The 2022 Federal Budget: New credits to help buy a home, more tax deductions, and more!

On April 7, the Canadian government announced the 2022 federal budget. This year’s budget includes new tax credits to help save for your first home, more tax deductions, and more. Here’s what you need to know about how these changes might impact your tax situation.

Highlights from the 2022 federal budget include:

• Home buyers’ amount and home accessibility expenses increased
• New tax-free first home savings account (FHSA)
• New multigenerational home renovation tax credit
• New residential property flipping rule
• Construction industry workers can now claim more relocation expenses
• Medical expenses now include some surrogacy costs and fees

Home buyers’ amount and home accessibility expenses increased

Home buyers’ amount

If you bought your first home in 2022, you might be able to claim the first-time home buyers’ tax credit (HBTC). You can now claim $10,000 of your first down-payment if you purchase your home in 2022 or future years. Previously, you could only claim a 15% tax credit on up to $5,000 of the first down-payment on your home.

Home accessibility expenses

If you’re 65 and over or disabled, and you renovated your home to make it more accessible, you might be able to claim the home accessibility expenses tax credit. Starting in 2022, you can now claim up to $20,000 of your eligible expenses. Previously, the maximum you could claim for your expenses was up to $10,000. This new limit can be applied to any eligible expenses that you paid for in 2022.

New tax-free first home savings account (FHSA)

To help with the rising costs of buying a house, the federal government has introduced the tax-free home savings account (FHSA) to encourage Canadians save for their first home.

If you start a FHSA, you can contribute up to $8,000 every year, and up to $40,000 in your lifetime. Your contribution limit resets every year, That means even if you only contribute $2,000 to your FHSA one year, your limit next year will still be $8,000.

Similar to RRSPs (registered retirement savings plans), contributions to your FHSA will be tax-deductible, meaning you can lower the amount of taxes you owe by contributing to your FHSA. Unlike RRSPs, withdrawing from your FSHA is tax-free. This means the money you put into your FHSA is tax-free in and tax-free out.

Keep in mind, you can only use your FHSA to help purchase a single property in your lifetime. This means once you’ve paid for a home using your FHSA, you’ll have to close your account within one year and you won’t be able to open another one.

What happens if don’t buy a home?

If you don’t use your account to buy a home after 15 years, you have three options:

1. close the account;
2. withdraw the money you have in it (keep in mind, this withdrawal will be taxed); or
3. transfer the money to another registered savings account like an RRSP.

How do I open a FHSA?

To open a FHSA, you need to meet the following conditions:

1. You must be a Canadian resident.
2. You must be 18 years of age or older.
3. You can’t have owned a home you lived in during the year you opened your FHSA or at any time in the 4 years before you opened your FHSA.

The government intends to work with financial institutions to make sure that FHSAs can be opened starting in 2023.

You’ll be able to open a FHSA through your bank or credit union. More information about how to open and begin contributing to your FHSA are coming soon.

New multigenerational home renovation tax credit

Starting in 2023, the new multigenerational home renovation tax credit will be available to families who renovated their home to add accommodations for a senior or disabled relative to live with them if they're eligible. You can cla­­im 15% of up to $50,000 of your eligible renovation expenses, meaning you might be able to receive up to $7,500 as a refundable tax credit.

Am I eligible?

To be eligible for the multigenerational home renovation tax credit, you need to meet the following conditions:

• You need to have a qualifying relation to the senior (over 65) or disabled person who’s living with you.
• You need to renovate your existing home where you and your family live (you can’t claim renovations made to a separate home).
• The renovations must be eligible expenses.

You have a qualifying relation if:

• You’re 18 or older.
• You have a relationship to an eligible person (this includes biological relationships such as your parents, grandparents, siblings, children, aunts, and uncles, as well as the family members of your spouse or common-law partner).

To be eligible for this credit, you must have made reasonable renovations to help your relative live in their new home. For example, if you add a new bedroom or washroom, this is considered reasonable by the CRA. However, if you build a new deck, this doesn’t qualify as a reasonable expense.

Some examples of eligible expenses include:

• Cost of labour for professional renovation services
• Building materials
• Fixtures (such as cupboards, cabinets, lighting, and grab bars)
• Equipment rentals
• Renovation permits

Other items, such as furniture, don’t qualify as eligible expenses.

How do I apply?

Details on how to apply are coming soon. This credit is expected to be available starting in 2023.

