Are you planning to renovate your property to create a common space for grandparents, parents, or other qualifying relatives? If you are, understanding the Multigenerational Home Renovation Tax Credit [MHRTC] can help you leverage tax benefits and ease the financial burden
The Canadian government introduced the Multigenerational Home Renovation Tax Credit (MHRTC), a refundable credit designed to support the cost of renovating eligible dwellings for the purpose of establishing secondary units.
In this blog post, we’ll explore the key aspects of the MHRTC, including eligibility criteria, qualifying renovations, and claiming credit.
Eligibility Requirements:
To claim the tax credit, you must meet specific criteria. First, you must be the owner of the house and over 18 years old. Additionally, the renovation must be for a qualifying relationship, including grandparents, parents, children, siblings, nephews/nieces, aunts/uncles, or grandchildren. The person for whom the renovation is being done must move in or intend to move in within 12 months after the completion of the renovation.
Qualifying Renovations:
A qualifying renovation is one that is permanent in nature and sets up a self-contained secondary dwelling within the property. This secondary unit should have a separate kitchen, bathroom, sleeping area, and a private entrance. Local city approval is also necessary to claim the Multi-Generational Home Renovation Tax Credit. While it may seem strict, having a private entrance is a crucial requirement for eligibility.
Qualifying Expenditures:
Eligible expenditures that can be claimed for the tax credit include the cost of materials used in the renovation, fees paid to architects, and expenses incurred for hiring electricians or plumbers. It is important to note that labor expenses, even if the work is done personally, cannot be claimed. To support the claim, you should retain original receipts, and proof of payment, and ensure that invoices have the necessary GST/HST numbers.
Non-Qualifying Expenditures:
Certain expenses cannot be claimed under the Multi-Generational Home Renovation Tax Credit. These include routine repairs, appliance purchases, home entertainment devices, housekeeping costs, financing costs, and payments to individuals who are not registered for GST/HST. If you receive any reimbursements or subsidies for the expenses, they must be deducted from your claim. It’s crucial to avoid double-dipping by claiming the same expenses under other tax credits such as the disability or medical expense tax credit.
Maximum Claim Amount:
The maximum tax credit that can be claimed under the Multigenerational Home Renovation Tax Credit is $7,500. However, this credit is refundable, meaning that individuals can receive the full amount, even if their tax liability is less than $7,500. If the total qualifying expenditures are less than $50,000, the tax credit is calculated as 15% of the eligible expenses incurred during the renovation period.
Documentation:
To support your claim, it’s essential to keep documentation such as permits, original receipts, proof of payment, and invoices with valid GST/HST numbers. These documents will serve as evidence of your eligible expenses.
Special Considerations:
If you plan to include a separate building, such as a laneway house or carriage house, in your renovation project, it can also be counted towards your tax credit claim. However, it is essential to ensure that the separate building complies with local bylaws and is renovated for a qualifying relative. Additionally, both you and the relative must be Canadian residents, and careful consideration should be given when accommodating temporary residents.
Common Questions:
I also answer some of the common questions I get asked about the Multi-Generational Home Renovation Tax Credit in my recent youtube video. These include Do I need to be a Canadian citizen or permanent resident to qualify? Can I claim the tax credit if I have already claimed other renovation-related tax credits? Is there a deadline for claiming the tax credit? Can I claim the tax credit for renovations done in previous years?
By meeting the specific criteria and following the guidelines set by the government, homeowners can maximize their tax savings and create comfortable living spaces for their loved ones. Remember to consult with a tax professional or refer to the official CRA guidelines for detailed information tailored to your specific situation.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Tax Accountant
