A Complete Guide To The Canada Greener Homes Affordability Program (CGHAP): Tax Implications For Homeowners, Landlords, And Renters

Canada Greener Homes Affordability Program (CGHAP at a Glance:

Green retrofits come with real tax consequences. Understanding how the CRA treats CGHAP grants, rental property deductions, ACB adjustments, principal residence exemption interactions, Class 43.1 eligibility, and Quebec provincial tax obligations is essential before you apply.

On June 29, 2026, the federal government announced the expansion of the Canada Greener Homes Affordability Program (CGHAP) to four additional provinces: British Columbia, Quebec, Nova Scotia, and Prince Edward Island. The program had already launched in Manitoba. Over $500 million in combined federal and provincial funding will be directed to retrofits such as heat pump installations, improved insulation, and air sealing, delivered at no upfront cost to eligible households. For the first time, renters are eligible to participate.

The expansion follows the premature collapse of the predecessor Canada Greener Homes Grant, which launched in 2021 and exhausted its $2.6 billion budget by early 2024, nearly three years ahead of schedule. The new program is structurally different: eligible households receive retrofit services directly rather than cash reimbursements, and income eligibility criteria now apply.

For Canadian homeowners, landlords, and renters, the question that follows is: what does this mean for their taxes? The answer requires analyzing how the CRA treats government assistance under the Income Tax Act, RSC 1985, c 1 (5th Supp) (ITA); how retrofits affect the adjusted cost base (ACB) and undepreciated capital cost (UCC) of a property; whether the principal residence exemption interacts with government-funded improvements; how Class 43.1 accelerated CCA deductions may benefit rental property owners; and what Quebec residents must know about their separate provincial tax obligations.

As an experienced Canadian tax lawyer and CPA, David Rotfleisch of Rotfleisch & Samulovitch P.C. provides the following analysis.

Program Timeline: From the 2021 Grant to CGHAP 2026

The following timeline places the June 29, 2026 announcement in the context of the federal government’s evolving approach to green home retrofits:

What Is the Canada Greener Homes Affordability Program (CGHAP)?

CGHAP is administered by Environment and Climate Change Canada but delivered by provincial organizations in coordination with utility providers: Hydro-Quebec, BC Hydro, FortisBC, and EfficiencyOne in Nova Scotia. Unlike the old grant, which reimbursed homeowners after they paid for renovations, CGHAP covers the full cost of retrofits through direct service delivery. Eligible households pay nothing.

Eligible retrofit types include heat pump installations, improved insulation, enhanced air sealing, and similar energy efficiency upgrades. Eligibility is restricted to low- to median-income households, with income thresholds to be set by provincial administrators. Renters are now eligible, a significant policy departure from the previous program. The government’s announcement also confirmed dedicated support for regional Indigenous governments, funded through existing agreements managed by Indigenous Services Canada and Crown-Indigenous Relations and Northern Affairs Canada.

Are CGHAP Retrofits Taxable Income in Canada?

The most immediate tax question for any CGHAP recipient is whether the benefit received constitutes taxable income under the ITA.

Section 12(1)(x): Government Assistance and Personal-Use Property

Section 12(1)(x) of the ITA requires inclusion in income of amounts received from a government, municipality, or public authority as a subsidy, reimbursement, inducement, or assistance, to the extent the amount relates to the cost of property, an outlay or expense, or the earning of income from a business or property. This provision is the principal mechanism by which the CRA captures government assistance in a taxpayer’s income.

The key limitation for CGHAP recipients using the property as their personal residence is that section 12(1)(x) operates by reference to a cost incurred by the taxpayer. Under CGHAP, eligible households receive retrofit services directly. There is no cash payment and no out-of-pocket cost that is being reimbursed. As confirmed by the CRA in External T.I. 2021-0894121E5 (12 January 2022), addressing the related Canada Greener Homes Loan Initiative, amounts received in connection with personal-use residential property do not constitute income from a source and are not taxable. The CRA’s position reflects the foundational principle that the ITA taxes income from sources, and personal-use property retrofits fall outside those sources.

“The CRA has consistently held that government-funded improvements to a personal residence are not taxable income,” says David Rotfleisch, Certified Specialist in Taxation at Rotfleisch & Samulovitch P.C. “CGHAP recipients using the retrofitted property as their principal residence need not fear a surprise tax bill. However, the analysis changes materially for rental property owners and mixed-use properties, where both the expenditure and the benefit have income-earning implications. Anyone in that situation should consult an experienced Canadian tax lawyer before filing.”

