2023-0961401E5 Multigenerational home renovation tax credit

Principal Issues: For the purpose of claiming a multigenerational home renovation tax credit (MGHRTC), should a principal housing unit be constructed first and occupied for a specified period of time before adding a secondary unit for one’s parents to live in, or can both units be constructed at the same time?

Position: Provided that all the eligibility criteria for claiming a MGHRTC are met, the credit may be claimed regardless of whether a principal housing unit (that meets the definition of eligible dwelling) is built before, or concurrently with, a secondary unit. Nevertheless, there must be a reasonable expectation that both units will be ordinarily inhabited within 12 months after the end of the renovation period.

Reasons: The wording in paragraph (b) of the definition of “eligible dwelling” and paragraph (a) of the definition of “eligible individual.” The former definition refers to reasonable expectation that the housing unit will be ordinarily inhabited within 12 months after the end of the renovation period. Similarly, the latter definition refers to the individual’s intention to ordinarily reside in the eligible dwelling within 12 months after the end of the renovation period.

Author: El-Kadi, Randa
Section: The definition of "eligible dwelling" and "eligible individual" in subsection 122.92(1).

XXXXXXXXXX                                                                    2023-096140
                                                                                            R. El-Kadi

March 13, 2023

Dear XXXXXXXXXX:  

Re: Multigenerational home renovation tax credit – building a home with a semi-attached garden suite for elderly parents

We are writing in response to your email of January 18, 2023, which you originally addressed to the Minister of Finance regarding the multigenerational home renovation tax credit (MGHRTC). You indicated that you planned to construct a home for your family with a semi-attached garden suite for your parents to live in. More specifically, you asked whether you had to build the main house first and occupy it for a specified period of time, and then add the garden suite later, or alternatively, build both dwellings concurrently in order to qualify for the MGHRTC.

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, including an outlay or expense for building plans and permits required for the qualifying renovation. 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. At the time of this writing, a webpage regarding the eligibility criteria for the MGHRTC is being developed, and it will be added soon to the Government of Canada website.

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

It is a question of fact as to whether the MGHRTC can be claimed for a particular renovation. This being said, section 122.92 of the Act does not require that an eligible dwelling be built prior to, or concurrently with, a secondary unit in order for qualifying expenditures to qualify for the MGHRTC. Section 122.92 also does not require that an eligible individual reside in the eligible dwelling prior to adding a secondary unit. However, there must be a reasonable expectation that both the qualifying individual and qualifying relation of that individual will ordinarily inhabit the housing unit (including the secondary unit) within 12 months after the end of the renovation period. In your case, this expectation would apply to you (as a qualifying relation) and your elderly parent (the qualifying individual). Also, the semi-attached garden suite that is intended for occupancy by your parents, must comply with local requirements to be considered a secondary unit.

Finally, assuming that the latter requirement is met, qualifying expenditures to build the garden suite must be supported by acceptable documentation such as agreements, invoices, and receipts that are clearly specific to the construction of the garden suite.

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

Yours truly,

Christopher Brennan, CPA, CA
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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