Yahoo Finance Taxes 2024: Can I write off home renovations in Canada?
Tapping the right tax breaks is key when saving for, buying, or selling a home in Canada. But for those who have already bought and plan to stay put, experts say the scope of federal tax benefits is narrow.
The principal residence exemption, which allows owners to avoid capital gains tax when they sell their primary home, is “the biggie,” according to Nicole Ewing, a tax and estate planning director at TD Bank.
As of Jan. 1, 2023, the Canada Revenue Agency (CRA) tightened the rules to exclude the sale of housing units sold after less than a year of ownership, subject to certain exceptions like death and disability.
“Make sure that you’re not accidentally caught by the anti-flipping rules,” Ewing told Yahoo Finance Canada. “That might be something that’s not on people’s radar.”
While CRA has made adjustments to crack down on profiteering, CIBC’s managing director of tax and estate planning says there’s no sign of Canada’s federal tax policy shifting to mirror the United States, which caps the amount of profit shielded from taxes.
“I think it would be a political nightmare,” Jamie Golombek told Yahoo Finance Canada. “It would be unfair to existing homeowners who rely on that as a store of value for retirement.”
For future buyers, Ewing and Golombek say the First Home Savings Account (FHSA) is a great way to build up a downpayment to enter the housing market. The money is tax-free on the way in, like a registered retirement savings plan (RRSP). It’s also tax-free on the way out, like a tax-free savings account (TFSA).
Contributions are limited to $8,000 annually, up to $40,000 over a lifetime. The funds to purchase a home must be used within 15 years, or by the time the account holder turns 71.
“It’s kind of like a slam dunk, if you’re a first-time homebuyer,” Golombek said.
Ewing says it's important to remember that only $8,000 of unused room in the account can be carried forward annually.
“There’s been a lot of advice to people, like, ‘Hurry up and open the account so that it’s there when you're ready. You can accumulate the contribution room,’” she said. “If I don’t make any contributions for 10 years, I don’t have 10 years of contribution room.”
If you purchased a home in 2023, Line 31270 of your tax return may be of interest. The home buyers’ amount (HBA) allows you to claim up to $10,000 for a maximum credit of $1,500.
For current homeowners thinking about renovating, the Canada federal tax benefit buffet is pretty sparse.
“There’s not a lot of opportunity to reduce taxes from a homeownership perspective,” Ewing said.
The Multigenerational Home Renovation Tax Credit (MHRTC) is a new measure for the 2023 tax year. It’s designed to help Canadians with the cost of renovating to create a secondary unit for family members 65 years old and up, or 18 and up, if they qualify for the disability tax credit (DTC).
"It's gonna have a private entrance, kitchen, a bathroom, and a sleeping area. Things like that,” Golombek said. “This could be something you newly construct, like you're building a new home, and you're putting in an in-law suite in the basement, or it could be a renovation that your existing home can occupy.”
The relative can be a parent, grandparent, child or grandchild, brother, sister, aunt, uncle, niece or nephew of the homeowner, or their spouse or common-law partner.
This refundable credit is worth 15 per cent of the value of your qualifying expenditures up to $50,000. So, $7,500 is the maximum return. For families sharing renovation costs, the credit may be split, as long as certain conditions are met.
"$50,000 in expenses can go further in some areas than others,” Ewing said. “Your decision might depend on the cost of [building] housing, and cost of alternatives."
Similarly, the home accessibility tax credit (HATC) is a non-refundable credit allowing claims up to $20,000 per year for eligible renovations to improve access for Canadians 65 years old and up, or those who qualify for the DTC.
“Think about a walk-in shower, or grab bars, and wheelchair ramps. Things like that,” Golombek said. “Only 42,000 people claimed this in 2021. So, that’s not a lot of Canadians.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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