There are a number of benefits for homeowners when they take advantage of the various home improvement and renovation tax credits offered by federal and provincial governments. When tax time rolls around, you can take advantage of these credits and save money on a portion of the renovation project and reduce the overall costs. That being said, there are strict requirements that must be met for the project to be deemed eligible to receive funding.
For example, the GST/HST new housing rebate program is just one instance where you can take advantage of programming to offset the cost of your renovation. It will have to be considered a substantial renovation so be sure to confirm that your renovation is eligible first. Oftentimes, a substantial renovation requires that a minimum of 90% of the home is renovated. Keep in mind areas like basements, crawl spaces, and garages are not included in these calculations.
What’s a tax credit?
When we use the term tax credit, let’s use the Canada home renovation tax credit as an example, we refer to a set amount of money that the taxpayer can claim that is subtracted from the overall total of a renovation project. These differ from deductions as a deduction lessens the amount of our taxable income while credits will lessen the amount of tax owed.
When it comes to the specific value of a tax credit, there are a number of factors that are considered. There are tax credits offered to both individuals and businesses in a wide variety of different classifications, industries, and locations.
Tax credit takeaways:
- A tax credit is something homeowners can subtract from the income tax that is owed. It is an exact dollar-to-dollar subtraction.
- A tax credit is considered more valuable than a tax deduction because it reduces the amount of overall taxes due.
- The 3 basic types of tax credits available are refundable, nonrefundable, and partially refundable.
- Refundable tax credits are paid out in full and are much more beneficial to taxpayers.
- A tax credit that is non-refundable can help reduce the tax amount that you owe to 0, but you cannot claim a tax refund.
Ontario Home Renovation and Improvements Tax Credits
Comfort is something we all look for with our homes, but everyone’s definition of comfort differs significantly. This is why home renovations are as common as they are. Whether you’re looking to create more space for your family to enjoy, you’re finally creating your dream home or you’re outfitting your home to make it more accessible, you’re probably aware that home renovations are not cheap.
And while it is true that home renos will boost the overall value of your home, it’s not typically a significant amount. Fortunately for Ontario homeowners, there are cost-saving options to consider in the form of tax credits.
Ontario New Housing Rebate for Substantial Renovations
When it comes to home renovation grants in Ontario in 2022, there are definitely some avenues to explore. Any Ontario homeowner that has undertaken a substantial renovation on what is legally considered their principal residence can be eligible to receive a rebate on paid HST that ranges between $16,080 to $24,000. People who paid HST on their property’s purchase price are eligible to receive a more significant rebate, while the smaller rebates are set aside for those who didn’t.
After all, is said and done, the rebate is 75% of provincially paid HST to eligible construction materials and costs. In addition, the fair market value of the property cannot be higher than $450,000 after the renovations are completed. In addition, you have to apply for this rebate within two tax years of the project’s completion. And don’t forget, in order for the project to qualify as a substantial renovation, upwards of 90% of the home must be replaced.
Ontario Seniors’ Home Safety Tax Credit
Ontario seniors are eligible to receive up to $2,500 of tax credit that can be deducted from their income taxes. This tax credit goes towards safety improvements within the home that are intended to help prevent injuries and accidents for seniors. A wide array of home renovations are included in these tax credits which include the addition of smoke alarms, fixing loose stair treads, along with bathroom grab bar and rail installation.
This deduction is worth 25% of up to $10,000 in expenses per household. In order to qualify, applicants must be 65 years of age or older by the time the tax year ends following the completion of the work. And if you reside with a senior that you are related to, this requirement will be waived.
Multigenerational Home Renovation Tax Credit
The budget released in 2022 proposed a brand new Multigenerational Home Renovation Tax Credit. This proposed tax credit would be refundable for all eligible expenses for qualifying renovations.
In order to qualify for this home renovation tax credit, you would have to construct a complete secondary suite for aging family members living in your home – this includes seniors or individuals with a disability. The overall value of this tax credit is $50,000 along with 15% of the lesser of eligible expenses.
Eligible persons: seniors and adults with disabilities are considered as the eligible demographic that would allow one to qualify for this tax credit. They are defined as follows:
Senior: seniors are people 65 years of age and older at the end of the tax year of the year the project concluded.
