2023-0960671E5 Carriage house & multigenerational home renos

Principal Issues: Whether the multigeneration home renovation tax credit (MGHRTC) can be used toward the new construction of an accessory dwelling unit such as a carriage house or laneway house.

Position: Yes, provided that all the conditions to qualify for the MGHRTC are met, including local requirements and bylaws relating to the construction of an accessory dwelling unit.

Reasons: Given the spirit and intent of the MGHRTC provisions, we have given paragraph (b) of the definition of “qualifying renovation” a broad interpretation as if the phrase “[a secondary unit] within the dwelling” were read “within the eligible dwelling.”

Author: El-Kadi, Randa
Section: The definition of "qualifying renovation" and "secondary unit" in subsections 122.92(1).

XXXXXXXXXX                                                                 2023-096067
                                                                                         R. El-Kadi

March 6, 2023

Dear XXXXXXXXXX:  

Re: Multigenerational home renovation tax credit – building a carriage house as secondary unit

We are writing in response to your email of January 12, 2023, in which you asked whether the multigenerational home renovation tax credit (MGHRTC) would apply to the construction of an accessory dwelling unit such as carriage house or a laneway house.

Our comments:

This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The MGHRTC is a new refundable tax credit that allows eligible individuals to claim certain qualifying expenditures paid for a qualifying renovation made to an eligible dwelling of a qualifying individual. Up to $50,000 in qualifying expenditures can be claimed for a qualifying renovation, which results in a refundable tax credit of up to $7,500 for the tax year in which the renovation period ends. However, the refundable credit is nil if the eligible individual who is claiming the credit is not resident in Canada throughout the tax year.

The MGHRTC is available for qualifying expenditures paid after December 31, 2022, for services performed or goods acquired after that date. Only one qualifying renovation can be claimed in respect of a qualifying individual during their lifetime.

The rules for the MGHRTC can be found in section 122.92 of the Act. The terms eligible dwelling, qualifying renovation, secondary unit, eligible individual, qualifying individual, and renovation period taxation year are all defined in subsection 122.92(1) of the Act.

An eligible dwelling means a housing unit located in Canada, that is owned (either jointly or otherwise) by the qualifying individual, the spouse or common-law partner of the qualifying individual or a qualifying relation in respect of the qualifying individual. The dwelling must be where the qualifying individual and a qualifying relation of that individual ordinarily reside, or intend to ordinarily reside, within twelve months after the end of the renovation period. The land on which the housing unit is located can be part of the eligible dwelling, and is generally limited to half of a hectare (1.24 acres).

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. The renovation is undertaken to allow the qualifying individual and a qualifying relation of that individual to reside together in the dwelling, by establishing a secondary unit within the dwelling for occupancy by the qualifying individual or the qualifying relation.

A secondary unit means a self-contained 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 the requirements to be a secondary unit. To be eligible, relevant building permits for establishing a secondary unit must be obtained and renovations must be completed in accordance with the laws of the jurisdiction in which an eligible dwelling is located.

An eligible individual in respect of an eligible dwelling includes:

* an individual who ordinarily resides, or intends to ordinarily reside, in the eligible dwelling within 12 months after the end of the renovation period in respect of a qualifying renovation of the eligible dwelling and who is:

    (i) a qualifying individual,

(ii) the cohabiting spouse or common-law partner of a qualifying individual at any time in the renovation period taxation year, or

    (iii) a qualifying relation of a qualifying individual; or

* an individual who is a qualifying relation of a qualifying individual, and who owns the eligible dwelling

A qualifying individual is defined as an individual who is 65 years of age or older at the end of the renovation period taxation year or an individual who is 18 years of age or older at the end of the renovation period taxation year who is eligible for the disability tax credit.

The renovation period taxation year means the tax year in which the renovation period in respect of the qualifying renovation ends. This is the tax year for which the MGHRTC may be claimed, even if part of the qualifying expenditures were paid in a previous year during the renovation period.

For the purposes of this credit, a qualifying relation includes an individual who has reached 18 years of age before the end of the renovation period taxation year and is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual or their spouse or common-law partner

In the situation you presented, it is our understanding that a carriage house, also known as a laneway house, refers to a separate, detached housing unit that is constructed on the same parcel of land as a principal housing unit. It is generally smaller than the principal housing unit and includes land that is reasonably necessary for its use and enjoyment as a place of residence (for example, a parking space). Unlike other types of accessory dwelling units, a carriage house or laneway house does not include an addition to an existing house or a suite in the basement or over the garage of an existing house.

It is a question of fact as to whether all the conditions for claiming the MGHRTC are met in a taxpayer’s particular situation. For example, certain municipalities or local governments may not allow for the construction of secondary dwelling units unless they are contained within the same building structure as a principal dwelling unit. Where this is the case, a carriage house or laneway house would not meet local requirements to qualify as a secondary dwelling unit, and therefore, the cost of building such a house cannot be claimed under the MGHRTC. On the other hand, the cost of adding an attached dwelling unit such as a walk-out basement unit or an in-law suite over the garage of an existing dwelling unit may qualify for the MGHRTC (provided that all the eligibility criteria are met).

Where the laws of the jurisdiction allow for the construction of a secondary dwelling unit that is detached from one’s principal dwelling unit, an eligible individual may be able to claim a MGHRTC toward the new construction of a carriage house or laneway house. Where this is the case, a carriage house or laneway house must be built on land that forms part of an eligible dwelling, be compliant with local requirements to qualify as a secondary unit (for example, in terms of minimum or maximum unit size), and be intended for occupancy by the qualifying individual or a qualifying relation of that individual. There also must be a reasonable expectation that both the qualifying individual and qualifying relation will ordinarily inhabit the housing unit (including the secondary unit) within 12 months after the end of the renovation period.

We trust that these comments will be of assistance to you.

Yours truly,

Christopher Brennan, CPA, CMA
Acting Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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