A Good Tax Reason to Renovate your Home. . .
In an effort to stimulate the economy and, in particular, the housing sector, the federal government introduced the Home Renovation Tax Credit (HRTC) in the 2009 federal budget. This temporary tax credit allows individuals to claim a 15% non-refundable tax credit for eligible expenditures made in respect of eligible dwellings. This article explains what this means to you and how you can take advantage of this newly proposed credit.
How Much is the HRTC Worth?
The HRTC applies to eligible renovation expenditures between $1,000 and $10,000, resulting in a maximum federal tax credit of $1,350 [($10,000-$1,000) x 15%]. To date, none of the provinces, with the exception of Québec, have decided to offer a similar credit.
When am I eligible to claim the HRTC?
The HRTC will be based on eligible expenditures for work performed or goods acquired after January 27, 2009, and before February 1, 2010. If you are contemplating renovations to your home, now would be a good time to get this underway.
Expenditures incurred pursuant to an agreement that was entered into before January 28, 2009, will not qualify for the HRTC. Therefore, even if the work was performed after January 28, 2009, but was based on an agreement entered into before that time, those expenditures will not qualify for the HRTC.
What types of expenses are eligible for the HRTC?
To qualify for the HRTC, expenditures must be incurred in respect of renovations or alterations of an eligible dwelling that are of an “enduring nature” and are “integral to the dwelling itself”. Eligible expenditures include building materials, fixtures, equipment rentals, permits, labour and professional services. Examples of eligible expenditures include, but are not limited to:
- Renovations to a kitchen, bathroom or basement;
- New carpeting or flooring;
- Building an addition, garage, deck, garden/storage shed, fence;
- Re-shingling a roof;
- Installing a new furnace, woodstove, boiler, fireplace, water softener or water heater;
- A new driveway or resurfacing a driveway;
- Painting of the interior or exterior of a house;
- Window coverings directly attached to the window frame and whose removal would alter the nature of the dwelling;
- Laying new sod;
- Swimming pools (permanent — in ground and above ground); and
- Fixtures (including lights and fans).
Expenditures related to routine repairs and maintenance would not be considered eligible expenditures. Examples of these types of expenditures include:
- Purchasing of furniture, appliances, and audio and visual electronics;
- Purchasing of tools;
- Cleaning carpets;
- House cleaning;
- Maintenance contracts (e.g. furnace cleaning, snow removal, lawn care, and pool cleaning); and
- Financing costs.
What is an eligible dwelling and who can claim the credit?
In order to claim the HRTC, expenditures must relate to an eligible dwelling, which is either your or your family member’s principal residence. A principal residence is a housing unit owned and ordinarily inhabited by you, your spouse or common-law partner, or your children in the year. What this means is that your house or another property such as a cottage are both an eligible dwelling for purposes of this credit. If you earn business or rental income from part of your principal residence (i.e. you rent out your basement or another portion of your home) you will only be allowed to claim the credit for expenditures made for the personal use areas of the residence — not the areas that are rented out.
The HRTC is limited to one per family. As a result, family members will be subject to a single limit based on their pooled expenditures. A family is considered to include you, your spouse or common-law partner and children who are under 18 years of age. To the extent that you are unable to utilize the entire HRTC, the unused portion may be used by other family members. In circumstances, where two or more families share ownership of an eligible dwelling, each family will be entitled to claim its own HRTC, as if the family owned the dwelling alone.
If you live in a condominium or co-operative housing corporation your share of eligible expenditures incurred in respect of common areas will also qualify for the HRTC.
How do I claim the HRTC?
You will claim the HRTC on your 2009 personal tax return, even for eligible expenses incurred in January 2010. You should maintain copies of all documentation that supports your claim — you do not have to file this with your tax return but you will have to produce it if a tax auditor wants to verify your claim. Agreements, invoices, and receipts which clearly identify the type and quantity of goods purchased or services provided are examples of what the CRA considers to be acceptable documentation. The CRA specifically states that documentation must include:
- information that clearly identifies the vendor/contractor, their business address and, if applicable, their 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.
If you need more information on the HRTC or have any questions regarding your eligibility to claim the credit, contact your BDO advisor.
Next section: . . . Also Good News for Those in the Home Renovation Industry
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For Québec Residents: Comparison between the Federal Home Renovation Tax Credit (HRTC) and the Québec Tax Credit for Home Improvement and Renovation
