How To Earn Tax Credits for Home Improvements
Both the provincial and federal governments have tax credit programs to offset some of the costs of improving your property.
By Brennan Doherty | 5 minute read
Homes aren’t cheap, and neither are home improvements. Everything from upgrading an HVAC system to putting in a new banister can be an expensive, time-consuming chore – especially for homeowners who can barely put up a picture frame.
Fortunately, the Ontario and federal governments have a couple of benefit programs that allow you to deduct some of the cost of renovations from your income taxes. They’re mainly focused on defraying the tax costs of actually building or buying a home, or aimed at renovations for disabled or elderly residents.
“Whenever you’re looking to take advantage of a tax credit for home renovations, always keep your receipts, invoices, and any information on contractors you hire. You’ll need them to prove to the CRA that you stayed within the rules of a tax credit program.”
Here are the three most valuable tax credits available to homebuyers:
1. Multigenerational Home Renovation Tax Credit
Plenty of seniors find it difficult to live on their own, especially given the high cost of rental housing in cities like Toronto. That goes double for adults who might not have hit the age of 65, but are disabled and cannot find a place to live that meets their needs.
If you own your own home and want to take care of a disabled or elderly family member, like an adult or niece, the Multigenerational Home Renovation Tax Credit (MHRTC) lets you save money on renovating a secondary suite – aka, an apartment unit – within your own home.
Here’s how it works: If you are renovating a home in a way that helps a qualifying individual live in the home, you can deduct 15% of the cost of a single renovation worth up to $50,000. So, if you need to put in, say, a home elevator unit, and it costs the full $50,000, you’ll save a total of $7,500 through the MHRTC.
2. Home Accessibility Tax Credit
Not to be confused with the MHRT, the Home Accessibility Tax Credit is also designed to help pay for the cost of accessibility renovations. It’s open to anyone who is eligible for Canada’s disability tax credit, or who is over the age of 65 by the end of the year.
Basically, this credit offers as much as $3,000 to homeowners who either need to renovate their home to suit their accessibility needs, or by someone who is related to the qualifying individual – a niece, uncle, parents, or other family relation.
As the CRA’s website explains: “A qualifying renovation is a renovation or alteration that is of an enduring nature and is integral to the eligible dwelling (including the land that forms part of the eligible dwelling.” A ramp someone can easily remove, for instance, probably wouldn’t count – but bathroom railings might.
According to the federal government’s website, the exact amount covered by the HATC is 15% of the cost of making permanent or essential upgrades to a building – up to a maximum of $20,000. (In other words, if your repairs cost less than $20,000, you’re getting 15% of whatever the final bill happens to be, not the full $3,000).
3. Ontario’s provincial housing rebate
Homeowners who buy, build, or substantially renovate a house in Ontario can deduct part of the general sales tax (GST) or the federal part of the harmonized sales tax (HST) they paid. This can include anything from taxes on a land purchase to builder’s materials to actually put a roof and four walls on the home itself.
This benefit requires a homeowner to either build their own home or pay someone to do it, or conduct substantial renovations. According to the federal government’s website, this means “at least 90% of the interior of the existing house must be renovated or replaced to be a substantial renovation.” Major renovations, like adding a second story to a bungalow, also count.
The federal version of this program, the GST/HST Housing Rebate Program, only allows homeowners to claim this benefit if the fair market value of the house is under $450,000. But the Ontario government allows homeowners with houses worth more than that (in other words, pretty much every GTA homeowner) to claim this rebate, so long as they meet all the other conditions of the program. Ontario limits the rebate to a maximum of $24,000, regardless of how much you pay for construction. As with the other benefits above, the exact amount you’ll receive back depends on the renovations you’re doing to your house, as well as your final GST/HST bill.
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How to claim tax credits
Whenever you’re looking to take advantage of a tax credit for home renovations, always keep your receipts, invoices, and any information on contractors you hire. You’ll need them to prove to the CRA that you stayed within the rules of a tax credit program.
Depending on the exact credit you’re using, you’ll also need to record your claimed amount on your income tax returns. Unless you’re a tax accountant, you’ll probably need to hire a professional to help you figure out which lines to fill out properly – and how to get as much money back from the government as possible.
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