Multigenerational Home Renovation Tax Credit

Budget 2022 introduced the new refundable MHRTC for qualifying expenditures for a qualifying renovation. A qualifying renovation is one that creates a secondary unit within the dwelling that will be occupied by the qualifying individual or a qualifying relation. The value of the credit is 15% of the lesser of qualifying expenditures and $50,000.

A "qualifying individual" is an individual (other than a trust) who is:

• 65 years of age or older before the end of the renovation period taxation year; or
• 18 years of age or older before the end of the renovation period taxation year for whom an amount is deductible under the "disability tax credit" in computing tax payable for a renovation period taxation year, or would be so entitled if the restriction for attendant care were disregarded.

A "qualifying relation" of a qualifying individual for a renovation period taxation year means an individual who is:

• at least 18 years of age by the end of the year; and
• at any time in the year, a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual or the qualifying individual's cohabiting spouse or common-law partner.

For the purposes of the MHRTC, an "eligible dwelling" is defined as a housing unit located in Canada that is:

• owned (whether jointly or otherwise) by the qualifying individual or a qualifying relation of the qualifying individual (or a trust, if the qualifying individual or a qualifying relation is a beneficiary of the trust) at any time in the renovation period taxation year; and
• where the qualifying individual and a qualifying relation of the qualifying individual ordinarily reside, or intend to ordinarily reside, within 12 months after the end of the renovation period.

The land on which the home is located can be part of the eligible dwelling. Usually, the amount of land that can be considered as part of the eligible dwelling is limited to half of a hectare (1.24 acres). However, if it can be shown that more land is needed to use and enjoy the home, more than this amount can be considered as part of the eligible dwelling. For example, this may happen if the minimum lot size imposed by a municipality at the time the property was acquired is larger than half of a hectare.

An "eligible individual" is:

• an individual who ordinarily resides, or intends to ordinarily reside, in the eligible dwelling within 12 months after the end of the renovation period of a qualifying renovation and who is:
  • a qualifying individual,
  • the cohabitating spouse or common-law partner of a qualifying individual at any time in the renovation period taxation year, or
  • a qualifying relation of a qualifying individual; or
• An individual who:
  • is a qualifying relation of a qualifying individual, and
  • owns the eligible dwelling or is the beneficiary of a trust that owns the eligible dwelling.

A "qualifying renovation" means a renovation or alteration of, or addition to, an eligible dwelling of a qualifying individual that:

• is of an enduring nature and integral to the eligible dwelling; and
• is undertaken to enable the qualifying individual to reside in the dwelling with a qualifying relation of the qualifying individual, by establishing a secondary unit within the dwelling for occupancy by the qualifying individual or the qualifying relation.

Only one qualifying renovation can be claimed in respect of a qualifying individual during their lifetime.

A “secondary unit” is a self-contained housing unit with a private entrance, kitchen, bathroom facilities and sleeping area. The secondary unit could be newly constructed or created from an existing living space that did not already meet local requirements to be considered a secondary dwelling unit. To be eligible, the secondary unit must meet applicable local requirements, if any, to qualify as a secondary dwelling unit, along with any other conditions prescribed for purposes of the MHRTC.

For the purposes of this credit, the “renovation period” for a qualifying renovation of an eligible dwelling, begins at the time that the first qualifying expenditure is made or incurred in respect of the qualifying renovation, and ends at the time of the completion of the qualifying renovation.

The “renovation period taxation year” is the taxation year in which the renovation period ends. Therefore, if the renovation period ends on May 3, 2024, the renovation period taxation year is 2024 even if the renovation began in 2023.

A "qualifying expenditure" of an individual (other than a trust) means a reasonable outlay or expense that is made or incurred by the individual, before the end of the renovation period, that is directly attributable to a qualifying renovation of an eligible dwelling in respect of which the individual is an eligible individual.

A qualifying expenditure may include the cost of goods acquired or services received, outlay or expense for permits required for, or for the rental of equipment used in the course of, the qualifying renovation.

In addition, qualifying expenditures of an eligible individual in respect of an eligible dwelling can include an outlay or expense made or incurred by a trust under which an eligible individual is a beneficiary and the expense is reasonably attributable to the eligible dwelling. For this rule to apply, the outlay or expense would have to have been a qualifying expenditure of the eligible individual, if it had been made or incurred by that individual, and the trust must have notified that individual of the amount of the outlay or expense attributable to the eligible dwelling.

