Tax Deductions in Canada: Home Improvements You Can Claim in 2020
You can’t just write off all of your home improvements, but there are legitimate ways to recoup your costs by leveraging tax deductions in Canada – and tax credits, too. The government will grant you certain tax deductions and credits depending on the purpose of your renovation.
Did your aging parent move into the house and you need to install a ramp? Have you installed solar panels on your roof to save on energy? Did you get headhunted to fill a new job opening in a remote area?
All of these could potentially increase your return this year. Don’t leave money on the table, know the tax deductions and credits in Canada available to you in 2020.
Tax Deductions, Credits, and Expenses in Canada for Home Renovations
Here are seven of the most common home renovation-related tax deductions in Canada.
1. Energy Efficiency Upgrades
This is a popular one that has promoted in recent years as eco-friendly homes become more of an essential than a luxury. The federal government does not currently have credits rewarding efficiency, but the provincial governments do.
For example, in Ontario specifically Enbridge Gas Distribution offers homeowners up to $2,000 to cover the cost of a home energy audit and HydroOne offers rebates between $1 and $10 for buying certified LED bulbs.
- Updating your furnace
- Basement renovations
- HVAC upgrade
- ENERGY STAR certified appliances
Energy efficiency renovations like solar panels are not a cheap investment, so it’s a good thing they give you tax credits for doing them. But they’ve proven that the money you will save on energy bills in the long-run is well worth it.
One important thing to know is this is a one-time credit. You can write off 30% of solar, geothermal, wind, and fuel cell technology costs, including labour and installation.
2. New Housing Rebate
Are you planning on building a new home or making substantial upgrades to an existing one?
You may qualify for up to $30,000 with the new HST Housing Rebate from Canada.ca. It covers construction costs such as:
- Build a house
- Contract someone to build a house
- Substantially renovate a house or condominium
- Contract someone to extensively renovate a home or condo
- Add a major addition to a home
- Rebuild a home that was destroyed by fire
- Convert a non-residential property into a home
You can only apply for this rebate once and because of its size they are very strict with who gets approved. We recommend you seek professional assistance filing out the paperwork for this application.
3. Home Accessibility Tax Credit
For people that need to renovate their home to accommodate a person with disability or medical condition, you will be offered some tax relief for the project (typically up to $10,000 per year.) In order to be eligible, you need to be:
- an individual who is eligible for the disability tax credit for the year
- an individual who is 65 years of age or older at the end of a year
- making the claim on behalf of an eligible individual (i.e. the spouse or common law partner of a person with disability)
If changes need to be made to your home to improve access, like adding a ramp or railing, that’s a pretty typical home renovation tax credit. Here is an outline for what is generally covered and what is not:
- Expenses of work performed by yourself including building materials, fixtures, equipment rentals, building plans, permits, but NOT labour
- If a family members performs the work and is registered for GST/HST and if all other conditions are met, the expenses will be eligible.
- Paid work done by professionals such as electricians, plumbers, carpenters and architects
- Typically the changes or renovations must be permanent to be considered.
The type of renovation you’re making must also qualify with these two rules:
- The renovation will allow the individual to gain access to, or to be mobile or functional within, the eligible dwelling.
- The renovation will reduce the risk of harm to the individual within the eligible dwelling or in gaining access to the dwelling.
Do not mistake medical expenses with modern comforts.
Adding a washer & dryer because you’re tired of driving to the laundromat is not a medical requirement. Renovating your home to install the washer and dryer on the main floor because you can no longer make the stairs is another story.
Be aware that you’ll be under a lot of scrutiny to receive this deductible and are required to itemize your submission. Keep in mind it does not apply if you exceed certain income limits.
The Home Buyer’s Plan allows you to withdraw up to $25,000 from your retirement savings plan (RRSP) to assist you with purchasing or renovating your home.
There are certain conditions that apply; to submit your request you must complete the T1036 tax form.
