as March 20, 2025, while the amendments to the federal Excise Tax Act implementing this rebate only reached royal assent close to a year later, on March 12, 2026.
The further amendments for the Ontario first-time homebuyer rebate announced on October 28, 2025, have not, as of the date of this article, been tabled in Parliament.
If the legislative amendments required for the new rebate announced by the Ontario Government are tabled and enacted at a similar pace, builders and homebuyers will be entering into agreements of purchase and sale for much of the coming year without certainty regarding the details of the legislative enactment.
In this interim period, there will be considerable uncertainty for builders and purchasers, in particular at closings occurring before the amending legislation is enacted.
The price is the key term of a contract for a new home. Setting the price for new homes has become very difficult for builders given the current state of the amending legislation. As the legislation for the Federal Government’s first-time homebuyer rebate for 5.0 of the 5% federal component of the HST has been enacted, builders are able to set prices to include this rebate for qualifying first-time home buyers.
However, it is difficult for builders to price new homes so as to include rebates for legislation which has not yet been enacted. If builders set a lower price taking into account the amount of a proposed new rebate, there is a risk the enabling legislation will not have passed by the closing date. If no legislation has passed by a closing date, the new proposed rebate will not be available at the time of closing and, as such, the price payable on closing will need to be increased.
Home buyers will likely be able to apply for the amount of the proposed rebate at a later date. However, it will be difficult for home buyers to fund the amount of the new, but unavailable, rebate on closing.
It is unknown if the announced dates by which substantial completion must occur will be the same in the enabling legislation. Given the normal timeline for new home construction, it may be difficult for builders to meet the deadlines as announced. Construction does not always commence within 24 months of entering an agreement of purchase and sale.
The current announcement for the new rebate contemplates that the agreement of purchase and sale could be entered into March 31, 2027, but construction would need to commence on or before December 31, 2028, in order for the new rebates to apply. Given the time required for municipal approvals, this will be a short period for builders to meet.
In light of the significant monetary savings offered by the new rebate, builders have been inundated with requests from new home buyers to “re-sign” agreements of purchase and sale entered into before April 1, 2026.
Based on the existing legislation for the first-time home buyers, it is likely that the legislation for the new proposed rebate will prohibit any variation, alteration, assignment or termination of an existing agreement of purchase and sale that is done only to qualify for the new proposed rebate. Any such action being taken will be closely scrutinized by the tax authorities and as such should not be entertained by builders.
The new rebate was proposed in order to increase sales of new homes in Ontario. Builders and home buyers alike hope that this is the result. However, until the amending legislation is passed, the specifics regarding how some of these issues will be dealt with remain unknown, leaving builders to manage the uncertainty.
Our Gowling WLG Real Estate team is here to assist builders in sorting through these issues and in developing processes that afford some certainty to builders and new home buyers alike.
Credit: Ontario Expands HST Relief Eligibility For New Home Buyers | Gowling WLG
