Opinions on the choice between renting vs. owning a home can be evenly divided when discussing with ten different individuals. While numerous factors need consideration, such as the crucial question of “will my neighbors be strange?”, assessing the impact on taxes stands out as a major consideration. However, understanding the tax implications can be complex. Allow us to simplify the matter and provide insights from a tax perspective.
Renting vs. Owning a Home: Tax Credits for Tenants and Homeowners
When it comes to renting a house, an apartment, or a condo, claiming tax credits for the rent paid is generally not possible. However, there are still opportunities to put some money back in your pocket if you operate a business from your rental space or have a home office as required by your employer. In such cases, you can deduct a portion of the rent used for work, providing you with a potential tax benefit. For example, if your monthly rent is $2,000 and you utilize a quarter of the space for work purposes, you can deduct $500 per month.
Additionally, there are specific ways tenants in certain provinces can benefit:
- In Ontario, the monthly rent paid is a factor in determining eligibility for the Ontario Trillium Benefit, which may even apply to students living in residence.
- In Manitoba, renters can claim 20% of their rent, up to a maximum of $700, through the Manitoba Education Property Tax Credit.
- In Quebec, tenants can take advantage of two tax breaks: one through the Solidarity Tax Credit and another for residents over 65 through the Home Support Services for Seniors.
For homeowners, tax breaks provide even more advantages. In addition to claiming the same credits available to tenants, homeowners have access to additional perks:
- First-Time Home Buyer Tax Credit: If you’re purchasing your first home or neither you nor your partner have previously owned a home individually, you can claim a one-time credit of $5,000 through the Home Buyers Tax Credit. This additional funding can be put towards your mortgage. Moreover, the Home Buyers’ Plan allows you to withdraw funds from your registered retirement savings plans to assist with the purchase or construction of your home.
- Renovations Tax Credits: As a homeowner, you assume responsibility for any necessary renovations or repairs, but the Home Accessibility Tax Credit (HATC) can help. Qualifying renovations that enhance the safety or accessibility of your home for seniors or individuals with disabilities can result in up to $10,000 in expenses being eligible for the credit. Examples include installing wheelchair ramps, walk-in tubs, or handrails.
- Medical Tax Credits for Homes: Similar to the HATC, the medical expense tax credit can be claimed for renovations that improve the accessibility of your home for individuals with mobility issues. You can claim qualifying medical expenses that exceed 3% of your net income.
- GST/HST Housing Rebate: If you’re in the market for a new home, specifically a newly constructed one, you may qualify for the GST/HST new housing rebate, allowing you to claim the GST/HST paid. To be eligible, the home must be your principal residence and valued at less than $450,000.
- Rental Income Tax Credits: Homeowners who also serve as landlords can enjoy additional tax breaks. While rental income must be added to your overall income, you can claim expenses such as advertising, insurance, and interest on borrowed funds used for purchasing or improving the rental property.
- Selling Your Home: It’s worth noting that when you sell your principal residence, you can benefit from the principal residence exemption, which means you don’t have to pay taxes on any gain from the sale. However, if the property wasn’t your principal residence for every year of ownership or only a part of it was, such as renting out the basement, you may only qualify for partial tax exemption.