Between the Conservatives' proposal to bring back the home renovation tax credit and CMHC's change to allow rental income to count toward your mortgage, why wouldn't you consider adding an income suite?
The renovation market, already at record levels in terms of spending, could get a major boost from Conservative plans to introduce a tax credit worth up to $750.
Experts are divided on what impact a federal Conservative promise to revive a home renovation tax credit could have on the real estate industry, with some predicting it could add more fuel to red-hot housing markets while others say it likely wouldn’t have any impact at all
One area that money could get funnelled into is secondary rental units, like basement apartments, which are also set to get a major lift because of changes made by Canada Mortgage and Housing Corp.
“I think people do a fair amount of it,” said Peter Norman, chief economist of Altus Group, referring to how much of the annual $68 billion renovation market goes into creating income suites. “(A new tax credit) obviously comes into play into the renovation numbers, but it’s a small amount. There are lot of reasons why someone might create a basement apartment suite and lots of reasons not to.”
If you’re on the fence, Norman says one reason you might shy away from creating a rental suite is that you would lose a portion of the principal residence exemption on capital gains. But, at the same time, the extra income is attractive to people struggling with house prices in cities like Toronto and Vancouver, where the average home is selling for about $1 million and $1.4 million respectively.
CMHC, the Crown corporation that is the larger provider of mortgage default insurance in the country, announced changes in July that will make that rental income even more attractive for homeowners. It will allow homeowners to count all the income from their secondary units when qualifying for a loan instead of the current limit of just 50 per cent of income.
In order to qualify under the changes, which take effect Sept. 28, secondary units must be legal and conform to local municipal codes — all the more reason to do a legal renovation instead of something under the table with cash. Altus has found about 40 per cent of respondents in a recent survey believe small renovation jobs (under $5,000) are done with cash.
The promise from Stephen Harper to reintroduce the Home Renovation Tax credit and make it permanent would also likely encourage legal renovations because in order to qualify for the credit you need receipts. The credit would be for 15 per cent of major home renovations between $1,000 and $5,000 annually.
CMHC says one reason for changing its rules is that secondary suites create more affordable housing. Vacancy rates across the country remain low, and the Crown corporation reported in June that the national average for vacancies in the country’s 35 largest markets was just 2.9 per cent.
But not everybody thinks further boosts to the housing market is a good thing. Allowing homeowners to count income from rental units could create larger loans, raising prices.
“The Conservative campaign pledge to introduce a new home renovation tax credit if elected this autumn is possibly more misguided than the NDP and Liberal pledges to raise taxes during a recession,” said David Madani, Canada economist for Capital Economics. “With renovation investment and household debt at record highs, encouraging households to invest more at a time when housing is widely believed to be hugely overvalued would create even greater imbalances in the economy.”
gmarr@nationalpost.com
Experts are divided on what impact a federal Conservative promise to revive a home renovation tax credit could have on the real estate industry, with some predicting it could add more fuel to red-hot housing markets while others say it likely wouldn’t have any impact at all
One area that money could get funnelled into is secondary rental units, like basement apartments, which are also set to get a major lift because of changes made by Canada Mortgage and Housing Corp.
“I think people do a fair amount of it,” said Peter Norman, chief economist of Altus Group, referring to how much of the annual $68 billion renovation market goes into creating income suites. “(A new tax credit) obviously comes into play into the renovation numbers, but it’s a small amount. There are lot of reasons why someone might create a basement apartment suite and lots of reasons not to.”
If you’re on the fence, Norman says one reason you might shy away from creating a rental suite is that you would lose a portion of the principal residence exemption on capital gains. But, at the same time, the extra income is attractive to people struggling with house prices in cities like Toronto and Vancouver, where the average home is selling for about $1 million and $1.4 million respectively.
CMHC, the Crown corporation that is the larger provider of mortgage default insurance in the country, announced changes in July that will make that rental income even more attractive for homeowners. It will allow homeowners to count all the income from their secondary units when qualifying for a loan instead of the current limit of just 50 per cent of income.
In order to qualify under the changes, which take effect Sept. 28, secondary units must be legal and conform to local municipal codes — all the more reason to do a legal renovation instead of something under the table with cash. Altus has found about 40 per cent of respondents in a recent survey believe small renovation jobs (under $5,000) are done with cash.
The promise from Stephen Harper to reintroduce the Home Renovation Tax credit and make it permanent would also likely encourage legal renovations because in order to qualify for the credit you need receipts. The credit would be for 15 per cent of major home renovations between $1,000 and $5,000 annually.
CMHC says one reason for changing its rules is that secondary suites create more affordable housing. Vacancy rates across the country remain low, and the Crown corporation reported in June that the national average for vacancies in the country’s 35 largest markets was just 2.9 per cent.
But not everybody thinks further boosts to the housing market is a good thing. Allowing homeowners to count income from rental units could create larger loans, raising prices.
“The Conservative campaign pledge to introduce a new home renovation tax credit if elected this autumn is possibly more misguided than the NDP and Liberal pledges to raise taxes during a recession,” said David Madani, Canada economist for Capital Economics. “With renovation investment and household debt at record highs, encouraging households to invest more at a time when housing is widely believed to be hugely overvalued would create even greater imbalances in the economy.”
gmarr@nationalpost.com
