It’s time again to complete the dreaded chore of filing your annual income tax return. Although many of us hate this yearly task. Homeowners will be relieved to know that they’re entitled to certain tax credits and rebates that can provide tax deductions and save you money. That’s right! Homeowner tax credits are a great way for property owners, the self-employed and real estate investors to save on taxes. So, if you own property — even if it’s outside of Canada — or you’re a non-resident who owns property here, be sure to use tax deductions specifically designed to reduce your tax bill.
It’s always worth it to spend some extra time researching these tax deductions. Or sit down with an accountant to make sure you’re not paying higher taxes than necessary. Check out these four scenarios and see which applies to you.
Canadian homeowner tax credits
1. First-time home buyers’ credit
If you purchased a home for the first time last year, then Line 369 on your tax return — the first-time home buyers tax credit — is the one for you. This federal credit of $5,000 is designed to make it easier for first-time buyers to enter the housing market. To be eligible you cannot have owned a property in the previous four years and you need to have a qualifying home. However, qualifying homes must be registered to you or your common-law partner and must be located in Canada. Joint owners can also split the claim, but the total cannot exceed $5,000 for one property.
2. Credits for energy efficiency
Various federal and provincial tax credits and rebates are available for making energy-saving upgrades to your home. Now this does depend on which Canadian province you live in and what upgrades you make. The credits are to encourage homeowners to: install renewable energy, improve insulation and reduce waste. You can also get a rebate on products and appliances that have earned the ENERGY STAR rating.
To apply for the credit, an assessment from a certified energy advisor is required. To receive an EnerGuide energy efficiency home evaluation, you can contact a service agency within your province to book an appointment. This evaluation costs an average of $400 but can help you earn a rebate of $10,000 or more. Keep in mind, some of these upgrades aren’t cheap — such as new windows or a new furnace. But the suggested upgrades will reduce your energy consumption and could potentially save you over $1,000 annually.
3. Renovation rebate for accessibility reasons
Canadians can claim up to $10,000 per year on home accessibility expenses. These are renovations homeowners make to ensure a safer or more accessible home for a disabled member of the household. These also apply for seniors aged 65 or over. Renovations could include installing a handrail, grab bars, widening doorways or construction of an accessible shower. Eligible expenses include the plans, permits, materials and fixtures to undertake the renovation.
Homeowner tax credits for rental properties
For Canadians who use their properties as rental units, there are many reasonable expenses you can deduct from your income on your tax returns. ‘Reasonable’ rental expenses you can deduct include mortgage interest, utilities, property tax, repairs and maintenance, insurance. You can even deduct the cost of driving to the rental property for maintenance reviews or to pick up rental checks. Make sure you check to see what the per kilometre deduction allowance is for your province.
Canadian tax credits for people who work from home (or with home-based businesses)
Homeowner tax credits can be favourable if you work from home. You can claim expenses against your income. Eligible expenses include utilities, home insurance, property taxes, office supplies and cleaning products. You cannot deduct mortgage insurance or capital cost allowance (two deductions that are considered business expenses and, if used, can prevent you from claiming the principal residence exemption later on when you sell your home). Keep in mind, that the space you use to do work must be a dedicated workspace and used at least 50% of the time for the purpose of conducting work.
The great thing about this deduction is that it applies to people with home-based businesses and to employees with home-offices. However, if you are employed and work from home ask your employer to fill out and sign a T2200. You won’t have to submit the schedule with your annual tax package, but you must have it on file if the Canada Revenue Agency opts to review your expenses.
Tax credits for Canadians who own U.S. or worldwide property
Some Canadians own U.S. or worldwide property. They are liable to pay foreign tax on the net rental income after applicable expenses are deducted. Some of these applicable expenses include mortgage interest, insurance and property management fees. You can also claim a foreign tax credit on your Canadian tax return to reduce your overall tax bill and avoid double taxation (taxation in Canada and in the country where your property is located).
As a U.S. or worldwide resident who owns Canadian property
Canada is a popular place for U.S. and overseas real estate investors to buy and own residential and commercial real estate. If you are a non-Canadian who owns property in Canada and you receive an income from these homes, you will need to file a tax return based on obligations such as rental payments or management fees. Tax incentives for these property owners include deductions on expenses when purchasing and managing an investment property in Canada. Consider including insurance costs, maintenance and repair costs, professional fees and utilities.
While tax time can be a hectic, stressful time, it’s also a time to find and maximize eligible deductions and tax credits. You may be surprised at how much money you can save when all the various deductions are added up.