CGHAP and Rental Properties: The Tax Analysis for Landlords

For landlords owning eligible rental properties, the tax picture is significantly more complex.

Government Assistance Reduces UCC Under Section 13(7.1)

Where a property is used to earn rental income, government assistance received in connection with the improvement of the property must reduce the undepreciated capital cost (UCC) of the relevant CCA class under section 13(7.1) of the ITA. This is not a direct tax on the benefit but a reduction in future CCA deductions and a corresponding increase in potential recapture income on eventual disposition. Landlords receiving CGHAP retrofits for a rental property must adjust their CCA schedules accordingly.

Capital Expenditure vs. Current Expenditure: The Classification Problem

Whether a CGHAP retrofit constitutes a capital expenditure or a current expenditure is a fact-specific determination with significant consequences for rental property owners. Capital expenditures improve or extend the life of the property and are added to the UCC of the relevant CCA class; current expenditures maintain the existing condition and are deductible in the year incurred. Heat pump installations that replace an existing heating system are likely capital in nature. New insulation added to a previously uninsulated structure is likely capital. Air sealing work on an already-insulated property may qualify as current in some circumstances. The CRA applies a facts-and-circumstances test, and the characterization is often contested on audit.

“Landlords receiving CGHAP retrofits should not assume uniform tax treatment across upgrade types,” says David Rotfleisch, a Certified Specialist in Taxation. “A heat pump installation in a rental triplex is likely a capital addition that reduces UCC. A tax lawyer or CPA should review the specific upgrades before filing. Getting the classification wrong can mean denied deductions, unexpected recapture, or missed opportunities for accelerated CCA claims.”

Class 43.1 Accelerated CCA for Qualifying Heat Pumps

Air-source heat pumps installed in rental properties may qualify for Class 43.1 under Schedule II to the Income Tax Regulations, which provides a 30% declining-balance CCA rate. Air-source heat pumps were added to Class 43.1 eligibility in 2022. Ground-source (geothermal) heat pump systems may also qualify under Class 43.1. Landlords should note that Class 43.2, which previously provided a 50% CCA rate, is now closed to property acquired after 2024. CGHAP retrofits installed in 2025 or 2026 therefore qualify for Class 43.1 (30%) only, not Class 43.2.

For Class 43.1 property acquired after 2024, the enhanced first-year CCA rules introduced under the post-2024 framework may provide an additional first-year deduction for qualifying clean energy equipment, subject to the phase-out schedule applicable to property that becomes available for use after 2029. Landlords should confirm equipment specifications with the CGHAP contractor and verify eligibility with a Canadian tax lawyer.

The government assistance received under CGHAP reduces the capital cost of the equipment before the CCA rate is applied. Even after the UCC reduction, the remaining eligible capital cost may generate meaningful accelerated deductions for rental property owners at the 30% Class 43.1 rate.

“The combination of CGHAP-subsidized capital improvements and Class 43.1 accelerated CCA is a genuine tax planning opportunity for landlords,” says David Rotfleisch, Toronto tax lawyer and CPA. “Even after the mandatory UCC reduction for government assistance, the remaining eligible capital cost can be written off at 30% on a declining-balance basis. Landlords with qualifying heat pump installations should be reviewing their CCA class allocations and ensuring the equipment specifications are confirmed in writing by the program contractor before the taxation year-end.”

Adjusted Cost Base (ACB) Implications for Homeowners on Future Sale

For homeowners using the property exclusively as a principal residence, the ACB impact of CGHAP is less immediately consequential because capital gains on qualifying principal residences are sheltered by the principal residence exemption (PRE) under section 40(2)(b) of the ITA. However, the ACB mechanics are important to understand.

Ordinarily, capital improvements increase a property’s ACB, which reduces the eventual capital gain on disposition. Section 53(2)(k) of the ITA reduces ACB by the amount of government assistance received in respect of the property’s cost. CGHAP-funded capital improvements therefore do not increase ACB the way privately funded improvements would. For properties fully sheltered by the PRE throughout their ownership, this is immaterial. For mixed-use properties or those with partial PRE coverage, the reduced ACB increases the taxable portion of any capital gain.

Mixed-use property owners, for example homeowners who rent a basement suite or have a history of rental use, should obtain tax advice before or shortly after receiving CGHAP retrofits to understand the ACB implications for their specific situation.

