2023-0965171E5 MGHRTC – Newly constructed housing unit

Principal Issues: Whether the costs associated with building a secondary unit, while concurrently building a newly constructed housing unit, where the two housing units share a main entrance, but the secondary unit has its own private entrance, would qualify for the Multigenerational Home Renovation Tax Credit (MGHRTC).

Position: Yes, 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 the 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: Underhill, Cynthia
Section: ITA: Section 122.92, Subsections 122.92(1), (3) and (4).

XXXXXXXXXX                                                                   2023-096517
                                                                                            C. Underhill

April 4, 2023

Dear XXXXXXXXXX:

Re: Multigenerational Home Renovation Tax Credit - Newly constructed dwelling

We are writing in response to your email dated February 19, 2023, asking whether the costs associated with building a secondary unit, while concurrently building a newly constructed housing unit, where the two housing units share a main entrance, but the secondary unit has its own private entrance, would qualify for the Multigenerational Home Renovation Tax Credit (MGHRTC).

You are in the process of building a new home in the province of Quebec to ordinarily reside in. While building your newly constructed housing unit, you plan on building a secondary housing unit in the basement of the dwelling for your parents to ordinarily reside in. Your father is 65 years of age and has a medical condition that requires your care. You explained that although the main entrance to the home will be shared, the secondary unit will have a private entrance. You asked whether you are entitled to claim the MGHRTC for the cost of building the secondary housing unit.

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 for the tax year in which the renovation period ends.

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, renovation period taxation year, and qualifying relation are all defined in subsection 122.92(1) of the Act. You can also find these definitions on the Canada Revenue Agency’s webpage, titled, Multigenerational Home Renovation Tax Credit available at canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2022-plan-grow-economy-make-life-more-affordable/multigenerational-home-renovation-tax-credit.

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.

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 the newly constructed housing unit, with 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. Therefore, the incremental cost to add the secondary unit to the newly built home may be claimed for the MGHRTC, provided all the requirements in the Act are met. Furthermore, the qualifying expenditures to build the secondary unit must be supported by acceptable documentation such as invoices and receipts that clearly segregate the expenditures relating to the construction of the principal housing unit from those of the secondary unit.

It is also our view that where two housing units share a main entrance, but the secondary unit has its own private entrance, the renovation may meet the definition of a qualifying renovation, and qualify for the MGHRTC provided all the requirements in the Act are met.

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

Yours truly,

Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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