The fact that Canada is in the middle of a housing crisis isn’t really news to anyone. Whether it’s having difficulty finding an affordable apartment or putting together enough money for a down payment, or coping with ever increasing mortgage interest rates and mortgage payments, housing availability and affordability is a concern for Canadians across all age groups.
That reality led the federal government to propose a number of measures to address the housing needs of Canadians. One of those measures – the Multi-Generational Home Renovation Tax Credit – will take effect in 2023.
As the name implies, the Multi-Generational Home Renovation Tax Credit will provide assistance through the tax system for costs incurred to create additional living space which will allow an elderly (over 65) or disabled adult relative to live with family, while at the same time having their own self-contained living space.
Take, for example a couple in their late 50s whose children have all moved out of the family home to live on their own, and so now have a home that is too big for just the two of them. Many Canadians in that “sandwich generation” also have parents in their 80s who don’t want (or need) to move into an assisted living facility but could nonetheless benefit from having family nearby to provide them with help with some aspects of day-to-day independent living. The new tax credit program provides the opportunity for that empty nester couple to stay in their family home and renovate that home to provide living space for all family members, and to do so on a tax-assisted basis.
Similarly, parents of disabled adult children who are not capable of fully independent living often have great difficulty in finding appropriate (and affordable) residential facilities in which those adult children can live. In such cases, being able to provide a self-contained living space for those disabled adult children within their existing home, while still being able to provide the necessary degree of supervision, would provide an additional option for such families.
The phrase which usually comes to mind when describing such living arrangements is a “granny flat”, which implies a separate, smaller structure on the same property as the existing home. While that is certainly an available option under this program, it’s not the only one. The new tax credit will be available for “renovations, alterations or additions” to an existing dwelling which results in the creation of a “secondary housing unit” for the elderly or disabled relative. The only requirement is that the new housing unit to be used by the qualifying relative must be self-contained, having a private entrance, kitchen, bathroom facilities, and sleeping area. So, renovations eligible for the new credit would include a separate, smaller housing unit on the same property, an addition built on to the existing home, or simply renovations made to the existing home without changing the size of that home. As long as the requirement of being a self-contained housing unit having a separate entrance, kitchen, bathroom, and sleeping area is met, the configuration of the renovated/newly constructed space is entirely up the individuals doing that renovation or construction.
Regardless of the configuration of the changes, it’s readily apparent that the cost of carrying out such renovations or construction will be substantial. Consequently, the refundable tax credit which can be claimed under the new program will be equal to 15% of eligible renovation/construction expenses incurred, to a maximum of $50,000 in such expenses. In other words, a refundable tax credit of $7,500 can be claimed where $50,000 or more in eligible expenses are incurred. Where expenses incurred are less than that amount, the refundable tax credit claimable will be 15% of actual expenses incurred. Regardless of amount, all expense claims must be supported by receipts.
The range of such expenses which will qualify for the credit is broad, and includes the cost of labour and professional services, building materials, fixtures, and equipment rentals and permits. Costs incurred for furniture or appliances for the new premises do not qualify for the credit, nor do any costs (i.e., interest costs) of financing the renovation or new construction.
The new credit will be available for the 2023 and subsequent tax years, so only work performed and paid for and/or goods acquired after the end of 2022 will be eligible for the credit. An eligible renovation/construction is considered to be completed when the work passes a final inspection, and the tax credit is then claimed for the taxation year in which the project is completed.
The information above outlines the general framework of the new tax credit program; as with all such programs, there are detailed requirements which must be fulfilled. Those details can be found in the budget announcement of the Multi-Generational Home Renovation Tax Credit, which is available on the Finance Canada website at https://budget.gc.ca/2022/report-rapport/tm-mf-en.html#a2. The federal government has also recently carried out a consultation process with respect to this credit and other 2022 budget measures, and that consultation process ended on September 30, 2022. Any changes to the program terms arising from that consultation process should be made available on the Finance Canada website prior to the program implementation date of January 1, 2023.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.