CGHAP and the Principal Residence Exemption: The Section 45(2) Election

The PRE under section 40(2)(b) shelters capital gains arising on the disposition of a taxpayer’s principal residence. CGHAP retrofits do not affect PRE eligibility directly. A property that qualifies before the retrofit continues to qualify after it. The one-plus rule, which permits a family unit to designate only one property per year as a principal residence but provides an additional year of shelter on acquisition or disposition, is unaffected by program participation.

An important practical issue arises where a homeowner converts a retrofitted property from personal to rental use. Section 45(1) of the ITA deems a disposition at fair market value on change of use. Without the section 45(2) election, any appreciation in the property to the date of conversion is subject to capital gains tax, calculated on the CGHAP-adjusted ACB. Filing a section 45(2) election with the T1 return for the first rental year preserves the principal residence designation for up to four additional years after the change of use, deferring the deemed disposition and potentially sheltering all pre-conversion gains under the PRE.

“The section 45(2) election is one of the most underutilized planning tools in Canadian residential real estate tax,” says David Rotfleisch, Certified Specialist in Taxation. “A homeowner who receives a CGHAP retrofit and then decides to rent the property has a narrow window to preserve the principal residence exemption. The election must be filed with the first rental-year T1 return; there is no provision for late filing. Homeowners considering a change of use should contact a Canadian tax lawyer before that first rental year closes.”

CGHAP for Renters: Tax Implications Under the New Eligibility Rules

For renters using the retrofitted premises as a personal residence, CGHAP creates no taxable income. The renter incurs no cost, receives no cash payment, and uses the property personally. Section 12(1)(x) does not engage because the renter is not earning income from the retrofitted property. There is no ACB or UCC analysis because the renter does not own the property.

Renters operating a home-based business from the retrofitted premises should review their home office expense calculations under section 8(13) (employment) or section 18(12) (self-employment). The retrofit itself does not create a tax obligation, but reduced energy costs going forward may affect the proportion of home expenses properly allocable to the business.

From the landlord’s perspective, where a tenant receives CGHAP retrofits, the legal owner of the property receives the capital improvement, not the tenant. The section 13(7.1) UCC adjustment applies to the landlord. The tenant has no corresponding tax adjustment to make.

CGHAP and the First Home Savings Account or Home Buyers’ Plan: Is There an Interaction?

Many CGHAP recipients in the low- to median-income bracket are also engaged in first-time home buying, and may be using a First Home Savings Account (FHSA) or the Registered Retirement Savings Plan (RRSP) Home Buyers’ Plan (HBP) to accumulate a down payment.

CGHAP participation does not affect FHSA eligibility, contribution room, or qualifying withdrawal rules. The FHSA rules under sections 146.6 and related provisions of the ITA are based on the taxpayer’s status as a first-time home buyer at the time of withdrawal, not on whether the property has received government-funded retrofits. A first-time buyer who receives CGHAP upgrades on a newly purchased qualifying home and simultaneously makes a qualifying FHSA withdrawal faces no interaction between the two programs.

Similarly, the Home Buyers’ Plan, which permits RRSP withdrawals of up to $35,000 for first-time home purchases, is unaffected by CGHAP. The HBP rules under section 146.01 of the ITA are governed by the eligible home acquisition and the taxpayer’s RRSP repayment obligations, not by the property’s participation in retrofit programs.

However, CGHAP recipients who have used the HBP or FHSA should ensure that the retrofitted property remains their qualifying principal residence, as both programs contain conditions relating to occupancy and use. Conversion of the property to rental use following a CGHAP retrofit, as discussed above, could affect ongoing qualification under both programs if not carefully planned.

GST/HST Considerations for CGHAP Retrofits

CGHAP delivers retrofit services at no cost to eligible households. Recipients pay nothing and therefore have no HST input tax credits to claim. Program administrators and contracted service providers bear the GST/HST consequences on the supply chain side.

For rental property owners registered for GST/HST purposes, the government-funded improvement does not give rise to an input tax credit because the landlord did not pay HST on the supply. The ITA ACB and UCC adjustments discussed above occur at the income tax level and are separate from the GST/HST analysis. No GST/HST New Residential Rental Property Rebate or similar mechanism is triggered by CGHAP retrofits alone, as the rebate provisions require the taxpayer to have paid HST on the acquisition.