5. Rental Income
If you currently rent real estate or other property, you will need to report the income to the CRA on Form T776, Statement of Real Estate Rentals, which allows you to claim admissible expenses. These include insurance and interest on the money you use to buy or renovate the property.
You can learn more about how to claim rental income on your tax return here.
6. Home Buyer’s Amount
The home buyer’s amount (commonly known as the first-time home buyer’s incentive) is a non-refundable federal tax credit where you can receive $5,000 towards the purchase of a new home.
To qualify for this, you have to meet three requirements:
- You or your spouse or common-law partner bought a home that qualifies (see more below.)
- 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.
- You have not claimed this credit before.
How do you know if your home qualifies? You need to check all four of these boxes:
- It must be located in Canada
- It must be registered in your or your spouse’s or common-law partner’s name in accordance with the applicable land registration system
- It can be a single-family house, semi-detached house, townhouse, mobile home, condominium unit, or apartment in a duplex, triplex, fourplex, or apartment building
- You must intend to occupy the home as your principal place of residence no later than one year after you purchase it
There is also an important exception to this credit: if you are a person with disabilities, you do not have to be a first-time home buyer to qualify for this credit. You are considered a person of disability if you qualify for the disability tax credit or if you are purchasing the home for the benefit of someone who does qualify for it.
7. Moving Expenses
You can get a tax credit for moving expenses? That’s right!
If you have to relocate for your job, if you need to move to start a new career, or if you are recruited to fill a position of need in a remote area, you could qualify to have those expenses covered. You must meet one of these requirements to be eligible:
- You moved to work or to run a business
- You moved to study courses as a full-time student enrolled in a post-secondary program at a university, a college, or another educational institution
- You moved at least 40 kilometres closer to your new work or school
Some typical costs that are covered as moving expenses are:
- Transportation and storage costs such as packing, hauling, movers, in-transit storage, and insurance
- Travel expenses such as vehicle expenses, meals, and accommodations
- Temporary living expenses (meals and lodging) for up to 15 days
- Cost of cancelling the lease on your old home
- Incidentals like new electrical hook ups or replacing a driver’s license
- Cost to maintain your home when vacant up to $5,000 such as interest, property taxes, insurance premiums, and the cost of heating and utilities
- Cost of selling your old home such as advertising, notary or legal fees, real estate commission, and mortgage penalty
- Cost of purchasing your new home such as legal or notary fees, taxes paid (other than GST/HST) for the transfer or registration of title to the new home
Still have questions about tax deductions and credits? Find your answer here or leave your question in the comments.
What’s the difference between a tax credit vs deduction?
Both tax credits and tax deductions save you money on your return, but in different ways.
Tax deductions will reduce your taxable income, whereas tax credits lower your tax liability. Tax credits are widely believed to be more valuable; here’s a great example illustrating why:
“If you’re the 22% tax bracket and you have a $100 deduction, that deduction will save you $22 in taxes (22% of $100). However, if you have a $100 tax credit, it will save you $100 in taxes.” – MoneyCrashers.com
Is mortgage interest tax deductible in Canada?
No, mortgage interest is not tax deductible as it in the United States. However, when you sell your principal residence the profits from that sale are tax-free. You win some, you lose some.
Are moving expenses tax deductible?
That depends on where and why you moved. Was it for school? Were you headhunted in another city? Or were you just moving to the other side of town because you’ve outgrown your current home? Find out if you qualify for moving expenses here.
Are condo fees tax deductible for rental property in Canada?
Yes, if you earn rental income from a condominium unit that you own you are allowed to expense certain costs (including condo fees.) Condo fees are typically included because they go towards maintenance and repair, property management, and administration services. Utilities and property taxes can also be expensed.
What other tax deductions and credits are available in 2020?
That’s a great question – you can find a full list of the current credits, deductions, and expenses here.
Talk to our team to learn more about tax deductions and how you can use them to their full potential.
Now that you know which home renovations are deductible, it’s time to start looking at the next steps: