Home is where the heart is. But did you know that your home may be housing some considerable tax benefits as well? This month’s Kurve takes you through a tax-tip tour of your home.
Various tax credits, rebates, exemptions and programs are available to homeowners in several different scenarios. First-time home purchasers, those renovating or selling their home and individuals who are elderly and those who have a disability could qualify. Knowing who can claim these benefits, what exactly can be claimed and when to claim them is crucial in order to make the best use of them. Learn more about the Federal Home Accessibility Tax Credit, the Home Buyers’ Amount, the GST/HST New Housing Rebate, the Home Buyers’ Plan, the Principle Residence Exemption and Home Office Deduction.
1. FEDERAL HOME ACCESSIBILITY TAX CREDIT
The federal home accessibility tax credit (HATC) is intended to help those who incur expenditures to make a home more accessible or safe for elderly or disabled persons.
WHO can claim
The HATC is available to you if you are a qualifying individual or an eligible individual and you incur certain expenses (called qualifying expenses for a qualifying renovation of an eligible dwelling). These qualifications are described below.
A qualifying individual is:
- an individual who is eligible for the disability tax credit for the year; or
- an individual who is 65 years of age or older at the end of a year.
An eligible individual is essentially someone who is supporting a qualifying individual, and is defined as follows:
- a spouse or common-law partner of a qualifying individual; or
- for a qualifying individual who is 65 years of age or older, an individual who is entitled to claim the amount for an eligible dependant, or the Canada caregiver amount for other infirm dependants age 18 or older.
- If (b) does not apply, an individual who is entitled to claim the disability amount for the qualifying individual.
If there are two qualifying individuals in the same principal residence, the maximum is $10,000 related to that principal residence.
WHAT can be claimed
The HATC is a non-refundable tax credit which applies to the total qualifying expenses, up to a maximum of $10,000 per year. The credit is at the lowest personal tax rate of 15%, so the maximum tax reduction per year is $1,500.
Qualifying Expenses must be of an enduring nature and integral to the dwelling and made in relation to a qualifying renovation or alteration to an eligible dwelling. Generally, if the item purchased or work performed will not become a permanent part of your dwelling, it is not eligible.
A qualifying renovation is one of an enduring nature and is integral to the eligible dwelling. The renovation must:
- allow the qualifying individual to gain access to, or to be mobile or function within, the eligible dwelling; or
- reduce the risk of harm to the qualifying individual within the eligible dwelling or in gaining access to the dwelling.
An eligible dwelling is a housing unit located in Canada which is the principal residence of the qualifying individual at any time in the tax year.
Bonus Tax Tip – Medical Expense Tax Credit
If a qualifying expense also qualifies for the medical expense tax credit (METC), both the METC and the HATC can be claimed for the same expense.
2. HOME BUYERS’ AMOUNT
The home buyers amount (HBA) is a tax credit intended to help first-time home buyers who acquire a qualifying home. The HBA is also available to persons with disabilities who meet certain conditions.
WHO can claim
You can claim the HBA for the purchase of a qualifying home in the year if both of the following apply:
- you or your spouse or common-law partner acquired a qualifying home; and
- you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.
Persons with Disabilities
The credit is also available in respect of a home acquired by an individual who is eligible for the disability tax credit (DTC), or by an individual for the benefit of a DTC-eligible relative, if the home is acquired to enable the DTC-eligible person to live in a more accessible dwelling.
The credit can be claimed by the individual who acquires the home, or by the spouse or common-law partner of that individual, or can be split between spouses.
WHAT can be claimed
The HBA is a non-refundable tax credit based on an amount of $5,000. The credit is at the lowest personal tax rate of 15%, so the maximum tax reduction per year is $750. For Quebec residents, there is also an equivalent tax credit available at the provincial level.
A qualifying home must be registered in your or your spouse’s or common-law partner’s name in accordance with the applicable land registration system and it must be located in Canada. It includes existing homes and homes under construction.
The following are considered qualifying homes:
- single-family houses
- semi-detached houses
- mobile homes
- condominium units
- apartments in duplexes, triplexes, fourplexes, or apartment buildings
WHEN can you claim
The year of acquisition is the year in which the tax credit can be claimed. If you missed claiming this credit in the year of purchase, you can file an adjustment to your tax return.
You must intend to occupy the home, or you must intend that the related person with a disability occupy the home, as a principal place of residence no later than one year after it is acquired.
3. GST/HST NEW HOUSING REBATE
The GST/HST New Housing Rebate is intended to help with those who incur GST/HST on the purchase, construction or renovation of their home.
WHO can claim
You may be eligible for a new housing rebate for some of the GST/HST paid if you are an individual who:
- purchased new housing or constructed or substantially renovated housing for use as your primary place of residence;
- constructed or substantially renovated your own home, or hired someone else to construct or substantially renovate your home for use as your primary place of residence and the fair market value of the house when the construction is substantially completed is less than $450,000;
- purchased shares in a co-operative housing (co-op) complex for the purpose of using a unit in the co-op for use as your (or your relation’s) primary place of residence.
The new housing rebate is not available to a corporation or a partnership.