A Note on Quebec: Revenu Quebec and the Taxation Act (Quebec)

Quebec administers its own provincial income tax through Revenu Quebec under the Taxation Act (Quebec), CQLR c I-3, rather than the federal CRA. While Quebec’s income tax system is broadly harmonized with the federal ITA, there are meaningful differences in how specific provisions apply, and Quebec taxpayers file a separate provincial return.

Quebec residents who receive CGHAP retrofits should confirm, through a Quebec-licensed tax professional or a lawyer familiar with both federal and Quebec tax law, whether the provincial treatment of the benefit differs from the federal analysis described in this article. In particular, Quebec’s provisions regarding government assistance, ACB adjustments, and accelerated CCA treatment for clean energy equipment may not mirror the federal rules in every respect. The fact that CGHAP is a federally funded program delivered through provincial administrators does not guarantee that the provincial tax consequences are identical to the federal analysis.

This article addresses federal income tax only. Quebec residents should treat the federal analysis as a starting point and obtain province-specific advice.

Key Differences Between the Old Greener Homes Grant and CGHAP

Record Keeping, CRA Audit Risk, and the Allocation Problem

The CRA has broad audit authority over taxpayers who claim deductions or adjustments related to property improvements. While CGHAP recipients using a property exclusively as a principal residence face minimal audit exposure on the program itself, landlords and mixed-use property owners should understand what the CRA may examine.

For rental property owners, the CRA may review: the classification of each retrofit as capital or current; the UCC adjustment made under section 13(7.1); the allocation of the benefit between personal and income-earning portions of mixed-use properties; and the specifications of heat pump equipment claimed under Class 43.1. Audit risk is elevated where the taxpayer has claimed significant CCA deductions on recently installed equipment or where the property is partially rented and partially personal-use.

The allocation problem for mixed-use properties is particularly important. Where a homeowner uses 30% of the property to earn rental income and receives a CGHAP retrofit that improves the entire building, the benefit must be allocated between the personal (70%) and rental (30%) portions. The rental portion is subject to UCC reduction under section 13(7.1); the personal portion is treated as a non-taxable benefit to a personal-use property. Arriving at the correct allocation requires a reasoned approach, often based on square footage, and should be documented before filing.

All CGHAP participants should retain the following records for a minimum of six years from the end of the relevant taxation year: program enrollment and eligibility documentation; retrofit completion certificates; contractor equipment specifications (essential for Class 43.1 claims); correspondence from provincial program administrators; energy assessment reports; and any communications from the federal or provincial program about the value or nature of the retrofit received.

Pro Tax Tips for CGHAP Recipients

• Homeowners using the property exclusively as a principal residence need not report the CGHAP benefit as income, but should retain all program documentation in case of CRA inquiry.
• Rental property landlords should work with a Canadian tax lawyer or CPA to determine whether each retrofit is a capital expenditure (reducing UCC under s. 13(7.1)) or a current expenditure (reducing otherwise deductible expenses) before filing.
• Landlords with qualifying heat pump installations should confirm equipment specifications with the CGHAP contractor in writing and assess eligibility for Class 43.1 (30% CCA). Class 43.2 is no longer available for property acquired after 2024.
• Homeowners who may convert their property to rental use within four years of a CGHAP retrofit should consult a tax lawyer about filing a section 45(2) election before the first rental year to preserve the principal residence exemption.
• Mixed-use property owners must allocate the CGHAP benefit between personal and income-earning portions before filing. The rental portion is subject to UCC reduction; allocation should be documented and based on a defensible method such as square footage.
• FHSA and Home Buyers’ Plan participants who receive CGHAP retrofits need not adjust their registered account positions, but should ensure the retrofitted property continues to qualify as their principal residence under both programs if a change of use is contemplated.
• Quebec residents should obtain province-specific advice. The federal analysis in this article is a starting point; Revenu Quebec’s treatment under the Taxation Act (Quebec) may differ.
• Retain all CGHAP program documentation including retrofit agreements, completion certificates, and equipment specifications for a minimum of six years from the end of the relevant taxation year.
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Frequently Asked Questions

Is the Canada Greener Homes Affordability Program benefit taxable income?

For recipients using the retrofitted property as their principal residence, the CGHAP benefit is not taxable income. The CRA does not treat government-funded improvements to personal-use property as income from a source, a position confirmed in External T.I. 2021-0894121E5 (12 January 2022). Rental property owners face different rules, including a mandatory UCC reduction under s. 13(7.1), and should consult a Canadian tax lawyer.

