Aging in place - claiming the Home Accessibility Tax Credit
The strong preference of many older Canadians is to remain in their own homes for as long as possible – usually described as “aging in place”. There’s a lot to recommend that choice – moving, at any age, is a stressful experience. As well, remaining in one’s current home often means staying close to family and friends, and in a familiar community. There’s also a financial aspect to staying in one’s home: while home ownership has its unavoidable costs in the form of property taxes and utilities costs and the inevitable maintenance and repair bills, the cost of living in a retirement home is usually several thousand dollars per month. And, in the event that a greater level of care is needed, the cost of a bed in a long-term care home is even greater.
That said, the home that suited a growing family or even empty nesters in their early retirement years may no longer meet the needs of older retirees. When that’s the case, selling the home and moving is not the only available choice. Often, changes can be made to a home to make it both safe and comfortable for its older owners, and the out-of-pocket cost of making such changes can be offset by the availability of a non-refundable federal tax credit – the Home Accessibility Tax Credit (HATC) program.
The HATC is an unusually broad and flexible tax credit in a number of ways, including the broad definition of the kinds of expenses which qualify for the credit, who can claim the credit, and the number of tax credit programs for which expenses incurred may be eligible.
In a nutshell, the HATC program provides a tax credit for changes made to a home which allow a “qualifying individual to gain access to, or be mobile or functional within, the dwelling or which reduce the risk of harm to a qualifying individual within the dwelling or in gaining access to the dwelling”. It’s apparent from that description that a very broad range of expenses can qualify for the purpose of the HATC – everything from the purchase and installation of a bathtub grab bar to a full-scale renovation done to provide a ground floor bathroom. The limitations on which expenses qualify for the credit are actually quite few in number. Generally, in order to be eligible for the credit, a cost incurred must be for a change which is permanent part of the property, and costs which represent the ordinary costs of maintaining a home and property and/or are periodic or recurring in nature, do not qualify. The listing of non-qualifying expenses provided by the Canada Revenue Agency (CRA) is as follows:
- amounts paid to acquire a property that can be used independently of the qualifying renovation;
- the cost of annual, recurring, or routine repairs or maintenance;
- amounts paid to buy household appliances;
- amounts paid to buy electronic home-entertainment devices;
- the cost of housekeeping, security monitoring, gardening, outdoor maintenance, or similar services;
- financing costs for the qualifying renovation; and
- the cost of renovations incurred mainly to increase or maintain the value of the dwelling.
The definition of a “qualifying individual” for purposes of the HATC includes both homeowners who are over the age of 64 at the end of the taxation year for which the claim is being made, as well as individuals of any age who are eligible for the federal disability tax credit at any time during the year. However, the list of individuals who can make a claim for the HATC is broader than that.
Claims for the HATC can also be made by an “eligible individual” and for purposes of the credit an eligible individual includes the spouse or common-law partner of a qualifying individual. Other relatives of a qualifying individual, including a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew, or niece of that qualifying individual (or the spouse of any of these individuals) can also make the claim for the HATC, as long as the elderly or disabled individual is dependent on the relative making the claim. The rules governing the circumstances in which a relative other than a spouse or common-law partner can make a claim for the HATC are somewhat complex, and those rules are set out in detail on the CRA website at https://www.canada.ca/en/
It’s a basic tenet of the Canadian tax system that an expenditure can only be claimed once, for either tax deduction or tax credit purposes – that “double dipping” by claiming the same expense twice is not allowed. The HATC is one of the rare exceptions to that rule, in that an eligible expense for purposes of the HATC which also qualifies as a medical expense can be claimed twice – as a medical expense tax credit and as a home accessibility tax credit.
Finally, there are a number of other grant, forgivable loan, or tax credit programs at the federal, provincial, and territorial government levels which provide assistance to eligible Canadians with the cost of making a home safer or more accessible for older residents. No matter the source or amount of such financial assistance, any amount received does not reduce the amount claimable for purposes of the HATC.
Take, for example a couple, each of whom is over the age of 64, and each of whom has an income of $30,000. The couple live in their own two-story home, in which the bedrooms and bathrooms are on the second floor. As the result of both age and illness- related mobility restrictions, one of the spouses must now use a wheelchair to move about within their home. In order to be able to stay in that home, the couple decide to undertake renovations which will create a bedroom and bathroom on the first floor of the home. They also replace the stairs leading to the front door of their home with a ramp. The cost to do these renovations is $15,000. In their tax return for the year, the couple can make the following claims with respect to the cost of the renovations.
Claim for HATC
The total cost of the renovations was $15,000. The HATC is calculated as 14.5% of eligible costs incurred, meaning that the credit for the renovation is $2,175 ($15,000 times 14.5%). The claim for the HATC is then made on line 31285 of the return, and federal income tax payable is reduced by $2,175.
Claim for medical expense tax credit (METC)
Under general rules, Canadian taxpayers can claim a federal medical expense tax credit for eligible medical expenses which exceed 3% of their net income for the year, or $2,834, whichever is less.
Since both spouses have the same income, the tax result will be the same, regardless of who makes the claim for the METC. (If their incomes were different, the claim for the METC should usually be made by the lower-income spouse.)
Since the income of the spouse making the claim is $30,000, 3% of net income is $900, meaning that $14,100 ($15,000 minus $900) of the cost of renovations can be claimed for purposes of the METC. The METC is equal to 14.5% of qualifying medical expenses, meaning that the credit with respect to the renovation costs will be $2,044.50 ($14,100 times 14.5%), and federal tax payable by the individual making the claim will be reduced by that amount.
In total, the couple has received $4,219.50 in federal non-refundable tax credits (and thereby reduced their federal tax payable for the year by that amount) with respect to their renovation costs, bringing the net cost of those renovations from $15,000 to $10,780.50.
There is an overall limit of $20,000 on the amount of eligible expenses which can be incurred in respect of a single dwelling during a single tax year, regardless of the number of qualifying individuals who live in that dwelling. However, there are no restrictions on the number of times a claim for the HATC can be made. Consequently, taxpayers who are contemplating incurring costs which exceed the $20,000 annual limit should consider spreading those costs over more than one taxation year, in order to maximize the total HATC claim which can be made.
Detailed information on the HATC can be found on the CRA website at https://www.canada.ca/en/
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.