CRA has clarified the principles for brand new MHRTC dwelling renovation tax credit score (2024)

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Among the many 2023 tax adjustments that took impact for this yr is the model new Multigenerational Residence Renovation Tax Credit score (MHRTC). This refundable credit score was launched to help Canadians with the price of renovating a house to create a secondary unit so {that a} member of the family who’s over 65 years of age (or 18 in the event that they qualify for the incapacity tax credit score) can stay with you. The credit score is accessible for renovation bills incurred in 2023 and past.

Let’s evaluation the fundamental guidelines surrounding this new credit score, after which spotlight a useful Canada Income Company technical interpretation launched final month that may very well be of profit to taxpayers who could also be establishing, relatively than renovating, a brand new dwelling.

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A qualifying renovation is one which creates a secondary unit in your house that might be occupied by your relative. The refundable credit score is price 15 per cent of the worth of your qualifying expenditures, as much as a most spend of $50,000. So, should you spend $50,000 (or extra) on the renovation, your credit score is price $7,500.

The relative generally is a mother or father, grandparent, little one or grandchild, brother, sister, aunt, uncle, niece or nephew of the house owner or their partner or common-law accomplice.

A “qualifying renovation” is a renovation, alteration or addition made to your private home that’s of a permanent nature and integral to the house. The renovation should be undertaken to determine a secondary unit inside your private home wherein your relative could stay. A secondary unit is a self-contained housing unit with a personal entrance, kitchen, lavatory services and sleeping space. It could possibly both be newly constructed (extra about that beneath) or created from an present dwelling area that didn’t already meet the native necessities to be thought-about a secondary dwelling unit.

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Bills can solely be claimed within the tax yr wherein the renovations are accomplished. So, should you begin the renovations this yr, however solely end them in 2024, the MHRTC can solely be claimed in 2024.

Which bills qualify? Just about all renovation supplies and companies, together with the price of permits and the rental of kit used within the qualifying renovation will qualify.

The CRA has additionally offered a listing of bills that don’t qualify: the price of annual, recurring, or routine restore or upkeep, family home equipment, dwelling leisure gadgets, safety monitoring, gardening, out of doors upkeep and financing prices (i.e. curiosity on a house renovation mortgage or line of credit score). As well as, you possibly can’t declare the MHRTC for any items and companies offered by your buddy, neighbour or relative until that particular person is registered to gather the products and companies tax/harmonized gross sales tax (GST/HST).

And, whilst you’re definitely allowed to do the work your self, the one qualifying expenditures which are eligible for the credit score can be bills for constructing supplies, fixtures, tools leases, constructing plans and permits — not the worth of your labour (nor your instruments.)

You can also’t double dip. Some renovation bills, similar to the acquisition and set up of a wheelchair ramp in case your relative can’t use the steps, could qualify for the medical expense tax credit score (METC) and the dwelling accessibility tax credit score (HATC). If you happen to declare both (or each) of those credit for these renovation bills, they can’t be claimed once more underneath the MHRTC.

All bills must be supported by acceptable documentation, similar to agreements, invoices and receipts. They need to establish the sort and amount of products bought or companies offered, in addition to present the seller/contractor, their enterprise handle and their GST/HST registration quantity. The CRA additionally desires to see the date when the products had been bought, the date when the products had been delivered and/or when the work or companies had been carried out. Receipts or invoices displaying proof of cost, similar to a bank card slip or cancelled cheque are additionally required.

Within the current CRA technical interpretation, a taxpayer wrote to the company regarding eligibility for this new credit score. The taxpayer acknowledged that she deliberate to assemble a house for her household with a semi-attached backyard suite for her mother and father to stay in. The taxpayer needed to know whether or not she needed to construct the primary home first and occupy it for a specified minimal time period, after which add the backyard suite later. Or, may she have each models constructed on the identical time, and nonetheless qualify for the MHRTC.

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The CRA responded favourably, noting that the Revenue Tax Act doesn’t require {that a} dwelling be totally constructed previous to constructing a secondary unit to ensure that qualifying renovation bills to be eligible for the MHRTC, nor does the Act require a taxpayer to reside within the dwelling previous to including a secondary unit. The CRA did warn, nevertheless, that there should be a “affordable expectation” that each the taxpayer and their relative will “ordinarily inhabit” each the house and the secondary unit inside one yr after the top of the renovations.

Jamie.Golombek@cibc.com

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto.