Secondary unit must have private entrance for home renovation tax credit, per draft rules

The federal government peeled back the curtain on a swath of budget measures aimed at the housing file this week, outlining draft legislative proposals for a new tax credit.

Finance Minister Chrystia Freeland released her government’s pitches on Tuesday, allowing Canadians until September 30 to submit their feedback.

One of the measures, the first-time homebuyers’ tax credit, will apply to the 2022 tax year and subsequent years. Ottawa vowed to double the credit in the budget, allowing new buyers to claim up to $10,000 with a maximum credit of $1,500, compared to a previous $5,000 up to $750. Meanwhile, the multigenerational home renovation tax credit will not be available until the new year.

The Liberals’ spring budget heavily focused on tackling the housing crisis, vowing through the latter proposal to offer up to $7,500 to families looking to construct a secondary suite on an existing property. That dwelling can house a senior or adult living with a disability, the government said.

That refundable credit would allow families to claim 15 per cent of up to $50,000 in eligible renovation and construction costs. The budget set aside $5 million in 2022-23 for the measure, rising to $25 million each for the next four years.

This week’s proposal outlines that the qualifying housing unit must be occupied within 12 months after renovation has ended — an effort to avoid capturing pre-sale renos. Ottawa would define a secondary unit as one that has a separate entrance, kitchen, bathroom and “sleeping area,” and meets other provincial or municipal requirements as needed.

Among the renovation expenses people can claim are those linked to the purchase of material and services, or rental of equipment. The feds say costs for repairs or maintenance of the site, once built, will not be covered, nor will household appliances, electronic home-entertainment devices and services like housekeeping, security, gardening or other outdoor maintenance purchased by applicants.

The measure was framed as helping families let older or extended relatives live with them, though housing advocates questioned its uptake given soaring renovation costs, arguing it may not target those most in need of housing security.

To shell out direct support to those in more dire need of housing, the budget noted Ottawa has already set aside $4 billion over eight years through the Canada housing benefit since 2020. But to recognize Canadians are increasingly feeling the squeeze, the Grits vowed to provide $475 million this year to offer a one-time $500 payment to those in need.

The government did not offer details this spring on how those funds will be delivered or who would qualify, vowing to do so at a “later date.” This week’s proposals also shed little light on the matter.

Freeland’s department also shared details for the residential property flipping rule, to tackle one of the factors that experts say is likely driving high costs in the sector.

The budget signalled Ottawa will ensure flippers are “paying their fair share of tax,” noting those implicated may not be truthfully reporting their profits to skirt levies.

The fiscal blueprint said the measure would be slapped on residential sites sold on or after January 1, and anybody selling a site they’ve owned for less than a year would be targeted. The draft regulations confirm that exemptions are in place for those who sell their home because of cases of death, disability, the birth of a child, a new job or a divorce.

Tuesday’s update also came with renewed promises to tweak the tax system as it applies to Indigenous people, picking up on a budget commitment to consult Indigenous governments that want to usher in a fuel, alcohol, cannabis and tobacco sales tax regime to help them exercise their jurisdiction.

To be applied on reserve or settlement lands, Finance Canada is accepting feedback on the optional measure until January 15.