In an effort to spark housing demand and get stagnant supply moving, the
Ontario
government is expanding its tax break on new home purchases beyond
first-time buyers
.
Ontario Premier
Doug Ford
announced Wednesday that all homebuyers can now qualify for a one-year exemption from the 13 per cent
Harmonized Sales Tax
(HST) on newly constructed homes valued at $1 million or less, with partial rebates for higher-priced homes. The move is aimed at reviving demand and encouraging construction at a time when higher borrowing costs and weak pre-sales have made projects harder to launch.
The Financial Post breaks down what the tax change means for the province’s buyers, builders and the
housing market
as a whole.
What has changed?
The new tax measure, the cost of which will be shared with the federal government, offers eligible homebuyers a maximum rebate of $130,000 for homes priced up to $1.5 million, before the rebate phases down, falling to $24,000 at $1.85 million.
The policy change now expands relief that had been previously limited to first-time buyers to all purchasers, potentially widening the pool of market participants. The broadened eligibility applies to newly constructed residential properties, including condominiums and freeholds, with purchase agreements signed between April 1, 2026 and March 31, 2027.
Under the previous system, the HST policy offered a limited relief in higher cost markets such as the Greater Toronto Area. The federal portion of the rebate phased out entirely for homes above $450,000 leaving most buyers ineligible.
Ontario’s rebate, while available, was capped at $24,000, which did not eliminate the full tax burden. In comparison, the new policy offers more meaningful relief in higher priced markets, with the potential $130,000 in savings.
Why is the government doing this now?
There is no definitive tally of unsold new homes in Ontario, but data from Canada Mortgage and Housing Corporation (CMHC) show rising levels of “unabsorbed” units across the province.
In the Greater Toronto Area, real estate and consulting firm Urbanation estimates more than 4,000 newly completed condo units remain unsold. Another 50,000 units are currently under construction, including 9,000 unsold.
Industry groups say the expanded tax break could help restore demand. “It provides a powerful incentive for prospective home buyers to get off the sidelines and buy homes … and in doing so, it’ll increase sales … and by increasing sales, it’ll further translate into increased starts,” said Justin Sherwood, chief operating officer at Building Industry and Land Development Association (BILD).
How does the HST exemption work?
Eligible purchasers will not have to pay the 13 per cent HST at closing. In some cases, the tax may be applied up front and later refunded through a rebate, but it depends on how the transaction is structured.
“Every dollar that the tax is reduced is one less dollar that the homeowner has to borrow to pay for a new home,” Sherwood said.
Lower upfront costs can also make it easier for a buyer to qualify for a mortgage. For example, someone buying a home priced at $1 million has a HST tax amount of $130,000. Without the tax break, the amount one may need to borrow from the bank would be $1.13 million, but the exemption brings the financing closer to $1 million.
What is the expected economic impact?
At his press conference in Mississauga on Wednesday, Ford said the measure could help more families realize the dream of homeownership while potentially boosting the economy by $2.7 billion and supporting 21,000 jobs. He added that the exemption would amount to 2.2 billion in tax relief as well as spur the construction of 8,000 homes.
According to BILD, the residential construction sector currently employs more than 500,000 people across Ontario and contributes $66 billion annually to the economy.
What does the new policy not solve?
Developers continue to face broader cost pressures including those tied to development charges, municipal fees and the cost of building infrastructure such as roads, transit and wastewater systems.
Charges, taxes and fees across all levels of government account for 25 to 30 per cent of the final purchase price of a new home in some Greater Toronto communities, according to BILD.
The Toronto Real Estate Board said building costs throughout the development process have increased significantly. These costs are ultimately passed on to homebuyers and renters, contributing to higher housing prices and reducing much needed supply.
Sherwood pointed to changes to development charges as a potential next step.
“I think there’s always the challenge of ensuring that there’s enough housing-supportive infrastructure,” he said. “Hopefully development charge measures will be announced in the next couple of months –– helping to address that.”
• Email: shcampbell@postmedia.com