Ah, yes. The annual chore of completing and lodging an income tax return. Although we may dread this yearly task, homeowners should feel 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, each year. 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 significantly reduce your tax bill.
It’s always worth it to spend some extra time researching these tax deductions or to 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. Home Buyers’ Amount
If you purchased a home for the first time last year, then Lien 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 can not have owned a property in the previous four years and you need to have a qualifying home. Qualifying homes must be registered to your 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, depending 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 these changes to the efficiency within your home 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, as well as for seniors aged 65 or over. Renovations could include installing a handrail, grab bars, widening doorways or the construction of an accessible shower. Eligible expenses include the plans, permits, materials and fixtures to undertake the renovation.
Canadian 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 return forms. ‘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 (just 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)
For property owners who work from home, you can also 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 make sure your employee fills out and signs 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
Canadians who own U.S. or property worldwide are liable for paying 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 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.