The property market in Vancouver is usually referenced as one of the most expensive real estate markets in Canada. This is not surprising, given that the average home price in British Columbia is over $900,000.
It can be beneficial to reduce your housing-related expenses as much as possible using government tax credits and deductions. Here’s how the Canadian government is using tax rules and credits to combat higher housing prices and home affordability issues.
The tax-free first home savings account
To make home ownership more affordable and allow Canadians to save towards home ownership, the federal government introduced the tax-free first home savings account (FHSA). Through this account, you can save up to $8,000 annually and $40,000 in your lifetime.
Saving for a house downpayment can be a hurdle, but earning investment income through the FHSA can be helpful. For Vancouver residents, higher house prices mean your downpayment savings need to be significantly higher than residents of other provinces. Unfortunately, the FHSA limits are the same across Canada and do not reflect higher home prices in provinces like British Columbia.
To qualify for the FHSA tax benefits, you must ensure that you are a first-home buyer and have not owned a home in the past four consecutive years.
Most Canadians are familiar with the tax-free savings account (TFSA) and the registered retirement savings plan (RRSP) and are wondering how this new account compares.
One common thing about the tax-free first home savings account and the TFSA is your investment earnings in both accounts are tax-free. The Canada Revenue Agency will not tax your capital gains and dividend income in the tax-free first home savings account and the TFSA.
A great aspect of the tax-free first home savings account is that you can have this account along with a TFSA and registered retirement savings plan (RRSP). Also, your contributions to the tax-free first home savings account are tax-deductible and can reduce your taxes.
Your withdrawals are not taxed if you use them to purchase your first home. Otherwise, you will pay taxes on non-eligible withdrawals not used for the purpose of a first-home purchase.
The multigenerational home renovation tax credit
Starting in 2023, the Canadian government introduced the Multigenerational Home Renovation Tax Credit, which provides up to $7,500 in support for constructing a secondary suite. The home renovation must be for a senior or adult living with a disbalilty who needs extra care with mobility.
This tax credit is helpful for families with mult-generations, grand-parents, parents, and adult children living together and caring for each other.
If you renovate your home to accommodate an elderly family member or an adult child with a mental or physical disability, you can claim up to 15 percent of $50,000 for eligible expenses. The multi-generational home renovation tax credit is refundable, which means you will receive this amount from the Canada Revenue Agency (CRA) even if you do not have an offsetting taxable income when filing your taxes.
The home accessibility tax credit
With the non-refundable home accessibility tax credit (HATC), you can claim home renovation costs of up to 15 percent of the lower of $10,000 and your eligible expenses in 2022. This brings the highest claim to $1,500.
This percentage can change per year if the lowest personal tax rate changes or the government of Canada reviews the claim limit. For example, the 2022 federal budget proposes to increase the claim limit to $20,000 and the claim amount to $3,000.
You must be eligible to claim expenses for altering your home to receive the home accessibility tax credit. Generally, people who are eligible to receive the Disability Tax Credit (DTC) or are at least 65 years old qualify to claim the home accessibility tax credit.
If you take care of an eligible dependent or a qualifying individual (65 years and above or living with a disability) either as a spouse or common-law partner, parent, grandparent, sibling, or another eligible family member, you can also claim the home accessibility tax credit.
If you plan to carry out the renovation yourself, you must note that you cannot claim personal labor expenses or your tool cost. You are only allowed to claim expenses like building materials, fixtures, equipment rentals, building plans, and permits.
Other tax deductions such as the work-from-home expenses tax deduction can help you reduce your taxes. Additionally, if you use your home are a primary business location, you can claim certain home expenses in the proportion of business use to personal use. Examples of home-related expenses you can claim are utilities, interenet fees, interest charges on your mortgage.
At At DW & Associates, Chartered Professional Accountants, our tax professionals help you to identify all eligible tax credit claims so you can cut down on housing expenses. Contact the team to begin a consultation.