Tax Tip: Multigenerational Home Renovation Tax Credit

Spread the word!  It’s new for 2023 and subsequent taxation years, and up to $50,000 in construction expenditures may qualify for each qualifying renovated property. This is the Multigenerational Home Renovation Tax Credit (MGHRTC) and it’s quite lucrative. A $7,500 refundable personal tax credit is possible for eligible renovations or the construction of a secondary unit to enable an eligible family member to live with you. Who are these eligible people and renos?  Let’s check it out, based on the great guidance in Evergreen Explanatory Notes, Knowledge Bureau’s tax research library, included with every professional certificate course.

The rules for MGHRTC can be found in the Income Tax Act, section 122.92.  Briefly, it’s a new federal 15% refundable credit for up to $50,000 (which when multiplied by the federal tax rate of 15% is a maximum $7,500 refundable credit).

Eligible Family Members – Qualifying Individuals.   The money must be spent on eligible materials and services to renovate or construct a secondary dwelling for an eligible family member, that is a senior or disabled adult. Only one claim can be made per qualifying individual in their lifetime. The ITA, subsection 122.92(1), describes this as a qualifying individual as someone who is:

• an individual who is 65 years of age or older at the end of the renovation period, or
• an individual who is 18 years of age or older and who is eligible for the Disability Tax Credit.

Eligible Individuals for the Claim.  There is no claim if the eligible individual is not a resident in Canada throughout the tax year. This person must also ordinarily reside, or intend to ordinarily reside, in the eligible dwelling within 12 months of the end of the renovation period of a qualifying renovation.  More specifically, the eligible individual is also defined as one of the following (warning - it’s quite a confusing definition):

• A qualifying individual
• The cohabitating spouse or common-law partner of a qualifying individual (at any time in the tax year in which the claim is made)
• A qualifying relation of a qualifying individual Or
• someone who owns the eligible dwelling (or is the beneficiary of a trust that owns the eligible dwelling) and 
• A qualifying relation of a qualifying individual

Who is a qualifying relation?  That’s defined as someone who is 18 or older at the end of the year in which the credit is claimed and 

• a parent or grandparent,
• child or grandchild,
• brother or sister,
• aunt or uncle,
• niece or nephew

Of the qualifying individual (or the qualifying individual’s cohabiting spouse or common-law partner) at any time in the renovation period tax year.

Ownership.  It’s also important to note that the secondary dwelling can be jointly owned by the qualifying individual or qualifying relation of that person, or a trust if the tenants are beneficiaries.  The renovated building must be ordinarily inhabited (or expected to be so) by both the qualifying individual and their qualifying relation within 12 months after the reno period.

How the Credit is claimed.  This will be done on Schedule 12 and line 45355 of the 2023 T1 return. 

The credit may be split between claimants so long as the total claim does not exceed $50,000. Only one qualifying renovation can be claimed in respect of a qualifying individual in their lifetime.

Eligible Dwellings.  Again, we look to the ITA, Subsection 122.92(1) in this case. An eligible dwelling for a qualifying individual means a housing unit located in Canada that is a self-contained housing unit that includes a separate entrance, bathroom, kitchen and sleeping area.

Eligible Expenses.  The ITA Subsection 122.92(1) provides this guidance: qualifying expenses include the cost of labor and professional services as well as building materials, fixtures, equipment rentals and permits. The renovation costs can also be shared.

Not eligible are furniture, construction equipment and tools that retain value independent of the renovation, and things like routine repairs or maintenance, household appliances, financing of a renovation including mortgage interest costs and any expenses not supported by receipts. Likewise, services provided by those not at arm's length (your relatives or in-laws) do not qualify unless the service provider is registered for GST/HST purposes.

Qualifying Renos.  For reference, see ITA Subsection 122.92(1).  A qualifying renovation means an alteration or addition to an eligible dwelling of a qualifying individual that is enduring in nature and integral to the eligible dwelling.  It must be undertaken to enable a qualifying individual to reside in the dwelling with the qualifying relation by establishing a secondary unit within the dwelling for occupancy by the qualifying individual.

Under Subsection 122.92(1) as secondary unit is described as a self-contained housing unit that has a private entrance, kitchen, bathroom and sleeping area and meets the local requirements to qualify as a secondary dwelling unit and is located in Canada. 

This leads to an important question.  Can a detached “granny suite” qualify for this credit?  CRA has clarified their position on a new posting on their website in August of 2023.   Specifically, the renovation costs were incurred to create a secondary unit within the dwelling or on the property.  So, the answer to the “granny suite” question is yes.

If you are sharing renovation costs with another individual, as long as they otherwise qualify, have incurred the costs and the claim does not exceed the maximum for each qualifying person.  

If the claimant dies.  If an eligible individual or qualifying individual dies, on the final return the deceased is.

• A resident of Canada at the time of death and until the end of the year, if they were resident in Canada immediately before they died
• The same age at the end of the year as they would have been if they were still alive at the end of the year
• The cohabiting spouse or common-law partner of another individual (referred to as the "surviving spouse") at the end of the year if:
  • The deceased individual and surviving spouse were cohabiting immediately before death
  • The surviving spouse is not the cohabiting spouse or common-law partner of someone other than the deceased individual at the end of the year

Tax Trap.  This credit cannot be claimed if the same expenses are claimed under the Medical Expense Tax credit and/or the Home Accessibility Tax Credit.  The claim must be reduced by any expenses that were reimbursed such as grants, assistance, or rebates such as the GST/HST rebate.

Make a Difference.  The most difficult part of this new claim is understanding who can claim it, when to make the claim and keeping the receipts until the end of the renovation period.