Tapping into some of the tax credits that the federal and provincial governments provide for homeowners gives you a chance to recover some of the money you spent on improving your home. These tax credits also serve as rewards to homeowners for implementing changes that the government prioritizes. As a homeowner, it’s important to know what tax credits are available to you so you can take advantage of them.
In this blog, we’re going to go over what tax credits are so you are aware of all the ways you can recoup some of the money you spent on your home improvement project.
What is a tax credit?
A tax credit refers to money that taxpayers are able to deduct from the taxes they owe at the end of each fiscal year. People often mistakenly assume that tax credits and tax deductibles are one in the same. The difference is that tax deductions lower the amount of taxable income while tax credits cut down on the amount of taxes you owe. How much you can reduce the taxes you owe the government will depend on the type of credit.
Both the federal and provincial governments offer various tax credits to promote certain centers and activities that boost the economy, environment, or anything that is a priority for the government. Some tax credits are extended to business owners or certain individuals based on their locations or the industries they work in. An example of tax credits awarded for preserving the environment include financial rewards for homeowners installing solar panels.
Similarly, homeowners can see a reduction in the amount of taxes owed at the end of the tax season.
Tax credits are preferred to tax deductions because with tax credits, your tax responsibility is reduced dollar for dollar. A tax deduction lowers the amount of taxable income you have, however, it is impacted by the tax bracket you are in. If you’re in a higher tax bracket, you’ll see a lower percentage benefit with a tax deduction.
Ontario Home Renovation and Improvements Tax Credits
Under the term substantial renovation, the Ontario government provides tax credits for homeowners in Ontario who conduct substantial renovations on their residential property. The property has to be used as the owner’s place of residence for more than 50% of the time. If the residential property has undergone substantial renovation, it qualifies for the same kind of tax credit as a newly constructed home.
A substantial renovation includes significant work done to the interior parts of the building. Generally, if more than 90% of your home has been renovated, it will meet the criteria for this.
This is calculated either based on the square footage of the home renovated or the total number of rooms renovated against the total number of rooms in the home.
Another criterion for the home renovation and improvement tax credit is based on what work was done to the existing building. For example, room additions are not considered part of this initiative because the renovation needs to have been done to the existing building. Additions are considered a new part of the building.
Multigenerational Home Renovation Tax Credit
The new multigenerational home renovation tax credit has been proposed to alleviate some of the monetary expenses involved in accommodating more than one family generation. To qualify, your home would need to have a secondary dwelling unit that houses an eligible person, either a senior or someone with a disability.
The credit allows homeowners to claim up to 15% in non-refundable tax credits on renovation expenses of up to $50,000.
Seniors are 65 years and above and adults with disabilities are defined as individuals who are 18 years or older and qualify for disability tax credit during that year. The Multigenerational Home and Renovation Tax Credit may be claimed by someone who lives in the home and will be living in the home within 12 months after the end of the renovation work.
The spouse or common-law partner can also claim this tax or the person who owns the dwelling and is a qualifying relation.
Federal Home Accessibility Tax Credit
The Federal Home Accessibility Tax Credit (HATC) is a tax credit that allows eligible homeowners to recover some expenses for home renovations that make their home more accessible to qualifying individuals or reduce the risk of harm to them. For the 2022 tax year and onward, the government has proposed for the expense limits for HATC to be increased to 20,000, giving a tax credit of up to $3,000.
The expenses that qualify must have been incurred for services or goods paid for to renovate the dwelling of the qualifying individual. All the other rules regarding qualification will remain the same. In the past, the maximum amount for expenses was $10,000 and the tax credit was up to $1,500.
Canada Greener Homes Grant
Another incentive by the Canadian government is to encourage more people to adopt energy efficiency whenever possible. The Canada Greener Homes initiative combines a grant and a loan program. Through the initiative, you can qualify for grants from $125 to $5,000 to help with the cost of home retrofits, and up to $600 contribution towards the total cost of your pre-and post-retrofit EnerGuide evaluation.
The Canada Green Homes loan helps Canadians conduct deep retrofits in their homes with interest-free loans of $5,000 to $40,000. This is a new incentive and applicants are encouraged to apply through Enbridge as of January 2023.
Save Money While Renovating Your Home
If you conduct substantial renovations to your home, it is typically treated as a newly built home in the eyes of the government. This could translate to more access to tax credits that could help you save money on your renovation project. If you conduct a major addition or conversion there may be some credits you can take advantage of.
Each province has a different program geared towards home reno relief. So it’s important to look at the credits available in your province. In Ontario, the New Housing Rebate for substantial renovations offers a benefit of $ 16,080 to $24,000. Eligible expenses related to home improvement include the cost of labour and construction services, building materials, fixtures, equipment rentals and permits.
Yes. In 2022, a number of tax credits were introduced for Canadians by the government. If you make significant changes to your home, you are eligible to receive Canada home renovation tax credits. The Multigenerational Home Renovation Tax Credit was announced this year and will take effect in 2023.
Ontario also has a Home Safety Tax Credit for seniors which covers the expense of updating a home to make it safer and more accessible. The refundable tax credit covers 25% of up to $10,000 per household in eligible home renovation expenses. These improvements may include installing grab bars or railings, wheelchair ramps, widening doors, installing stairlifts, automated doors, and switches.
The home improvement tax credits include:
– Federal Home Renovation Tax Credit
– Federal Home Accessibility Tax Credit
– Multigenerational Home Renovation Tax Credit
– GST/HST Housing Rebate
– Provincial New Housing Rebates
You can claim your home renovation tax credits when you file your personal tax returns and select the home renovation tax credits that apply.