HST and GST on Construction Projects

Sales tax rarely gets top billing in a conversation about construction costs, right up until it shows up as an unexpected six-figure line item on a large project, or a missed rebate that would have saved a homeowner thousands of dollars. Understanding how GST and HST actually apply to construction work, and what relief exists for new housing, is a basic piece of financial literacy for anyone building, buying newly built property, or running a contracting business in Canada.

GST vs. HST: The Basics

Canada applies sales tax on construction through one of two systems depending on the province. The Goods and Services Tax (GST) is a federal tax of 5%, applied on its own in Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, and the three territories (Quebec also layers its own provincial sales tax on top through a separate system). The Harmonized Sales Tax (HST) combines the federal GST with a provincial component into a single tax, applied at 13% in Ontario and 15% in Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador.

For a contractor or homeowner, the practical difference is largely administrative, since HST is collected and remitted as a single combined tax rather than two separate ones. The rate itself, however, has a real impact on total project cost, and it needs to be accounted for at the budgeting stage, not discovered at invoicing.

How Tax Applies to a Construction Contract

A common misconception is that sales tax applies only to materials, with labour somehow exempt. In reality, GST and HST generally apply to the full value of a construction contract, materials and labour together, when work is performed by a GST/HST-registered contractor. This applies to new construction, renovations, and most repair work.

There are limited exceptions and special rules, including certain exports, some services provided to specific exempt entities, and the specific rebate and self-supply rules that apply to new residential construction, covered below. For the large majority of residential, commercial, and industrial construction contracts, though, the full contract value is taxable.

The GST/HST New Housing Rebate

Two separate federal rebates now apply to new housing, and the gap between them runs into tens of thousands of dollars. The original GST/HST New Housing Rebate returns a portion of the GST, or the federal portion of HST, paid on a new or substantially renovated home used as a primary residence. It works on a sliding scale, begins phasing out at $350,000, and disappears entirely once fair market value reaches $450,000. Maximum recovery under this rebate is $6,300.

That ceiling stopped matching the market years ago, which is why the second rebate exists. The First-Time Home Buyers' GST Rebate eliminates the full 5% GST on a qualifying new home priced at $1 million or less, worth as much as $50,000. Between $1 million and $1.5 million the amount scales down, and above $1.5 million it disappears. Bill C-4 received Royal Assent on March 12, 2026, and the rebate covers purchase agreements entered into on or after March 20, 2025 and before 2031.

Eligibility for the newer rebate is tighter. The buyer has to qualify as a first-time home buyer, use the home as a primary place of residence, and be the first person to occupy it. Construction has to begin before 2031 and reach substantial completion before 2036. Anyone who took ownership before Royal Assent applies to the Canada Revenue Agency directly, since builders couldn't credit the rebate at closing while the legislation was still in progress.

Individual buyers purchasing from a builder can claim it, and so can people who build or substantially renovate their own home. Corporations and partnerships generally can't, which matters for anyone structuring a development through a corporate entity.

Ontario's Additional Provincial Rebate

Because Ontario's HST includes a provincial component, Ontario also runs its own new housing rebate covering part of that provincial portion, administered alongside the federal rebate. The standard version returns 75% of the 8% provincial share up to a maximum of $24,000, and it carries no purchase price cap, so buyers of homes priced above the federal cutoff still recover something provincially even when the federal rebate has fully phased out.

Ontario has temporarily widened that relief. The Ontario enhanced new housing rebate returns up to $80,000 of the provincial portion, and it applies where the purchase agreement is entered into between April 1, 2026 and March 31, 2027. Homes valued up to $1 million get the full 8% provincial share back, homes between $1 million and $1.5 million receive a flat $80,000, and relief tapers from there down to the standard $24,000 by $1.85 million. Stacked with federal relief, an eligible Ontario buyer recovers up to $130,000 of the 13% HST.

The enhanced rebate is open to all eligible buyers rather than first-time buyers alone, and it extends to qualifying new rental housing. Construction and completion timing rules apply on top of the agreement date.

Provincial rebate rules shift more often than most buyers expect, so treat any number in this article as a starting point rather than a final figure. Before a purchase agreement gets signed or a claim gets filed, a quick check with the Canada Revenue Agency or an accountant familiar with real estate transactions can confirm what actually applies today.

Input Tax Credits for Contractors

Separate from the homebuyer rebate, GST/HST-registered contractors can generally claim input tax credits (ITCs) to recover the GST/HST they pay on legitimate business purchases: materials, equipment, subcontractor invoices, and other taxable business expenses. This is a standard part of running a registered construction business and is distinct from any rebate available to an end buyer.

Contractors need to be registered for GST/HST once they exceed the small supplier threshold (currently $30,000 in revenue over four consecutive calendar quarters), and proper ITC tracking is one of the more consistently overlooked bookkeeping tasks in smaller contracting operations, often leaving real money unclaimed at year end.

Common Mistakes

A handful of errors show up repeatedly around construction sales tax. Contractors sometimes quote a price without clearly stating whether tax is included, creating disputes at invoicing. Homeowners occasionally assume a rebate applies automatically without filing the correct paperwork, when in most cases a rebate must be actively claimed, either directly or assigned to the builder as part of the purchase agreement. Buyers who closed on a qualifying home before the first-time buyers' rebate became law miss it entirely unless they go back and claim it from the Canada Revenue Agency themselves. Some smaller contractors fail to register for GST/HST once they cross the small supplier threshold, creating compliance exposure. And some estimates simply omit sales tax from an early budget entirely, leading to an unpleasant surprise once a final invoice or closing statement arrives.

None of this is a substitute for professional tax advice specific to a given project or purchase. Rebate thresholds, provincial rules, and registration requirements change periodically, and anyone with a specific transaction on the table should confirm current rules with the Canada Revenue Agency or a qualified accountant before relying on any general figure.