WHAT can be claimed
The GST/HST new housing rebate allows an individual to recover some of the goods and services tax (GST) or the federal part of the harmonized sales tax (HST) paid for a new
or substantially renovated house that is for use as your primary place of residence, when all of the other conditions are met. Additionally, other provincial new housing rebates may be available for the provincial part of the HST whether the GST/HST new housing rebate for the federal part of the HST is available or not.
In certain circumstances, a transitional new housing rebate may be available in addition to any GST/HST new housing rebate and provincial new housing rebate for which you may be eligible, even if the house is not your primary place of residence.
4. HOME BUYERS’ PLAN
The Home Buyers’ Plan (HBP) is a program intended to help first-time home buyers towards the cost of buying a home by allowing a withdrawal from an RRSP. This program is also available for persons with a disability or to help a person with a disability.
WHO can use this plan
In order to be eligible:
- You must be considered a first-time home buyer.
- You must have a written agreement to buy or build a qualifying home for yourself.
You are considered a first-time home buyer if, in the four-year period, you did not occupy a home that you or your current spouse or common-law partner owned. The four-year period begins on January 1st of the fourth year before the year you withdraw funds and ends 31 days before the date you withdraw the funds.
Persons with Disabilities
This program is also available for persons with disabilities. In order to be eligible, you must have a written agreement to buy or build a qualifying home for a related person with a disability, or to help a related person with a disability buy or build a qualifying home (obtaining a pre-approved mortgage does not satisfy this condition).
WHAT is the plan
The HBP program allows you to withdraw up to $25,000* in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. *Budget 2019 increases the withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019.
Generally, you have up to 15 years to repay to your RRSP the amounts you withdrew from your RRSP under the
HBP. However, you can repay the full amount into your RRSP any time. Your repayment period starts the second year after the year you withdrew funds from your RRSP(s) for the HBP. Each year, the Canada Revenue Agency (CRA) will send you a Home Buyers’ Plan (HBP) statement of account, with your notice of assessment or notice of reassessment.
You are considered to buy or build a qualifying home if:
- you buy or build it, or you are considered as buying or building it, before October 1st of the year after the year of the withdrawal
- you buy or build it, alone or with one or more individuals
You are considered to have built a qualifying home on the date it becomes habitable.
RRSP Withdrawal conditions
You must ensure you meet all RRSP withdrawal conditions in order to use this program. Some of the more noteworthy conditions include:
- You have to be a resident of Canada at the time of the withdrawal.
- Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.
- Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.
5. PRINCIPAL RESIDENCE EXEMPTION
When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it.
Reporting the sale of your principal residence
Before 2016, if you sold your property, and it was your principal residence for every year you owned it, you did not have to report the sale to claim the principal residence exemption.
For dispositions in 2016, you had to report the sale and designate the property on Schedule 3 of your personal income tax return in all situations.
For dispositions in 2017 and later years, in addition to reporting the sale and designating your principal residence on Schedule 3 of your personal income tax return, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).
Why you have to report the sale
For the sale of a principal residence in 2016 and subsequent years, the CRA will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax return. If you forget to make this designation in the year of the disposition, it is very important to ask the CRA to amend your income tax return for that year. The CRA will be able to accept a late designation in certain circumstances, but a penalty may apply.
6. HOME OFFICE
The home office deduction is intended to allow certain individuals to deduct a portion of their household expenses related to a work space in their home.
WHO can deduct
A deduction is available for employees (called ‘work-space-in-home deduction’) as well as for self-employed individuals (called ‘business-use-of-home deduction’).
Employees – Work-Space-In-Home Deduction
You can deduct expenses you paid for the employment use of a work space in your home, as long as you meet one of the following conditions:
- The work space is where you mainly (more than 50% of the time) do your work;
- You use the work-space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.
In order to deduct these expenses, you must have Form T2200, Declaration of Conditions of Employment, completed and signed by your employer.
Self-Employed – Business Use of Home Expenses
You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:
- it is your principal place of business;
- you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients.
WHAT can you deduct
You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, water, and maintenance. For commissioned employees, you can also deduct the cost of property taxes and home insurance. For self-employed individuals, you can also deduct the cost of property taxes, home insurance and part of your mortgage interest and capital cost allowance (‘cca’)*. Employees cannot deduct mortgage interest, property taxes, home insurance costs, or capital cost allowance. If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the work-space. *A note about claiming CCA: If you own your home, deduct CCA on your home office and later sell your home, capital gain and recapture rules apply.
To calculate the percentage of work-space-in-the-home expenses you can deduct, use a reasonable basis, such as the area of the work space divided by the total finished area of your home.
For employees, the amount you can deduct for work-space-in-the-home expenses is limited to the amount of employment income remaining after all other employment expenses have been deducted. For self-employed individuals, the amount you can deduct for business use of home expenses cannot be more than your net income from the business before you deduct these expenses. If you cannot deduct all your work space expenses in the year, you can carry forward the expenses.
These tax tips can result in considerable savings for homeowners. For more information on how to take advantage of these tips to help you maximize the use of your home and minimize your taxes, contact us. We are here to help.