As housing costs continue to increase, many families are considering the benefits of renovating their homes to accommodate multiple generations under one roof. Mindi Banach, Tax and Estate Planner, TD Wealth, joins Anthony Okolie to offer some tax strategies to consider and explain why it may make sense to spread the renos over several tax years.
Housing costs are climbing out of reach for a lot of people, leading many to consider the benefits of having multiple generations under one roof. According to Statistics Canada, nearly 6% of all Canadians age 75 and older live in a multigenerational household.
So if you've got aging parents moving in and even your adult children moving back home to save money, you may be looking to do some renovations. But how do you go about it in a tax-efficient way? Mindi Banach, tax estate planner with TD Wealth, joins me now to discuss. Mindi, thanks for joining us again.
Thank you for having me.
First off, when we think about aging parents and adult children moving in, what are some of the typical rentals that people are likely going to take on to accommodate them?
I think when you have more people moving into your home, you want to make certain that there's enough space to accommodate everyone. So when you do a renovation, you're thinking about adding additional bedrooms, bathrooms, a living space. Depending on the different family unit moving in, you may want to create a private area for that family. So again, creating a separate basement apartment.
If it's somebody who is elderly or disabled, you want to make your home more accessible for those people, so adding in grab bars, walk-in showers or bathtubs, just to name a few. Again, these are just some of the typical renovations that people take on.
And how do you actually plan your renovations with tax efficiency in mind? Because it can get expensive.
It can be expensive, and it can also be complex. It can be hard for people to think about tax efficiency, again, when you're renovating. So I have five general steps that people may want to consider, again, when you're going through a renovation and you want to take into consideration tax efficiency.
The first step is you want to research the tax credits that are available out there. The second step is you want to make certain that you have a detailed plan. Include all those costs and all those expenses as to what your renovation plan is going to be. The third step is you want to prioritize the renovations that are going to be eligible for the tax credits that you just researched.
Fourth, it may be beneficial to spread out your renovation over multiple tax years. And last, you want to keep detailed records, so keeping those invoices keeping those receipts, so that when the time comes and you have to file your tax return, it may be a little bit easier to take advantage of those tax credits.
So what are some of the tax credits that people should have on their radar as a gear up to do these rentals?
So first off, I want to highlight that, in addition to the federal tax credits that are available, there are also provincial and territorial tax credits that you may want to consider. And interesting to note, depending on the eligible expense, you may be able to take advantage of both the federal and the provincial, territorial at the same time.
Now today, I want to focus on two of the federal tax credits that relate to home renovation. The first is the Multigenerational Home Renovation Tax Credit, which is actually new for 2023. And what this tax credit provides is for renovations that allow you to add an additional dwelling or suite to your home-- again, a separate entrance, a separate bedroom, bathroom, living space for somebody who is elderly or disabled.
Essentially, what this tax credit was designed for is it was designed for Canadians to renovate their home, make it more accessible, and to accommodate multigenerational living, like its name suggests. What this tax credit actually provides is a 15% refundable tax credit on eligible expenses up to $50,000. So you're looking at a $7,500 tax credit. It is only eligible on one renovation per eligible individual in their lifetime, so something to take note of.
The second federal tax credit that I want to highlight today is the Home Accessibility Tax Credit. And this is a tax credit, like its name suggests, where you're making your home and renovating your home to make it more accessible for people who are elderly or disabled. So again, adding in those grab bars, those walk-in showers or bathtubs, things of that nature, again, just to name a few.
What this tax credit provides is a 15% nonrefundable tax credit on eligible expenses up to $20,000. So you're looking at about a $3,000 tax credit. There are obviously other tax credits to consider, so best to speak to somebody to determine your eligibility status for them.
- It sounds like there's a lot of options out there for people doing the rentals.
There can be.
Yeah. Now, are there any other programs or incentives that homeowners should consider, aside from some of these tax credits?
- So, yes. In addition to tax credits, there are other federal grant programs that are out there. So for example, the Canada Greener Homes Grant is a federal grant that provides up to $5,000 to make your home energy efficient. So you're looking at renovating your home to add energy-efficient doors, windows, solar panels, again, just to name a few.
And I just want to highlight, in addition to the federal grant programs that are out there, there may also be, depending on your province or territory, provincial or territorial grants to also look into.
ANTHONY OKOLIE: OK. Now, earlier you mentioned that spreading out your renovation over more than one year can be beneficial from a tax standpoint, rather than doing everything at once. Can you dig into that a little bit more?
Yeah. So again, when you're thinking about renovations for tax efficiency in mind, you may want to consider, again, spreading out that renovation over multiple tax years. So for example, with respect to the Home Accessibility Tax Credit, if your budget is going to exceed $20,000, you may want to consider, again, spreading out your renovation over multiple tax years, considering that you can only take advantage of the maximum credit of $20,000 per year.
Additionally, obviously, we all recognize that when you're renovating your home, cash flow is going to become a consideration because it costs a lot of money to renovate your home. And if you are considering selling some of your investments to fund that renovation project, there's a possibility that you may realize a large gain.
And you may want to avoid having to increase your marginal tax bracket in one year. Spreading that out over multiple tax years may allow you to avoid, again, increase your marginal tax bracket significantly in one particular year.
And as you mention, doing rentals is very expensive. There's a lot of budgeting involved in there. Are renovations something you should be involving a financial professional?
So yes. Similar if you're renovating, you want to consult with a professional contractor. Certainly, if you're renovating and you want to keep tax efficiency in mind, it may be best to consider talking to a professional to determine, again, what the tax credits are available out there, what the eligibility standards are.
When it comes to budgeting, they may be able to help determine, is your budget feasible and is it in line with your financial planning goals? When it comes to financing, if you need to borrow money to pay for that renovation, they can help you understand what the financing options and strategies are out there and available to you and help determine, again, what the tax implications are going to be for borrowing.
And when it comes to investing, if you have to sell investment products to go and fund that renovation project, you want to make certain that your investment plan balances your renovation budget against your long-term financial goals. Again, when it comes to renovation, keeping tax efficiency in mind, you definitely want to be consulting a professional.
Mindi, great information, as always. Thanks for joining us.