Do CGHAP retrofits affect the adjusted cost base (ACB) of my home?

CGHAP-funded capital improvements do not increase ACB in the normal way. Section 53(2)(k) of the ITA reduces ACB by the amount of government assistance received in respect of the property’s cost. For most principal residence owners this is immaterial because the PRE shelters capital gains on sale. For rental or mixed-use property owners, the reduced ACB may increase the taxable portion of a capital gain on disposition.

I own a rental property. Does CGHAP affect my CCA deductions?

Yes. Section 13(7.1) of the ITA reduces the UCC of depreciable property by the amount of government assistance received. A landlord whose rental property receives a heat pump installation under CGHAP will have the UCC of the applicable CCA class reduced by the value of the improvement. Future CCA deductions and potential recapture on sale are calculated on the reduced UCC basis.

Do heat pumps installed under CGHAP qualify for Class 43.1 accelerated CCA?

Potentially, yes. Air-source heat pumps meeting the specifications under Schedule II to the Income Tax Regulations may qualify for Class 43.1 (30% CCA) as clean energy equipment. Air-source heat pumps were added to Class 43.1 in 2022. Class 43.2 (50%) is closed to property acquired after 2024, so CGHAP retrofits in 2025 or 2026 qualify for Class 43.1 only. The government assistance received reduces the capital cost, but the remaining eligible UCC is still subject to the 30% accelerated rate. Landlords should obtain written confirmation of equipment specifications from the CGHAP contractor and review Class 43.1 eligibility with a Canadian tax lawyer.

Should I file a section 45(2) election if I received CGHAP retrofits and am considering renting my home?

Yes, in most cases this should be considered. A section 45(2) election allows a homeowner who changes use from principal residence to rental to maintain the PRE designation for up to four additional years after the change. It must be filed with the T1 return for the first rental year. Homeowners who fail to file the election lose the ability to shelter gains that accrued before the conversion. Contact a Canadian tax lawyer before the first rental year closes.

Does CGHAP affect my First Home Savings Account or Home Buyers’ Plan?

No. CGHAP participation does not affect FHSA eligibility or contribution room, nor does it affect HBP withdrawal rights or repayment obligations. Both programs are governed by the taxpayer’s status as a first-time home buyer and RRSP/FHSA rules, not by the property’s participation in retrofit programs. However, CGHAP recipients using the HBP or FHSA should ensure the retrofitted property remains their qualifying principal residence if a change of use is contemplated.

What does the one-plus rule mean for CGHAP homeowners?

The one-plus rule under the PRE provisions permits a family unit to designate only one property per year as a principal residence but provides an additional year’s shelter on acquisition or disposition. CGHAP participation does not affect the one-plus rule. A homeowner receiving CGHAP retrofits on a property that is one of two properties in the family unit (for example, a principal residence and a cottage) should confirm their PRE designation strategy for each property with a Canadian tax lawyer, particularly if a disposition of either property is anticipated.

I AM A RENTER. DOES CGHAP AFFECT MY TAXES?

For renters using the retrofitted property as a personal residence, CGHAP creates no taxable income. There is no ACB or UCC analysis. Renters who operate a home-based business from the retrofitted premises should review their home office expense calculations, as reduced energy costs may affect the allocable proportion, but the CGHAP benefit itself does not create a filing obligation.

I LIVE IN QUEBEC. ARE THERE ADDITIONAL TAX CONSIDERATIONS?

Yes. Quebec administers its own income tax through Revenu Quebec under the Taxation Act (Quebec). While Quebec’s system is broadly harmonized with the federal ITA, differences exist in specific provisions, and Quebec taxpayers file a separate provincial return. This article addresses federal income tax only. Quebec CGHAP recipients should consult a tax professional familiar with Revenu Quebec’s treatment of government assistance, ACB adjustments, and clean energy equipment CCA before filing.

WHAT RECORDS SHOULD I KEEP RELATED TO MY CGHAP RETROFIT?

Retain for a minimum of six years from the end of the relevant taxation year: program enrollment and eligibility documentation; retrofit completion certificates; contractor equipment specifications (essential for Class 43.1 CCA claims); correspondence from provincial program administrators; energy assessment reports; and any communications about the value or nature of the retrofit received. Mixed-use property owners should also document their personal vs. income-earning allocation methodology.

What to Do Next: A Situation-by-Situation Action Guide

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.