By Brian Madigan LL.B.
The proposed HRTC is a non-refundable tax credit for work performed or goods acquired in respect of an eligible dwelling. The tax credit is restricted on a “family basis” to both principal residences and properties which otherwise meet the criteria for a principal residence.
There is no grant. It it simply an offset against tax payable. So, if you have sufiecient deductions so that you don’t pay tax, or you are a non-profit organization that does not pay tax, then there is no entitlement to the HRTC.
A new line and schedule will be included in the personal income tax return for 2009 to allow you to calculate and claim the HRTC.
Do not include your receipts and/or documents supporting your claim, but you should keep them in case Canada Revenue Agency (CRA) asks to see them. Here is a copy of a published outline*:
“Acceptable supporting documentation
Documentation, such as agreements, invoices, and receipts, must clearly identify the type and quantity of goods purchased or services provided, including, but not limited to, the following information:
• information that clearly identifies the vendor/contractor, their business address and, if applicable, the GST/HST registration number;
• a description of the goods and the date when the goods were purchased;
• the date when the goods were delivered (keep your delivery slip as proof) and/or when the work or services were performed;
• a description of the work performed including the address where the work was performed;
• the amount of the invoice; and
• proof of payment.
Receipts or invoices must indicate paid or be accompanied by other proof of payment, such as a credit card slip or cancelled cheque.”
* as provided by CRA
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com
By Brian Madigan LL.B.
There are a series of issues that are addressed in these 20 questions. For more detailed information, you should consult the Canada Revenue Agency website.
“1. What is the Home Renovation Tax Credit (HRTC)?
The proposed HRTC is a non-refundable tax credit for work performed or goods acquired in respect of an eligible dwelling.
Essentially, this means that unlike a grant, no moneys are ever paid out. This is simply a deduction from tax payable. So, if a taxpayer is not liable for income tax in the 2009 taxation year, then, they will not be eligible for this grant.
2. What is meant by eligible dwelling?
An eligible dwelling is a housing unit that is eligible to be an individual’s principal residence or that of one or more of their family members, at any time between January 27, 2009 and February 1, 2010. In general, a housing unit is considered eligible to be an individual’s principal residence where it is owned by the individual and ordinarily inhabited by the individual, the individual’s spouse or common-law partner, or their children. This means that any dwelling that you own and use personally could qualify, including your home or your cottage.
There is also an extended definition of principal residence that includes condominiums, co-ops and boats as long as they meet the criteria.
The property doesn’t actually have to be a principal residence, it just has to be eligible to qualify as such.
3. What is the eligibility period?
The credit will be based on eligible expenditures for work performed or goods acquired after January 27, 2009, and before February 1, 2010. Expenditures incurred pursuant to an agreement that was entered into before January 28, 2009, will not be eligible for the credit.
Isn’t that just like the government. The real time period starts with the 28th and not the 27th.
4. Who will be eligible for the credit?
Eligibility for the HRTC will be family based. A family will generally be considered to consist of an individual or an individual and his or her spouse or common-law partner, including children who will be under 18 years of age, at the end of 2009. A family will be allowed a single credit that may be shared within the family.
If two or more families share the ownership of an eligible dwelling, each family will be eligible for their own separate credit (i.e. each up to $1,350) that will be calculated on their respective eligible expenditures.
Obviously, there are some interesting opportunities with family owned cottages, where the property is shared among adult siblings.
And, don’t overlook the possibility of doubling up the credit with the use of adult children over the age of 18 years. They qualify as their own family. So, three adult children would add an additional $4,050, bringing the total to $5,400 in credits. A little creative estate and financial planning might allow younger adults who are still attending a post-secondary educational institution to work something of a deal with a co-operative parent.
5. How will the credit be calculated?
The credit will only be available for the 2009 tax year and applies to eligible expenditures of more than $1,000, but not more than $10,000, resulting in a maximum credit of $1,350 ($9,000 x 15%).
It is noteworth that there is one taxation year for the HRTC. Even though the work is contracted for and completed in January 2010, it is still a tax credit for 2009. There is no carry-forward.
6. What are eligible expenditures?
To be eligible, expenditures incurred in relation to a renovation or alteration to an eligible dwelling (or the land that forms part of the eligible dwelling) must be of an enduring nature and integral to the dwelling, and includes the cost of labour and professional services, building materials, fixtures, rentals, and permits.
Eligible expenditures must be supported by acceptable documentation.
Some businesses or individuals may assert that certain items qualify for the HRTC. It is important to remember that the individual taxpayer making the claim on their tax return is responsible for ensuring that all eligibility requirements are met.
One matter often overlooked is that the value of the improvement is often less than its cost. Kitchens usually provide the best return. The frequently add about 80% to 85% of their cost to the value of the home. So, that means a $10,000 kitchen will likely only add $8,000 to the value. That’s not much of a return.
However, consider trees and other landscaping. When they are put in, they are often very small, but 10 years later, they have matured and add substantially more than their original cost to the value of vthe home. Actuall, money grows on trees.
7. What does the CRA consider to be acceptable documentation?
Documentation, such as agreements, invoices, and receipts, must clearly identify the type and quantity of goods purchased or services provided, including, but not limited to, the following information:
• information that clearly identifies the vendor/contractor, their business address and, if applicable, the GST/HST registration number;
• a description of the goods and the date when the goods were purchased;
• The date when the goods were delivered (keep your delivery slip as proof) and/or when the work or services were performed;
• A description of the work performed including the address where the work was performed;
• the amount of the invoice; and
• proof of payment. Receipts or invoices must indicate paid in full or be accompanied by other proof of payment, such as a credit card slip or cancelled cheque.