New residential property flipping rule

Starting January 1, 2023, profits from selling residential properties, including rental properties, that were owned for less than 12 months (one year) will be considered business income. This new rule is meant to make the housing market more affordable.

If you sold a home during the year, you might have realized a capital gain, meaning half (50%) of the amount you made from selling your investment is added to your income, and then your personal tax rate is applied to the total. To learn more about capital gains, check out this blog. Usually, you don’t have to pay tax on any capital gains from the sale of your home if the property was your principal residence (the main home where you and your family lived) for every year that you owned it. This is known as the principal residence exemption.

Under this new rule, if you sell any property you owned for less than a year, the entire amount you earn will be considered taxable income, even if you ever lived there (the principal residence exemption won’t apply). This means if you sell your property for more than you bought it, you’ll add the whole (100%) amount you made from selling your investment to your income for the year, and then your personal tax rate is applied to the total.

For example:

If you buy a home for $400,000 and then sell it for $500,000 in less than one year later, this is considered business income and you’ll need to add your entire profit to your income for the year. Because your profit was $100,000, you’ll add $100,000 to your annual income. Your personal tax rate is then applied to the total amount of income you report to determine how much tax you owe. Even if this property was the main home where you and your family lived for the entire time you owned it, you can’t claim the principal residence exemption on the sale.

Stay tuned for a blog explaining how this new rule might impact your tax situation if you buy and sell residential properties.

Are there any exceptions to this rule?

Yes, there are some cases where selling a residential property you’ve owned for less than 12 months won’t be considered business income. This includes if you sold your residential property because of:

• A death or anticipated death of the homeowner or a person related to the owner
• Families who have a new person join their household, or if you join another person’s household (for example, if you have a new child, adopt a child, or move to care for an elderly parent)
• Needing to move because of threats to your safety (for example, situations that might involve domestic violence)
• Separating from your spouse or common-law partner
• Disability or illness
• Needing to move for work

More information about exceptions to the residential property flipping rule is coming soon.

Construction industry workers can now claim more moving expenses

Starting in 2022, construction industry workers who needed to temporarily relocate for work will be able to claim up to $4,000 per year to help with the cost of their relocation expenses. In previous years, you couldn’t claim your moving expenses for temporary relocations if you didn’t move more than 40km.

Am I eligible?

To be eligible to claim your moving expenses, you must meet the following conditions:

• You’re a tradesperson or apprentice
• You relocated within Canada
• You only relocated temporarily to work or continue working at a construction site or activity
• Your temporary residence is at least 150km closer than your main residence to the work site
• You relocated for more than 36 hours
• You have a separate residence for yourself or family (if applicable) during the time you relocated for work (meaning your temporary residence isn’t your only residence)
• You stayed at the temporary residence for the entire duration of the job

Keep in mind, you can only claim the cost of temporarily relocating for your job. This means you can’t claim the cost of commuting to a work site if you didn’t move there, even if it was far away. It’s also important to note that the temporary work site can’t be in the neighbourhood where you usually work.

How much can I claim?

The highest amount you can claim for your expenses is up to 50% of the employment income you earned from working at the temporary work site. For example, say your plane ticket to the new location was $300, but you earned $500 from working there. Because 50% of $500 is $250, you can claim up to $250.

You can claim these expenses the year before or the year after you paid for them, which gives you more time to claim your deduction.

It’s important to know you can’t claim both moving expenses and this deduction. You also can’t claim this deduction if you were reimbursed for relocating by your employer.

What is an eligible expense for this deduction?

Eligible expenses include:

• Temporary accommodations to live near the work location
• One round trip from your main residence to the temporary relocation
• Meals purchased while travelling for one round trip from your main residence to the temporary relocation

How do I apply?

More information on how and when you can apply is still coming out, so make sure to keep up-to-date with H&R Block for newly released information!

Medical expenses now include some surrogacy costs and fees

Starting in 2022, more expenses are now considered medical expenses and can be claimed on your return to lower the taxes you owe. Some of these expenses now include:

• Medical expenses related to surrogate mothers or donors, such as expenses paid by an intended parent to a fertility clinic for in vitro fertilization to a surrogate mother or hormone medication for ova donor
• Reimbursements of expenses paid by you to the surrogate mother or donor (for example, if the surrogate mother had some pregnancy-related medical expenses and you reimbursed her for those expenses, you can now claim them)
• Fees paid to fertility clinic and donor banks to get donor sperm or ova

For expenses to be eligible, they must be paid in Canada.