Are you considering enhancing your living space to accommodate a multigenerational household? The Canada Revenue Agency (CRA) has introduced an exciting opportunity to make this a reality with the new Multigenerational Home Renovation Tax Credit (MHRTC).
This valuable credit assists Canadians in transforming their homes by creating secondary units for family members aged 65 and above (or 18 if they qualify for the disability tax credit). In this blog post, we’ll delve into the key aspects of the MHRTC and shed light on a recent CRA clarification that could prove advantageous for those considering new home construction.
Understanding the MHRTC – Key Points:
Qualifying Renovation: A qualifying renovation involves establishing a secondary unit within your home, intended for the occupancy of a relative. This unit should have a private entrance, kitchen, bathroom facilities, and a sleeping area. It can be newly constructed or converted from an existing living space that didn’t meet the criteria for a secondary dwelling unit.
Credit Value: The MHRTC offers a refundable credit worth 15% of eligible renovation expenses, capped at a maximum of $7,500. If you spend $50,000 or more on the renovation, you can take full advantage of this credit.
Eligible Relatives: The relative who occupies the secondary unit can be a parent, grandparent, child, grandchild, sibling, aunt, uncle, niece, or nephew of the homeowner or their spouse/common-law partner.
Expenses and Documentation: Eligible expenses include renovation materials and services, permits, equipment rentals, and even building plans. To claim the credit, ensure you maintain proper documentation, such as agreements, invoices, receipts, and evidence of payment.
Ineligible Expenses: While many renovation costs qualify, some are excluded, such as routine repairs, home appliances, entertainment devices, security monitoring, gardening, outdoor maintenance, and financing expenses. Goods and services provided by non-GST/HST registered individuals are also not eligible.
Construction vs. Renovation: A Noteworthy Clarification
A recent technical interpretation by the CRA has clarified an important question: Can you still qualify for the MHRTC if you’re constructing a new home with a secondary unit? The answer is positive. The CRA confirmed that the Income Tax Act doesn’t require the primary residence to be fully built before adding a secondary unit to claim the MHRTC. Similarly, there’s no need for the taxpayer to reside in the home before creating a secondary unit.
However, it’s important to have a “reasonable expectation” that both the taxpayer and the relative will inhabit both the main home and the secondary unit within a year after renovations are completed.
The Multigenerational Home Renovation Tax Credit offers a valuable opportunity to transform your living space to accommodate your loved ones while enjoying financial benefits. Whether you’re renovating an existing space or constructing a new home with a secondary unit, the MHRTC can provide significant support. To make the most of this credit, ensure you meet the qualifying criteria, keep meticulous documentation, and consider the recent CRA clarification for constructing new homes.
At Canadian Mortgage Professionals, we understand the intricacies of tax credits and how they can impact your mortgage journey. Our experienced mortgage team is here to guide you through the process, ensuring you maximize your benefits while achieving your homeownership goals.
Contact us today to explore how the MHRTC can play a role in your next home project.