To verify whether someone is registered for GST/HST, an applicant can consult the GST/HST Registry maintained by Canada Revenue Agency.
8. If I own both a house and a cottage and incur eligible expenditures for both, are both sets of expenditures eligible for the HRTC?
If you own and use your home and cottage personally, eligible expenditures incurred for both properties will normally qualify for the HRTC. Please note that the maximum amount of eligible expenditures you can claim in respect of the HRTC is $10,000 per family.
Two properties and the potential to double up on families, offer some interesting tax planning opportunities.
9. I am planning to replace my windows in 2009: can I hire my brother-in-law to help me out and still be eligible?
It depends. Expenditures will not be eligible if the related goods or services are provided by a person not dealing at arm’s length with the individual, unless that person is registered for the Goods and Services Tax/Harmonized Sales Tax under the Excise Tax Act. So, in your case, if your brother-in-law is registered for GST/HST and if all other conditions are met, the expenditure will be eligible for the credit.
Similarly, your own company would not necessarily be excluded if it were a GST registrant.
10. Will expenditures for the common areas of condominiums and co-operative housing corporations qualify for the credit?
In the case of condominiums and co-operative housing corporations, the individual’s share of the cost of eligible expenditures for common areas will qualify.
In all likelihood most condominiums and co-op’s will take advantage of this opportunity.
11. I rent out my basement. If I renovate the basement for my tenant, will I be allowed to claim the credit?
No. Individuals who earn business or rental income from part of their principal residence will be allowed to claim the credit only for expenditures made for the personal-use areas of the residence.
For expenditures made for common areas or that benefit the housing unit as a whole (such as re-shingling a roof), you must divide the expense between personal use and income-earning use. For further information, please consult the Business and Professional Income Guide or the Rental Income Guide, as issued by the Canada Revenue Agency as applicable.
12. If an eligible expenditure also qualifies for the Medical Expense Tax Credit (METC), will I be allowed to claim both the HRTC and METC?
Yes. Where an eligible expenditure qualifies for the METC the individual will be permitted to claim both the METC and the HRTC for that expenditure.
13. Will the credit be reduced by other government grants or credits that I may receive for the same expenditures?
No. Eligible expenditures will not be reduced by other government tax credits or grants that the individual may be entitled to.
14. Does work performed by electricians, plumbers, carpenters, architects, etc. qualify?
Generally, work performed by electricians, plumbers, carpenters, architects, etc. in respect of an eligible expenditure will qualify. See below for examples of eligible expenditures.
15. Could you provide me with some examples of eligible and ineligible expenditures?
Examples of eligible expenses
• Renovating a kitchen, bathroom, or basement
• Windows and doors
• New carpet or hardwood floors
• New furnace, boiler, woodstove, fireplace, water softener, water heater, or oil tank
• Permanent Home ventilation systems
• Central air conditioner
• Permanent reverse osmosis systems
• Septic systems
• Wells
• Electrical wiring in the home (e.g., changing from 100 amp to 200 amp service)
• Home Security System (monthly fees do not qualify)
• Solar panels and solar panel trackers
• Painting the interior or exterior of a house
• Building an addition, garage, deck, garden/storage shed, or fence
• Re-shingling a roof
• A new driveway or resurfacing a driveway
• Exterior shutters and awnings
• Permanent swimming pools (in ground and above ground)
• Permanent hot tub and installation costs
• Pool liners
• Solar heaters and heat pumps for pools (does not include solar blankets)
• Landscaping: new sod, perennial shrubs and flowers, trees, large rocks, permanent garden lighting, permanent water fountain, permanent ponds, large permanent garden ornaments.
• Retaining wall
• Associated costs such as installation, permits, professional services, equipment rentals, and incidental expenses
• Fixtures – blinds, shades, shutters, lights, ceiling fans, etc.
Examples of ineligible expenses
• Furniture, appliances, and audio and visual electronics
• Purchasing of tools
• Carpet cleaning
• House cleaning
• Maintenance contracts (e.g., furnace cleaning, snow removal, lawn care, and pool cleaning)
• Financing costs
16. What types of expenditures will not qualify?
The following expenditures will not be eligible for the HRTC:
• the cost of routine repairs and maintenance normally performed on an annual or more frequent basis;
• expenditures that are not integral to the dwelling, and other indirect expenditures that retain a value independent of the renovation;
• expenditures for appliances and audio-visual electronics; and
• financing costs.
17. Do I have to submit any supporting documents with my income tax return?
No. However, you must ensure that this information is available, should it be requested by the CRA.
18. How will I claim the HRTC?
A new line will be incorporated in the 2009 personal income tax return to allow you to claim the credit.
19. Where can I get more information about this new tax credit?
For further information, call Canada Revenue Agency’s individual income tax enquiries service at 1-877-959-1272.
20. The Budget also mentions the ecoENERGY Retrofit – Homes grant. What is it and how can I obtain more information?
The ecoENERGY Retrofit – Homes grant is administered by Natural Resources Canada. The grant applies to a host of measures that reduce energy consumption and provide for a cleaner environment. Home and property owners could be eligible for federal grants of up to $5,000 to offset the cost of making energy efficiency improvements to their home or property. Most provinces and territories have complementary programs that offer additional financial assistance based on the results of the ecoENERGY Retrofit evaluation. For information on how you can qualify, please consult the ecoACTION Web site.”
Good luck and make sure your renovation adds value to your home. And, remember to keep your receipts.
Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com
