Claiming a tax credit for renovation costs
The ongoing pandemic has, as one of its many effects, created a boom in the home renovation industry, as Canadians find themselves needing to adapt their homes to more and more varied uses.
One of those uses is multi-generational living, as older Canadians seeks to “age in place” rather than moving to a retirement home or long-term care facility. And, while home renovations for any purpose are undoubtedly expensive, renovations done to allow homeowners (or family members of homeowners) to continue to live in the family home benefit from a federal tax credit for expenses incurred.
That credit — the Home Accessibility Tax Credit, or HATC — has three features that make it particularly useful. First, the credit is available to all taxpayers who incur eligible expenses, regardless of individual or family income. Second, expenses eligible for the credit don’t have to be incurred for the benefit only of the homeowner — taxpayers who incur eligible home renovation expenses can claim the HATC where those expenses are done to increase accessibility or safety for any family member who is over the age of 65 or who is disabled and lives in the home. Finally, the HATC is a rare exception to the general rule that an expense can only be claimed once for tax purposes. Many of the expenses which are eligible for the HATC also qualify for the medical expense tax credit — and the rules permit such eligible expenses to be claimed for purposes of both credits, in the same tax year.
The rules which govern how the credit is claimed are also quite flexible. For purposes of the credit, a “qualifying individual” is a person over the age of 65, or a person of any age who can claim the disability tax credit. An “eligible individual” is a family member on whom the qualifying individual is dependent. Under the HATC any allowable credit can be split between or among eligible and qualifying individuals as they see fit.
The credit is equal to 15% of up to $10,000 in qualifying expenses per year, and that dollar limit applies even if there is more than one qualifying individual living in the home. The credit itself is non-refundable, meaning that it can reduce federal income tax otherwise payable, but cannot create or increase a refund. Consequently, from a tax planning perspective, it makes sense for the credit to be claimed only by eligible or qualifying individuals who have tax payable for the year.
The general rule for purposes of the credit is that an eligible expense is one which is done to increase accessibility of the home or the safety of a qualifying individual living in the home. As well, any renovation done must be of a permanent or “enduring” nature — an item bought that does not become a permanent part of the home is generally not eligible. As an example, a shower seat which is permanently affixed to the wall or floor in a bath or shower would qualify for the credit, while a portable seat that can be taken in and out of the shower as needed would not.
It’s apparent that the kind and number of additions and renovations which would qualify for the credit are almost innumerable, and any of those which meet the criteria outlined above will generally qualify. There are, however, specific categories of goods and services which are not eligible for the HATC. The Canada Revenue Agency (CRA) provides a listing of common expenses which do not qualify on its website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31285-home-accessibility-expenses.html. Most homeowners, especially where renovations are extensive, would employ professionals to make the changes. Others, however, are committed DIYers, who take on the project themselves, perhaps enlisting the help of family members. In each case, the rules on which expenses (i.e., labour and materials) qualify for the credit will differ, and those rules, as outlined on the CRA website, are as follows.
Work performed by yourself If you do the work yourself, the eligible expenses include expenses for:
However, the value of your labour or tools cannot be claimed as eligible expenses.
Work performed by a family member Expenses are not eligible if the goods or services are provided by a person related to the qualifying or the eligible individual, unless that person is registered for goods and services tax/harmonized sales tax (GST/HST) under the Excise Tax Act. If the particular family member is registered for GST/HST and if all other conditions are met, the expenses will be eligible for the HATC.
Work performed by professionals Generally, paid work done by professionals such as electricians, plumbers, carpenters, and architects for eligible expenses qualifies as eligible expenses. Home renovations done to ensure all family members can access the home easily and live in it safely are generally renovations which must be done in a timely manner, for everyone’s safety and peace of mind. And, while costs for renovations (of any kind, for any purpose) generally end up being higher than planned, in this case, some financial assistance for those costs is provided through our tax system.