July 28, 2023.

Some may consider the Multi-generational Home Renovation Tax Credit (MGHRTC) CRA’s contribution to Canada’s Affordable Housing Problem.

Let’s consider the scenario we find ourselves in.

Laneway and Coach houses are becoming increasingly popular in Canada, as a means to address the need for affordable housing. Canada Revenue Agency was recently asked if the construction of a detached dwelling would qualify for the multi-generational home renovation tax credit. So, if you have clients who are considering adding an “accessory dwelling unit” (the legal and regulatory term for a secondary house or apartment sharing the building lot of another home), they may appreciate hearing what CRA has to say on the subject.

In a recent technical interpretation on the subject CRA confirmed that the MGHRTC may be claimed for carriage or, laneway dwellings so long as the conditions to qualify are satisfied. Acknowledging the intent of the MGHTRC as set out in section 122.92 of the income tax act (“the Act”) the CRA gave a broad interpretation to the definition of “qualifying renovation” found in paragraph (b).

The CRA noted that a Carriage or Laneway house is different from an addition or extension, a basement apartment, or a suite over a garage, each of which form part of an existing dwelling. Rather these housing units are separate and detached units constructed on the same lot as the main home. They are typically smaller in size, and also include a portion of land needed for use and enjoyment of the unit.

Municipal or local government regulations can exist to prohibit the construction of these types of dwellings. Where this is the case then a Carriage or Laneway house would not meet local requirements and therefore the costs to construct would not meet the requirements of the MGHRTC as set out in the Act.

Where the construction of Carriage or Laneway houses are permitted, an eligible individual may claim the MGHRTC so long as it is built on land forming part of an eligible dwelling, local requirements to qualify as a secondary unit (like minimum or maximum unit size) are met, and it is intended for occupancy by the “qualifying individual” or a “qualifying relation of the qualifying individual”.

Both the “qualifying individual” and “qualifying relation” of the “qualifying individual” must also be expected to ordinarily inhabit the housing unit (including the secondary unit) within twelve months after the end of the “renovation period”.

If you are interested in more information, CRA’s full response can be found in technical interpretation 2023-0960671E5, produced by business and employment division on March 6, 2023.