Everybody wants to be comfortable at home, but it isn't always easy to find that perfect home for sale. It's no wonder that home renovations are so popular. There are near limitless ways that a homeowner can modify their home to make it more comfortable, get more usable space, or reflect their dream home vision. Other times, people do renovations for necessity’s sake, such as for accessibility reasons.
Unfortunately, renovations aren't cheap. And even though they can theoretically improve your home's value when it comes time to sell, that doesn't do much for you when you're at the checkout counter of the hardware store. Even simple renovations done yourself can add up quickly, and once you look at bigger jobs that require professional labour, the bill can seriously add up.
Luckily, there are some options you can use to make the financial cost of improving a home somewhat cheaper. Besides popular options like using a home equity loan to fund renovations, there are also some savings to be had when it comes to tax season.
The federal government, and in some cases, provincial governments, provide Canadians with tax rebates for some qualified home renovations. Though they won't cover everything in every case, they are good to know about as you won't find these potential savings unless you know where to look.
Tax rules seem to be changing all the time, and even when you can get up-to-date info, it isn’t always easy to interpret. This article will explore your options for home renovation tax credits in Canada, who can use them, and how much they can save you.
The federal government provides two major tax credits for home renovations. However, their use is somewhat restricted to specific cases (unfortunately, Ottawa will not fund your basement finishing project just because you ask nicely). The two tax credits are a federal Home Accessibility Tax Credit and the newly created Multigenerational Home Renovation Tax Credit. Let's look at each in more detail.
The Home Accessibility Tax Credit is intended to help ease the burden of making Canadian homes more accessible for people with disabilities (anyone eligible for the disability tax credit) and the elderly. The two major types of renovations covered under the Home Accessibility Tax Credit are designed to make a home more accessible and functional for a qualifying person or reduce the risk of harm within or while entering a home. An excellent example of this may be adding a wheelchair ramp instead of a staircase.
The tax credit previously provided 15% of up to $10,000 of eligible expenses, but thanks to the new federal budget, the limit will be increased to $20,000 for a total possible credit of $3000. This credit is non-refundable, so while it can reduce the amount you owe on taxes, any extra value will not be added to your tax return.
The criteria for eligible claimants and expenses for the Home Accessibility tax credit are a bit specific, so if you plan on claiming this credit, be sure to carefully review the Canada Revenue Agency website on the topic. The simple version is that a person over 65 or with a disability may claim this credit. A person who conducts renovation on behalf of the latter may also claim this credit, but they must also be a close family relative who has claimed that person as a dependent for tax purposes.
Eligible dwellings include those lived in by the qualifying person and owned by themselves or the person claiming on their behalf. A qualifying individual may only have one qualifying home, and a single home may only claim a total of $20,000 in the event of multiple qualifying claimants.
Eligible home renovation expenses include many expenses incurred for conducting work alone, including materials, equipment rentals, and permits. Expenses may also include the cost of labour and professional services. The rules around this tax credit are a bit complicated, but the savings can be substantial, and more importantly, it can help make a home that is much more accessible for a person in need.
Another new tax credit will be introduced for the 2022 tax year, as outlined in the new federal budget. This new tax credit is aimed specifically at multigenerational housing.
As the housing supply becomes tighter and prices rise, more people have taken to living in multigenerational living arrangements. There are significant financial benefits to living together with your family and great personal benefits if you like their company.
There are also downsides, one being that not all homes are suited to the needs of large and multigenerational families. By introducing this tax credit, the government hopes to make these sorts of living arrangements more tenable for Canadians as our housing needs develop in response to our market conditions.
The primary use for this new tax credit is to create an additional dwelling or suite on an existing property. Such a renovation would make these living arrangements much more comfortable, though they are among the most expensive home renovations one can undergo.
The proposed tax credit would allow for a 15% credit on up to $50,000 of eligible renovation expenses. Like the Home Accessibility Tax Credit, this is a non-refundable tax credit. Also, this credit is limited to closest related people, such as parents, grandparents, siblings, and children.
And, your expenses and dwelling will need to be deemed eligible on several criteria, similar to the accessibility credit.
This tax credit is still relatively new and is not entirely in place as of yet, so if you plan on doing such a renovation, it may be worth waiting until the 2023 tax year when the credit should be in place.
In addition, the criteria for the Multigenerational Home Renovation Tax Credit may still change between now and 2023. So, before you undergo any renovations in the new year, consult with a tax professional to ensure you are eligible.