Adult with a disability: this group is defined as adults 18 years of age and up and are included in the Disability Tax Credit. The individual must be at least 18 years of age at the end of the tax year.
In addition, a qualifying relation must also exist. This includes an individual that is 18 years of age or older and is a brother, sister, child, parent, grandparent, grandchild, aunt, uncle, niece, or nephew of the eligible. This includes the spouse or common-law partner of one of those individuals.
In order to be considered an eligible claimant of the Multigenerational Home Renovation Tax Credit, the individual:
- Must reside or intend to reside in the eligible residence within a maximum of 12 months following the completion of the project.
- Must be the eligible individual, or common-law partner or spouse of an eligible person.
- Claims must not exceed $50,000
In order for a dwelling to be deemed eligible for this credit, the housing unit must:
- Be owned (jointly or otherwise) by the person that is eligible to claim the tax credit, their common-law partner or spouse, or be of qualifying relation.
- The eligible individual has to ordinarily reside or intend to reside in the residence within 12 months following the completion of the renovation.
The eligible dwelling would also pertain to any land adjacent to the primary residential unit and property. However, this would not include any land that is larger than a one-half hectare. Secondary units are defined as liveable and self-contained residences. They have private entrances, a bathroom, a kitchen, and a bedroom. This unit can be constructed as new or as part of an existing residence that is renovated. It’s important to obtain all necessary permits to legally construct secondary suites.
Federal Home Accessibility Tax Credit
Another tax credit that is available is the Home Accessibility Tax Credit – a non-refundable tax credit for eligible home renovation expenses. In order to qualify, an individual must be eligible to claim, at any time of the year, the Disability Tax Credit or a person 65 years of age or older at the end of that tax year. The credit is calculated based on the lowest personal income tax rate in 2022 at a rate of 15 percent, or less than $10,000.
There may potentially be an increase to $20,000 in order to better promote individuals living independently. This increase would allow for increased tax support in order to take on more significant renovations that would promote better accessibility. Some examples of this include building a bathroom or bedroom on the first floor for a qualifying individual that has difficulties accessing living spaces on different floors.
Canada Greener Homes Grant
In order to better allow for homeowners to save money through lower energy costs, the government has introduced the Canada Greener Homes Grant. This allows homeowners to make their homes more energy efficient. This past June, the federal government introduced the Canada Greener Homes Loan. With interest-free loans up to $40,000, Canadians can outfit their homes to be more eco-friendly. Eligible retrofits include renewable energy systems, energy-efficient windows and doors, and home insulation. The program begins in January 2023 and will be open to all Ontario residents, regardless of their heating method. This is part of a nationwide endeavor to reduce building emissions while at the same time affording cost savings on utility bills to residents.
Canadians may be eligible to receive:
- Grants from $125 to $5000 to assist with the cost of home retrofits
- Up to $600 towards the total cost of a pre-and post-retrofit EnerGuide evaluation
- $5,000 to $40,000 in interest-free loans towards the cost of major home retrofits
Save Money While Renovating Your Home
There you have it! A number of different ways you can help lower your home renovation costs. If you’re making your home more energy efficient – explore the Canal Green Homes Grant! Perhaps you’re outfitting your house to make it more accessible – the federal home accessibility tax credit is something to explore. A multigenerational home to provide a senior or a family member with a disability with a place to live can even qualify for tax credits. A substantial renovation where you remodel over 90% of your home can even qualify you for potential credits. Educating yourself on how to save money while renovating your home is always the first step you should take when planning a renovation.
Below are some of the most frequently asked questions about home reno tax credits.
FAQs
Any home renovation project of substantial work is tax deductible in Canada. A substantial renovation is defined as a house renovation that has renovated upwards of 90% of the lived-in space. This does not include renovating the garage, basement, or crawl spaces.
There are a handful of home renovation tax credits available in 2023. This includes the Canada Greener Homes Grant, the federal Home Accessibility Tax Credit, the Ontario New Housing Rebate, and the Multigenerational Tax Credit.
You can claim your home renovation tax credit in Canada on your income taxes. You will have to complete a specific form that tallies all of your expenses incurred during the home renovation.