Expenses that do not qualify for the MHRTC are expenditures:

• for the cost of annual, recurring, or routine repair or maintenance;
• to acquire a household appliance;
• to acquire an electronic home-entertainment device;
• that are the cost of housekeeping, security monitoring, gardening, outdoor maintenance, or similar services;
• for financing costs in respect of the qualifying renovation;
• for goods or services provided by a person not dealing at arm’s length with the qualifying individual or the eligible individual, unless the person is registered for the purposes of the goods and services tax/harmonized sales tax (GST/HST) under the Excise Tax Act;
• that can reasonably be considered to have been reimbursed;
• not supported by receipts; or
• that have already been claimed under the Medical Expense Tax Credit and/or Home Accessibility Tax Credit.

Eligible individuals can claim qualifying expenditures they incurred in respect of a qualifying renovation that ended in the taxation year provided the total of all amounts claimed by all individuals does not exceed $50,000 in respect of the same qualifying renovation. If the claimants cannot agree as to what portion of the qualifying expenditures each can deduct, the Minister may set the portions.

Only one qualifying renovation is permitted during the lifetime of a qualifying individual.

The MHRTC is calculated by multiplying the lowest personal income tax rate (15%) by the lesser of:

• $50,000,
• the amount of qualifying expenditures incurred by the eligible individual; or
• nil if the individual is not resident in Canada throughout the taxation year.

For example, if the qualifying expenditures totaled $50,000, it would result in a refundable tax credit of $7,500 ($50,000 x 15%).

For 2023 and subsequent taxation years the MHRTC can be claimed on your T1 income tax and benefit return for the renovation period taxation year.

If an individual dies during a calendar year, there are special rules to maintain access to the MHRTC. Specifically, if an eligible individual or qualifying individual dies during a calendar year, that deceased individual is deemed to be:

• a resident of Canada from the time of death until the end of the year if, immediately before death, the deceased individual was resident in Canada;
• the same age at the end of the year as the individual would have been if the individual were alive at the end of the year; and
• the cohabiting spouse or common-law partner of another individual (referred to as the "surviving spouse") at the end of the year if,
  • immediately before death, the deceased individual was the cohabiting spouse or common-law partner of the surviving spouse, and
  • the surviving spouse is not the cohabiting spouse or common-law partner of another individual at the end of the year.

In addition, any return of income filed by a legal representative of the deceased individual is deemed to be a return of income filed by the individual.

No, expenses are not eligible for the MHRTC if they are claimed under the METC and/or HATC.

Eligible expenses must be supported by acceptable documentation, such as agreements, invoices, and receipts. They must clearly identify the type and quantity of goods purchased or services provided, including, but not limited to, the following information, as applicable:

• information that clearly identifies the vendor/contractor, their business address, and, if applicable, GST/HST registration number;
• a description of the goods and the date when the goods were purchased;
• the date when the goods were delivered (keep your delivery slip as proof) and/or when the work or services were performed;
• a description of the work performed, including the address where the work was performed;
• the amount of the invoice; and
• proof of payment. Receipts or invoices must indicate that they are paid in full or be accompanied by other proof of payment, such as a credit card slip or cancelled cheque.

To verify whether someone is registered for GST/HST, please consult the GST/HST Registry.

If you do the work yourself, the qualifying expenditures include expenses for building materials, fixtures, equipment rentals, building plans, and permits. However, qualifying expenditures would not include the value of your labour or tools.

Expenses are not eligible if the goods or services are provided by a person related to the qualifying individual or the eligible individual, unless that person is registered for GST/HST. If your family member is registered for GST/HST and if all other conditions are met, the expenses will be eligible for the credit.

Generally, work performed by professionals (such as electricians, plumbers, carpenters or architects) in respect of qualifying expenditures qualifies for the MHRTC.

If you're planning on hiring a contractor to do construction, renovation, or repair work on your home, see Protect Yourself - Get it in writing!

Expenses that may be included in a claim must be reduced by any reimbursement or any other form of assistance that an individual is or was entitled to receive, including any related rebates, such as those for GST/HST.

Check online at Canada.ca regularly for updated forms, policies, guidelines, questions and answers, and guidance.

In the meantime, please consult Finance Canada's Budget 2022 documents for details.