Beyond the home renovation tax credit offered by the federal government, several provincial programs can provide similar tax savings. Though not every province has a tax credit, many do, and you can even use them alongside the federal credits. Let's look more at the provincial home renovation tax credits in more detail.
This tax credit offered in BC is very much in line with the Home Accessibility Tax Credit; this credit is designed to help with home improvements for seniors, people with disabilities, or family members conducting renovations on their behalf.
The credit is a bit lower in terms of how much you can receive compared to the federal counterpart, being 10% of a maximum of $10,000 for a total value of $1000. The upside, however, is that this is a refundable tax credit. Any amount not used to reduce your taxes owed will be added to your tax return.
Eligible renovations include any functional changes to improve accessibility, lower risk, and make life more comfortable for seniors or persons with a disability.
You cannot use this tax credit for aesthetic changes or modifications intended to increase the property's value.
Residents of Saskatchewan can claim a general renovation tax credit for eligible home improvements. This tax credit is pretty different from previous ones we have looked at so far in that it is much more inclusive in terms of who can claim it.
The general requirements are that you own the home and you or a family member lives there. You must complete renovations within the tax year, and the upgrades must be an "enduring and integral" part of the home or the surrounding property.
How much can you claim?
Saskatchewan residents who claim this tax credit can receive 10.5% of expenses up to $20,000. This tax credit is non-refundable.
Please note that if you collect business income through your property, such as through a rental, you can only claim the credit on areas that comprise your principal residence, not tenanted areas. Eligible expenses include a range of common home improvements; you can read the complete list here.
Despite being a pretty open tax credit, there are still some limitations on what is eligible. Costs such as renovations to a cottage, the cost of your labour, appliances, or routine maintenance do not qualify for this tax credit.
This is yet another tax credit designed to help seniors cover the costs of renovating a home to make it more accessible and safe. In Ontario, a senior (65+) or a relative who lives with them can claim this tax credit on qualifying renovations.
As with the previous credits of this type, the eligible renovations are things you may expect. These might include wheelchair ramps, railings and grab bars, widened doors, automated switches and doors, and more.
This tax credit can be applied for renovations costing up to $10,000, and claimants can receive a credit of 25% or a maximum credit of $2,500. This credit is also refundable.
Finally, New Brunswick offers its own variation of a Seniors Home Renovation Tax Credit. Like those offered by the federal government and the provincial governments of Ontario and BC, this tax credit is designed to help make home renovations more affordable for seniors who need improved accessibility of safety in their homes.
The total amount you can claim for this tax credit is $10,000. This expense will be refunded at 10%, meaning a maximum credit of $1000. This credit is refundable so the provincial government will pay any excess value back on your tax return.
New Brunswick residents who are 65 years of age or older can claim this tax credit or a family member who lives with them. Eligible expenses align with the previous entries in this article; essentially, anything that makes a home safer or more accessible for seniors.
Renovations are, at the best of times, a luxury. However, not everyone wants to undergo renovations for their enjoyment. Many people find themselves privileged enough to own a home but need to make it more suited to their lifestyle needs. These tax credits can help these people to offset some of the costs of renovations.
Things like improving homes for seniors are a good idea because our population is increasingly aging and in need of more appropriate accommodations. It also makes financial sense; putting seniors at risk makes them more likely to need to use things like public health services. By encouraging these improvements with a tax kickback, the government can prevent accidents that may cost them more and help their aging population live more comfortably.
The same goes for multigenerational tax credits. Many people are forced by circumstance to live in multigenerational homes (though many choose to willingly as well), and not every home will be suited for this purpose. By encouraging these living arrangements, the government can help mitigate some effects of a low housing supply, which can reduce overall market pressure and the costs of improving housing conditions.
Suppose you are planning on conducting a home renovation in the near future. In that case, you should seriously consider taking advantage of these credits if you are a senior, a person with a disability, a member of a multigenerational family, or a Saskatchewanian. Not only will they reduce your tax costs at the end of the year, but many of the refundable provincial credits can end up putting more money back in your wallet.
There are also several initiatives that don't fall under tax credits that you may want to consider, such as the Federal Substantial Renovation Tax Rebate and provincial New Home Construction and Green Technology rebates and credits.
Tax issues can be complicated, and the guidelines online aren't always clean or up to date. If you plan on taking advantage of one of these tax credits, consult a tax professional before you begin any renovations to ensure you and the work you plan to do are eligible for these tax credits.
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