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Among the 2023 tax changes that took effect for this year is the brand new Multigenerational Home Renovation Tax Credit (MHRTC). This refundable credit was introduced to assist Canadians with the cost of renovating a home to create a secondary unit so that a family member who is over 65 years of age (or 18 if they qualify for the disability tax credit) can live with you. The credit is available for renovation expenses incurred in 2023 and beyond.
Let’s review the basic rules surrounding this new credit, and then highlight a helpful Canada Revenue Agency technical interpretation released last month that could be of benefit to taxpayers who may be constructing, rather than renovating, a new home.
A qualifying renovation is one that creates a secondary unit in your home that will be occupied by your relative. The refundable credit is worth 15 per cent of the value of your qualifying expenditures, up to a maximum spend of $50,000. So, if you spend $50,000 (or more) on the renovation, your credit is worth $7,500.
The relative can be a parent, grandparent, child or grandchild, brother, sister, aunt, uncle, niece or nephew of the homeowner or their spouse or common-law partner.
A “qualifying renovation” is a renovation, alteration or addition made to your home that’s of an enduring nature and integral to the home. The renovation must be undertaken to establish a secondary unit within your home in which your relative may live. A secondary unit is a self-contained housing unit with a private entrance, kitchen, bathroom facilities and sleeping area. It can either be newly constructed (more about that below) or created from an existing living space that didn’t already meet the local requirements to be considered a secondary dwelling unit.
Expenses can only be claimed in the tax year in which the renovations are completed. So, if you start the renovations this year, but only finish them in 2024, the MHRTC can only be claimed in 2024.
Which expenses qualify? Pretty much all renovation materials and services, along with the cost of permits and the rental of equipment used in the qualifying renovation will qualify.
The CRA has also provided a list of expenses that don’t qualify: the cost of annual, recurring, or routine repair or maintenance, household appliances, home entertainment devices, security monitoring, gardening, outdoor maintenance and financing costs (i.e. interest on a home renovation loan or line of credit). In addition, you can’t claim the MHRTC for any goods and services provided by your friend, neighbour or relative unless that person is registered to collect the goods and services tax/harmonized sales tax (GST/HST).
And, while you’re certainly allowed to do the work yourself, the only qualifying expenditures that are eligible for the credit would be expenses for building materials, fixtures, equipment rentals, building plans and permits — not the value of your labour (nor your tools.)
You also can’t double dip. Some renovation expenses, such as the purchase and installation of a wheelchair ramp if your relative can’t use the stairs, may qualify for the medical expense tax credit (METC) and the home accessibility tax credit (HATC). If you claim either (or both) of these credits for those renovation expenses, they cannot be claimed again under the MHRTC.
All expenses need to be supported by acceptable documentation, such as agreements, invoices and receipts. They must identify the type and quantity of goods purchased or services provided, as well as show the vendor/contractor, their business address and their GST/HST registration number. The CRA also wants to see the date when the goods were purchased, the date when the goods were delivered and/or when the work or services were performed. Receipts or invoices showing proof of payment, such as a credit card slip or cancelled cheque are also required.
In the recent CRA technical interpretation, a taxpayer wrote to the agency concerning eligibility for this new credit. The taxpayer stated that she planned to construct a home for her family with a semi-attached garden suite for her parents to live in. The taxpayer wanted to know whether she had to build the main house first and occupy it for a specified minimum period of time, and then add the garden suite later. Or, could she have both units constructed at the same time, and still qualify for the MHRTC.
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The CRA responded favourably, noting that the Income Tax Act does not require that a home be fully built prior to building a secondary unit in order for qualifying renovation expenses to be eligible for the MHRTC, nor does the Act require a taxpayer to reside in the home prior to adding a secondary unit. The CRA did warn, however, that there must be a “reasonable expectation” that both the taxpayer and their relative will “ordinarily inhabit” both the home and the secondary unit within one year after the end of the renovations.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto.