The housing crisis in Canada is a significant problem, and one that is of concern to all levels of government. In 2022, the federal government introduced measures to help with housing affordability (as described in our article, How tax-related housing proposals from the 2022 federal budget will impact you), including the multigenerational home renovation tax credit.
This article explains some of the key rules and requirements for the new tax credit and how recent interpretations by the Canada Revenue Agency (CRA) have opened up opportunities for eligible Canadians.
What is the multigenerational home renovation tax credit?
In general terms, the multigenerational home renovation tax credit is a refundable tax credit provided by the federal government in respect of qualifying renovations carried out after 2022. These renovations must be made to a qualifying home in order to accommodate a qualifying individual (i.e., a person over age 65 or a person over age 18 who qualifies for the disability tax credit, and who is related to the homeowner).
The tax credit is 15% of eligible expenditures up to a total of $50,000, for a maximum refundable credit of $7,500. The credit is claimed in the tax year that the renovation project ends.
Who can claim the credit?
An eligible individual is the person who can make the claim for the tax credit. This is the person that ordinarily lives or intends to ordinarily live in the qualifying home (referred to as an eligible dwelling in the legislation) within a year of the completion of the qualifying renovation.
In addition, the eligible individual must be one of the following people:
- The qualifying individual
- The cohabiting spouse or common-law partner of the qualifying individual
- An adult who is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece, or nephew of either the qualifying individual or the cohabiting spouse or common-law partner of the qualifying individual
If an individual does not ordinarily live in the home and does not plan to do so after the renovation, they can still be an eligible individual if they own the qualifying home and are an adult who is a qualifying relative of the qualifying individual (e.g., a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of either the qualifying individual or the cohabiting spouse or common-law partner of the qualifying individual).
The eligible individual must be a resident of Canada throughout the year of claim. Only one qualifying renovation can be claimed in respect of a qualifying individual during their lifetime.
What is an eligible dwelling?
Renovations must be made to a housing unit located in Canada owned (solely or jointly with another person) by the qualifying individual or by a qualifying relative. The housing unit must also be one in which the qualifying individual and qualifying relative ordinarily live, or plan to ordinarily live within a year of completing renovations.
An eligible dwelling also includes the land the housing unit sits on and the surrounding land, which generally must be no greater than half a hectare.
What type of renovation qualifies?
A qualifying renovation must create a separate secondary unit, within the home or on the surrounding land, that is self-contained; has a private entrance, kitchen, bathroom, and sleeping area; and meets any local requirements to qualify as a secondary dwelling unit. It must be undertaken to enable the qualifying individual to live in the dwelling with a qualifying relative. The Income Tax Act does not specify which of the qualifying individual or qualifying relative must reside in the secondary unit or in the primary unit.
The renovation must not be designed to be temporary but be of an enduring nature and must be integral to the existing structure or land.
What expenses qualify?
The expenses that can be claimed for this credit must be directly related to the renovation, have been incurred after 2022, and for either goods acquired or services received for the renovation (including the costs of permits and rental equipment).
However, the cost of new appliances or a home entertainment device are not qualifying expenses, nor are financing costs. In general, the costs must not be of a recurring nature, such as routine maintenance, housekeeping, security monitoring, or outdoor maintenance.
Some renovation expenses may also qualify for the medical expense tax credit and/or the home accessibility tax credit. If such expenses are claimed under any of these credits, then the same expenses would not be eligible for the multigenerational home renovation tax credit.
What documentation is needed to support a claim?
Although receipts are not required to be filed with the CRA to make a claim, all supporting documents should be kept in case the CRA requests to see them at a later date.
This means that all eligible 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, including the vendor/contractor, their business address, and if applicable, GST/HST registration number.
In addition, records indicating the dates when goods were purchased and delivered and/or services rendered should be kept, as well as receipts and invoices showing proof of payment.
What do the new interpretations by the CRA mean?
When the rules were first introduced, it was generally considered that a typical renovation that would qualify would be a “granny suite” – that is, creating a separate living area within an existing home where an elderly parent could live in a house owned by their children or grandchildren.
While that type of arrangement falls within the rules, some recently released technical interpretations from the CRA have broadened our understanding of the legislation and what type of housing arrangements may qualify for the multigenerational home renovation tax credit.
For example, it is possible that building a separate self-contained unit on the existing property, such as a laneway house or a small home (provided such buildings are allowed under applicable local laws), could qualify for the credit.
In addition, it is possible that a new home can be built with a secondary unit contained within it or on adjacent land. The secondary unit does not need to be built after the primary unit – they can be built at the same time.
Although not addressed by the CRA, given that the Income Tax Act does not specify which of the qualifying individual or qualifying relative must reside in the secondary unit, it should be possible for parents or grandparents over age 64 to own the primary home and for them to build the secondary home for their adult children to live in.
How BDO can help
When all the requirements are considered, it may be possible for families to use these rules to find a creative housing solution while benefiting from the tax credit.
The information in this publication is current as of September 7, 2023.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.