6 tax tips for Canadian homeowners
Did you know that as a whole Canadians file over 27 million income tax returns each year, amounting to over $860 million in total income tax revenue, but only 5 million Canadians are receiving tax rebate cheques? What a lot of people don’t realize is that some of the more lucrative rebates are actually available to homeowners, so they can improve their homes and make their space more accessible for themselves and loved ones.
49% of Canadians plan to renovate their homes in 2020, with an average estimated budget of $10,000. Unfortunately, of those surveyed with previously completed renovations, 39% went over budget, meaning that your home renos can easily come to more than expected.
A rebate check can help offset any home improvement costs that you have or expect to have.
This tax season, consider investing some time and effort into researching which tax breaks you can take advantage of. These are some of the more common homeowner tax breaks you might be eligible for:
1. First Time Home Buyers’ Tax Credit (Line 31270)
For a first time home buyer, one of the most daunting tasks is saving up enough money for a down payment. With a minimum of 5% needed to qualify for a down payment of a home under $500,000, that can seem like quite a lot of money.
|House Cost (CND)||5% Down Payment Cost (CND)|
That’s where the First-Time Home Buyers’ Tax Credit can get you a portion of that down payment back. This tax credit offers a maximum of $5,000 in a non-refundable amount, and offers a possible $750 rebate for you; unless you live in Saskatchewan, in which case your rebate can be as much as $1,075.
This tax break is available across Canada to any First Time Home Buyers’. Meaning your home must be either an existing home or a newly built home purchased after 2009. You must live in the home and your home must fall under the following categories; condos, townhouses, single-family homes, semi-detached homes or duplexes. You can also qualify if you or your partner haven’t owned any property over the last four years.
There are a couple things to take note of. The first is that If you’re purchasing a home with another individual, you can only share this tax credit; you can’t claim multiples of the same rebate for one property. It’s also important to note that using this rebate doesn’t disqualify you from the Home Buyers’ Plan rebate, which we will talk about next.
Home Buyers’ Plan (Form T1036)
If you have a Registered Retirement Saving Plan (RRSP) tucked away, then the Home Buyers’ Plan is something you should take advantage of. This will allow you to withdraw funds from your (RRSPs) to buy or build a home for yourself. You will have to pay back these funds, but you have up to 15 years to repay the funds that you took out.
This might be the best year to take advantage of this program, since the limit has been increased to $35,000. To make this an even more enticing option, you will have no taxes withheld on RRSPs amounts less than the $35,000 maximum. RRSPs that are locked or part of a group fund are not eligible, but you can withdraw from multiple RRSPs as long as they are in your name.
There are some specific criteria to qualify for this rebate, however. The first is that you have to fall under the First Time Home Buyer conditions. You will need a written agreement to buy or build a qualifying home and to withdraw funds from any RRSPs, you must be a Canadian resident with the intent of living in the home for no less than a year. If you have used the Home Buyers’ Plan before, you will be able to use it again if you repaid your balance by January 1st of the current year and meet the other conditions.
Homeowner tax credits when you work from home (Line 22900/Form T2200)
With an estimated 47% of Canadians working from home more than half of the week, many people forget that some of your home expenses can be eligible for deductions on your income tax. Things like utilities, vehicle expenses, insurance, office supplies, cleaning costs, mortgage interest, and even property taxes. Before you get too excited, there are some things you should know, because working from home falls under two categories.
If you’re self-employed, you can make a claim if your home meets requirements. The first is that it must be used for earning income exclusively for your business or that it’s used as the primary place of business. Secondly, the space must be used regularly for meeting customers or clients.
Now, if you’re an employee, there are more restrictions for claiming your home office. You can make a claim to the office as an expense if you’re required to pay for it by your employer, you can’t claim it if your employer pays you for it. Your employer can certify you work from home by completing the form listed above.
There is the catch though, you can’t use these to increase your profits or to offset losses. This reimbursement works on a percentage of the property. Meaning that if your home office is 15% of your home, then 15% of the associated costs of the home can be deducted. Don’t get greedy and round them up, as that is a sure fire way to get unwanted attention. You should also take note that the principle on the mortgage is not deductible.
Lastly don’t make the mistake of claiming a percentage of repairs that have nothing to do with the home office. Meaning if there is a repair made in your bedroom, you can’t claim it. But on the upside, if there is a repair needed in your home office, you can claim all of that expense.
Rental Income tax credits (T2125)
Rental properties have many associated risks and rewards and giving you some relief on your taxes is one of the later. This means you can deduct any reasonable expenses you incur on your rental income. There are two types of expenses these fall under; current and capital.
Current expenses are recurring and provide a short-term benefit. Meaning you can claim cleaning the furnace because it’s a maintenance cost associated in keeping the value of the furnace and home. These types of expenses can be claimed on the year they occurred.
Capital expenses are ones that provide a benefit that usually lasts for several years. Meaning if you need to fix the roof on the home, then you can make a claim. But because these types of expenses are meant for the long haul they cannot be claimed in a single year, they are instead spread out over several years.
Lastly, there is the Capital Cost Allowance, which allows you to deduct the depreciating value of the property. Just be aware that when it comes time for selling the property, you might end up paying more taxes via capital gains.
Deductions from moving for work or school (Line 21900)
Moving to a new city offers many exciting opportunities, but with them can come some big expenses. If you have moved for work or school then you can claim them on your taxes. You just have had to move more than 40 kilometres away to start a new business, take a new job or attend school to offset the bills for using a moving company, hotel, and legal costs; just to name a few examples.
Don’t think of this as a blank check, your expenses need to be legitimate. Work done to make your old home more saleable or lost money on the sale of the home aren’t moving expenses. Neither are travel expenses to find a new home or job.
GST/HST housing rebate
If you have bought a house or made substantial renovations to an existing one, you might be able to collect on a GST/HST housing rebate. This rebate is meant to offset the cost associated with these rennovations in the year they were done.
It’s important to note that if you have done renovations, there are some stipulations on what can qualify for the rebate. One example is if you did the repairs yourself, you can only deduct the materials GST/HST cost, your labour cost doesn’t count. You can only deduct the labour cost from a certified professional, so if you hired someone to do the work, you can deduct their GST/HST costs.
Tax time can be a painful experience if you wind up paying more than your fair share (can we reword this? It’s pretty negative lol). By taking some time to research your options, you can find rebates and credits that you may have been missing. If you find yourself in need of some help or advice, please feel free to contact us at support@Ownest.ca to talk with one of our representatives.