Note 03 · Basements
The in-law suite tax credit: up to $7,000 back on a basement suite for family
The Multigenerational Home Renovation Tax Credit refunds part of the cost of a self-contained suite for a parent, grandparent or adult relative with a disability. Who qualifies, and why an unpermitted suite never will.
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Key takeaways
05
If you read nothing else
- The Multigenerational Home Renovation Tax Credit (MHRTC) refunds part of the cost of building a self-contained secondary unit so a senior, or an adult eligible for the disability tax credit, can live with a relative Source: Canada Revenue Agency.
- It covers up to $50,000 of expenses per qualifying renovation: up to $7,250 at the 2025 rate of 14.5%, and $7,000 at 14%, the lowest federal rate for 2026.
- It is refundable, so it is paid even when the household owes no tax.
- The suite needs a private entrance, a kitchen, a bathroom and a sleeping area, and it must meet local permits, codes and by-laws. An unpermitted basement apartment doesn't qualify as it stands.
- You claim it for the tax year the renovation is completed, and only once per qualifying individual in their lifetime.
How much the credit is worth
The credit is the lowest federal tax rate applied to qualifying expenses, capped at $50,000 per renovation. The rate was 14.5% for 2025, a maximum of $7,250 Source: Canada Revenue Agency. From 2026 it is 14%, which puts the ceiling at $7,000.
| Qualifying expenses | Credit at 14.5% (2025) | Credit at 14% (2026) |
|---|---|---|
| $25,000 | $3,625 | $3,500 |
| $40,000 | $5,800 | $5,600 |
| $50,000 | $7,250 | $7,000 |
| $120,000 | $7,250 | $7,000 |
Most families should read the last row. A full secondary suite can cost more than the $50,000 cap, and nothing above the cap earns more credit. Treat it as a rebate on the first $50,000, whatever the job's total.
It is a refundable tax credit, so it is paid out even when the person claiming owes no income tax. That helps when the claimant is a retired parent on a modest income. You claim it on line 45355 of the return and report the expenses on Schedule 12.
Who qualifies
Every claim involves two people.
- The qualifying individual is the person the suite is for: someone 65 or older at the end of the tax year the renovation finishes, or someone 18 to 64 who is eligible for the disability tax credit in that year.
- The qualifying relation is the family member they live with. They must be 18 or older and be the parent, grandparent, child, grandchild, sibling, aunt, uncle, niece or nephew of the qualifying individual, or of that person's spouse or common-law partner.
Both must ordinarily live in the home, or be reasonably expected to, within 12 months after the renovation ends Source: Canada Revenue Agency. A suite built for a tenant, where a parent might move in one day, doesn't meet that test.
There is a lifetime limit too: only one renovation can be claimed for a qualifying individual. If you build a suite for your mother this year and another for her in a different house ten years later, only the first earns the credit.
What counts as a secondary unit
The CRA defines the secondary unit as a self-contained housing unit with a private entrance, a kitchen, a bathroom and a sleeping area Source: Canada Revenue Agency. It must be newly built, or created from living space that didn't already meet local requirements for a unit, and it must meet applicable local requirements, permits, codes and by-laws.
Most basements fall short on that last condition. A finished basement with a bar fridge and a shower is a rec room. To be a unit in Ontario, it needs what a legal suite needs:
- A separate entrance
- A full kitchen with proper ventilation
- A three- or four-piece bathroom
- Bedrooms with proper egress windows
- Fire-rated separation between the units
- An independent HVAC system, or a properly balanced one
- Soundproofing between floors
- ESA-certified electrical work
- Interconnected smoke and carbon monoxide alarms
It also needs a permit and passed inspections to prove all of it. Those papers make the suite a unit for the CRA, for your insurer and for whoever buys the house one day.
Which renovation costs you can claim
Qualifying expenditures are the goods and services that go into the renovation: work by professionals such as electricians, plumbers, carpenters and architects, the permits it needs, and equipment rented to build it Source: Canada Revenue Agency. Building materials and fixtures count as well.
An expense already claimed under the medical expense credit or the home accessibility credit can't be claimed again here. If a parent's suite has a walk-in shower with grab bars, work out with your accountant which credit takes that cost, because it can go on only one line of the return.
Claims are cleanest when the suite's costs are easy to pick out. A renovation that also refinishes the main-floor kitchen is two projects for tax purposes, even if the crew treats it as one.
Timing the claim
You claim the credit for the tax year the renovation is completed, no matter when it started, so the calendar belongs in the plan.
A basement renovation typically takes us 6 to 10 weeks of construction, or 2 to 4 months with design and permits. Legal basements, secondary suites and jobs with plumbing or structural work run closer to 10 to 12 weeks of construction.
| Design starts | Likely completion | Claimed on |
|---|---|---|
| March | Summer | That year's return |
| July | Autumn | That year's return |
| October | The following winter | The next year's return |
A parent's suite that starts design in the autumn will most likely be completed, and claimed, in the following tax year. From 2026 on the rate is 14% on both sides of New Year, so a January finish loses nothing. A family counting on the refund only needs to know which spring it will arrive in.
A worked example
Take a household in Richmond Hill. A daughter and her husband own the house, and her mother, who turns 71 this year, is moving in. They build a legal basement suite with its own walk-up entrance, kitchen, bathroom and bedroom, and in the same job refinish the main-floor powder room.
- The suite's invoices, permits and materials come to $84,000.
- The powder room refinish comes to $9,000. It isn't part of the secondary unit, so it is left out.
- The renovation is completed in November 2026, and the mother moves in that December.
The daughter, a qualifying relation, makes the claim on her 2026 return for her mother, the qualifying individual. Qualifying expenses are capped at $50,000, so the credit is 14% of $50,000: $7,000, paid as a refund whatever tax the household owes.
Her mother can't be the subject of another claim. If the family moves later and builds her a second suite, that one earns nothing.
| Item | Amount |
|---|---|
| Suite costs | $84,000 |
| Powder room (excluded) | $9,000 |
| Qualifying expenses, capped | $50,000 |
| Credit at 14% (2026) | $7,000 |
The family keeps a file with the building permit, the final inspection, the ESA Certificate of Acceptance, and invoices that show the suite's costs on their own lines.
How we build a suite that qualifies
Every legal basement we build follows the same five stages, and each one adds to the file a claim depends on.
- Feasibility assessment. Ceiling height, foundation and structure, plumbing and electrical capacity, HVAC, zoning and where the entrance can go. Not every basement qualifies without changes, and we say so before you spend anything.
- Design and planning. A code-compliant layout with fire separations, soundproofing, mechanical upgrades, window enlargements where needed and the separate entrance.
- Permit drawings. Architectural drawings, structural details where required, HVAC and plumbing plans and the fire separation documentation. We submit them and follow them through to approval.
- Construction and inspections. Fire-rated drywall, insulation for sound, egress windows, ventilation, ESA-certified electrical work and the new entrance. Each stage passes its inspection before the next one starts.
- Final approval and warranty. Official approval of the unit, clear documentation, and warranty coverage of 3 to 10 years depending on scope.
Your accountant needs the same file: the permit, the inspection records and the itemized invoices. Clear documentation is part of every handover, so the claim is ready when the suite is.
