What Is the $7,500 Home Renovation Tax Credit? (Plain English Guide)

A client asked me last month if she really could get $7,500 back from the government for finishing her basement. Short answer: maybe, but only if the basement is being built as a self-contained suite for her mother. That’s the catch most people miss when they read about the $7,500 home renovation tax credit.

Here’s what it actually is, in plain English.

What the Credit Is Called

The official name is the Multigenerational Home Renovation Tax Credit (MHRTC). Canada introduced it on January 1, 2023. It is a federal tax credit, so it works the same in Ontario, BC, Alberta, anywhere in the country.

The number works like this. You can claim 15 percent of up to $50,000 in eligible renovation costs. Fifteen percent of $50,000 is $7,500, which is the maximum credit. You get the credit when you file your taxes, not as cash up front.

Who Qualifies

This is the part that catches people. The credit is not for any renovation. It is specifically for creating a secondary unit so that a senior or an adult with a disability can live with family.

To qualify, all of these need to be true:

• The renovation creates a self-contained secondary unit (its own kitchen, bathroom, bedroom, and entrance)
• A senior aged 65 or older, or an adult eligible for the disability tax credit, will live in the unit within a year of the work being done
• That person is a “qualifying relative” — usually a parent, grandparent, child, grandchild, sibling, aunt, uncle, niece, or nephew
• You and the senior or disabled adult both lived in or will live in the home as your primary residence

Translation: a basement apartment for your aging mom counts. A laneway suite for your dad counts. Finishing your basement so the kids have a playroom does not.

What Counts as Eligible Expenses

The CRA allows pretty much everything related to building the suite:

• Permits, drawings, engineering fees
• Building materials (lumber, drywall, insulation, flooring, paint)
• Labour and professional services
• Fixtures (toilets, sinks, lights)
• Appliances built into the unit (kitchen range, fridge, dishwasher built-in)
• Electrical and plumbing work
• HVAC work for the new unit

What does not count: free-standing furniture, regular maintenance work, things you would have done anyway, and renovations to parts of the house that are not part of the new suite.

How You Actually Claim It

You claim it on your personal tax return for the year the work is finished. You’ll need:

• Receipts for all eligible expenses
• The address of the property
• Confirmation the suite is self-contained
• Information about the qualifying relative

Save every invoice. The CRA can ask for them up to six years after you file. We give clients a project summary at handover with a clean breakdown of every line item, which helps if they end up in a CRA review.

A Real Toronto Example

Here is a typical project we run that fits the credit. A family in North York hires us to convert their unfinished basement into a one-bedroom apartment for the homeowner’s mother who is 72. They spend $78,000 on the conversion: framing, drywall, kitchen, bathroom, separate entrance, fire separation, permits.

Of that $78,000, the first $50,000 of eligible expenses qualifies for the credit. They get $7,500 back when they file. The remaining $28,000 does not get a credit, but it is still a real renovation that adds value to the home.

The math works whether you spend $50,000 or $200,000. The credit caps at $7,500.

Things That Trip People Up

A few common mistakes:

Treating it like a deduction. It is a non-refundable tax credit, not a deduction. It reduces tax owed, not income. If you owe less than $7,500 in tax that year, you only get the credit up to what you owed.

Doing the work too early. The credit applies to work completed on or after January 1, 2023. Older work does not qualify.

Not making the suite self-contained. A bedroom and bathroom in your basement is not enough. The unit needs its own kitchen, sleeping area, bathroom, and entrance.

Forgetting the relative actually has to move in. The qualifying relative must live there within 12 months of the work being done.

Stacking With Other Credits

You can stack this with the Home Accessibility Tax Credit (HATC) if the renovation also makes the home more accessible for a senior or person with a disability. HATC gives back another 15 percent on up to $20,000 in eligible expenses, for an extra $3,000. If you qualify for both, you can claim both on the same project as long as you do not double-count the expenses.

I cover the details on the Home Accessibility Tax Credit and other overlooked breaks in another post.

Should You Plan a Renovation Around This Credit?

If you were already planning a basement secondary suite for an aging parent, yes, claim the credit. It is real money. If the only reason you are doing the renovation is to get the credit, do the math first. $7,500 back on a $50,000 build is good. Spending $80,000 just to get $7,500 is not the right reason to renovate.

We do a fair number of these conversion projects each year. The full process is on our basement renovation Toronto page, and pricing details are on basement renovation cost in Toronto.

Where to Verify the Latest Rules

Tax rules change. The MHRTC details are on the CRA’s site, and the version in effect for the year you file is what counts. A quick chat with your accountant before the work starts is the safest way to make sure your project will qualify.

If you want a free in-home estimate for a basement secondary suite project, contact us. We give you a written itemized quote, and the breakdown is structured so the eligible expenses are easy to identify when you file.