Renovating your home can be as rewarding as it is expensive. Fortunately, there is a solution to help offset some of the costs involved. The Home Renovation Tax Credit (HRTC) is a special program that allows you to make specific improvements to your home and enjoy a financial bonus when you file your tax return.
But before you rush out to the hardware store, make sure you know what you’re in for. In this post, we will break down:
- The Home Renovation Tax Credit
- The Home Accessibility Tax credit (HATC)
- Medical Expenses Tax Credit (METC)
We will also help you understand what home improvements can be written off on taxes.
What is the Home Renovation Tax Credit?
Tax credit programs are designed by the government to increase the quality of homes across the board and, more recently, boost the economy post-COVID-19 by generating more tax revenue from home improvement projections.
Programs like the HRTC encourage homeowners to make improvements. The government uses this initiative to discourage cash-only deals that don’t produce tax revenue. Doing so generates more tax revenue for the country and allows homeowners to receive a discount on their investment.
Specifically, the Home Renovation Tax Credit is a 15% tax credit applicable to eligible expenditures between $1,000 and $10,000. Renovations must be made on an “eligible” dwelling, which means any house, condo, or cottage that you own.
The HRTC primarily applies to remodeling and renovation tasks, such as finishing a basement, attic, or redoing your kitchen. Ancillary expenses related to the project, such as professional services or equipment rentals, may also qualify. As a result, you shouldn’t be afraid to hire plumbers, electricians, architects, or any other expert needed to get the job done right.
However, note that the credit applies only to renovations and remodels — not routine maintenance or repairs. Additionally, you won’t be able to apply expenses related to purchasing furniture or appliances.
Many homeowners assume that their projects will qualify under the HRTC program, but this isn’t always the case. Before you commit to a project, it helps to speak to a tax professional who can give you guidance on whether your home improvement will qualify.
The HRTC is one example of how home renovation can be written off on tax returns, but it’s not the only option.
The Home Accessibility Tax Credit
Another common home renovation tax credit in Canada is the Home Accessibility Tax Credit (HATC). This program offers a tax benefit for renovations that make homes safer for seniors and those with disabilities.
You can claim this benefit if you’re an eligible homeowner or if you’re responsible for looking after someone who’s eligible, as determined by the Canada Revenue Agency.
Like the HRTC, the HATC has a $10,000 threshold for expenses, applicable for specific home improvements made to boost accessibility:
- Professionals services or contractors
- Building materials and fixtures
- Equipment rentals
- Building plans or permits
Generally, these improvements must allow the qualifying individual to be more mobile or functional within the dwelling, or reduce their risk of harm while inside.
However, like the HRTC, there are restrictions on what expenses qualify. Some of the expenses that may NOT be claimed include the following:
- Annual, recurring, or routine maintenance
- Cost of appliances or furniture
- Services including housekeeping, security, gardening, etc.
- Financing costs for the renovation
- Improvements made primarily to increase the value of the dwelling
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The Medical Expenses Tax Credit
Another notable home renovation tax credit in Ontario and other provinces is the Medical Expenses Tax Credit (METC). The METC provides breaks for specific home improvements that help support those with qualifying medical conditions.
These conditions must be verified by the CRA, and all proposed renovations must fit certain criteria to be eligible for the tax deduction. Generally, construction and renovation costs here must meet two criteria to be written off for the METC:
- Renovations must not normally be expected to increase the value of the home
- Renovations must not be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment
Common construction expenses here may include the following:
- Adding ramps for those who have issues with:stairs
- Altering your driveway to make it easier to walk on
- Furnace improvements for those with respiratory illnesses or immune problems
- Lowering kitchen/bathroom cabinets to make it easier for residents to access
All of these expenses qualify for the METC, but note that the CRA requires all participants to keep receipts for these purchases to support their claims during federal tax preparation time.
Know Which Renovations Qualify – And Which Don’t
Capital improvements to your home can bring plenty of benefits. The right renovation adds value to your home, prolongs its life, and makes it easier to sell your home when the time comes. This is especially true for energy efficient renovations like solar panels or fuel cells; green improvements known to boost real estate capital gains.
But if you’re hoping to claim a Canada home renovation tax credit, you’ll need to understand the terms and conditions of each program and whether your project applies.
As real estate specialists who offer tax advice, we at ICC Property Management have seen too many homeowners commit to bigger renovation projects than they’d initially planned, expecting to receive a healthy tax break to offset their costs.
In most cases, home renovation expenses won’t be covered by a tax program. But depending on your situation, many will – which is why it’s so important to work with experts who can help walk you through the details.
If you are unsure of whether your next home renovation project may qualify for one of the home renovation tax credits in Canada, contact ICC Property Management today and we’ll give you a hand.