2009 Home Renovation Tax Credit (HRTC)

1. 2009 Home Renovation Tax Credit (HRTC) By Colin Chambers, CA Wilkinson & Company LLP © Wilkinson & Company LLP, 2009

2. 2009 Home Renovation Tax Credit (HRTC) • Overview • Eligibility • Eligible Expenditures • Tips • Technical Interpretations • Resources from CRA • Summary © Wilkinson & Company LLP, 2009

3. Overview • Introduced in January 27, 2009 Federal Budget • Applies only to individuals • Applies only to 2009 taxation year • Applies to “eligible expenditures” made with respect to a “qualifying dwelling” © Wilkinson & Company LLP, 2009

4. Overview (Cont’d) • Credit is at 15% of “eligible expenditures” in excess of $1,000, with maximum expenditure limit of $10,000 • Maximum credit is $1,350, which is non-refundable • [($10,000 - $1,000) * 15%] • Credit is Federal only; no Ontario equivalent • No draft legislation issued as of June 3, 2009 © Wilkinson & Company LLP, 2009

5. Eligibility • Expenditures must be made with respect to a qualifying dwelling • Generally means any dwelling that you own and is used personally by you or your family – includes home or cottage • Eligibility is family-based – i.e., one credit per family © Wilkinson & Company LLP, 2009

6. Eligibility (Cont’d) • Expenditures incurred must be of “an enduring nature” and “integral to the dwelling” • Expenditures must have been incurred after January 27, 2009 and before February 1, 2010, according to an agreement entered into after January 27, 2009 • All expenses must be supported by receipts © Wilkinson & Company LLP, 2009

7. Eligible Expenditures • No draft legislation issued yet, so no definite lists of eligible expenditures have been issued • CRA has provided examples of items it feels will be eligible and ineligible expenditures © Wilkinson & Company LLP, 2009

8. Eligible Renovating a kitchen, bathroom or basement New carpet or hardwood floors Building an addition, garage, deck, garden/storage shed, fence Re-shingling a roof A new furnace, woodstove, boiler, fireplace, water softener or water heater A new driveway or resurfacing a driveway Painting of 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) Fixtures – lights, fans etc. Associated costs such as permits, professional services, equipment rentals and incidental expenses Ineligible 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) Financing costs Eligible Expenditures (Cont’d) © Wilkinson & Company LLP, 2009

9. Eligible Expenditures (Cont’d) • Expenditures must be supported by “acceptable documentation” • CRA has said that this includes invoices, agreements and receipts © Wilkinson & Company LLP, 2009

10. Eligible Expenditures (Cont’d) • Documentation must clearly identify the type and quantity of goods purchased or services provided, including, but not limited to, the following: • Name, address and GST/HST number of vendor • Description of goods and date of purchase • Date of delivery of goods or provision of services • Description of work performed, including address where the work was performed • Amount of the invoice • Proof of payment © Wilkinson & Company LLP, 2009

11. Tips • If two or more families share ownership of a home, each family will be eligible for a separate credit, calculated on their share of eligible expenditures • E.g., if two brothers each own ½ of a cottage and spend $20,000 on eligible expenditures, each brother would be able to claim $10,000 in eligible expenditures and the resulting $1,350 credit © Wilkinson & Company LLP, 2009

12. Tips (Cont’d) • If a family owns both a house and a cottage, they can claim eligible expenses for both, up to the $10,000 maximum per family • E.g., a taxpayer owns a house and a cottage and spends $5,500 in eligible expenses on his house and $6,000 in eligible expenses on his cottage, for total eligible expenses of $11,500. The taxpayer will be able to claim eligible expenses of the maximum of $10,000, resulting in a credit of $1,350 © Wilkinson & Company LLP, 2009

13. Tips (Cont’d) • 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 GST/HST. • In the case of condominiums and co-operative housing corporations, a taxpayer’s share of the cost of eligible expenditures for common areas will qualify. © Wilkinson & Company LLP, 2009

14. Tips (Cont’d) • If a taxpayer rents a part of his or her home, the taxpayer will only be able to claim expenditures related to the personal-use part of the home • Expenditures made for common areas must be pro-rated for the personal use portion and rental portion © Wilkinson & Company LLP, 2009

15. Tips (Cont’d) • Rental example • A taxpayer owns her home, and rents out the basement, which represents ½ of the square footage of the home. The taxpayer spends $10,000 re-shingling her roof, and another $4,000 renovating a bathroom in the personal-use portion of the house • The taxpayer would be able to claim ½ of the re-shingling cost plus the cost of renovating her personal bathroom, for total eligible expenses of $9,000 and a total credit of $1,200 © Wilkinson & Company LLP, 2009

16. Tips (Cont’d) • Where an eligible expenditure qualifies for the Medical Expense Tax Credit (METC), the individual will be permitted to claim both the METC and the HRTC for that expenditure © Wilkinson & Company LLP, 2009

17. Technical Interpretations • 2009-0313841E5 – Hot Tubs • Hot tubs qualify for the HRTC, provided that they are hard wired directly into the electrical system • Portable “plug and play” hot tubs will not qualify © Wilkinson & Company LLP, 2009

18. Technical Interpretations (Cont’d) • 2009-0316501E5 – Window Coverings • Any window covering, including blinds, shutters and shades, that is directly attached to the window frame will qualify for the HRTC • Draperies or curtains would generally not be considered to be fixtures and therefore will not qualify for the HRTC © Wilkinson & Company LLP, 2009

19. Resources from CRA • Frequently Asked Questions: • http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhmrnvtn-eng.html • Sample Worksheet for Home Renovation Expenses: • http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/hmwnr/hrtc/wrksht-eng.html © Wilkinson & Company LLP, 2009

20. Sample Worksheet © Wilkinson & Company LLP, 2009

21. Summary • No draft legislation as of June 3, 2009 • HRTC is only available in 2009 • Applicable to both principal residence and other personal-use dwellings • Maximum eligible expenditures total $10,000 per family © Wilkinson & Company LLP, 2009

22. Summary (Cont’d) • No credit until expenditures exceed $1,000 • Maximum credit is $1,350 • No provincial credit • Must have receipts – need to start keeping them now © Wilkinson & Company LLP, 2009