Since the introduction of the federal Home Renovation Tax Credit (HRTC) announced in the January 2009 federal budget, Canadians have been scurrying to renovate outdated bathrooms, leaky roofs, antiquated furnaces and yards in need of landscaping. Now, with the February 1st deadline looming, your clients will need to get their renovation projects completed in order to qualify for the tax savings.
The HRTC is a non-refundable tax credit that applies to eligible expenses on a property that qualifies as a principal residence (i.e, home, cottage or condo). The credit applies to expenses in excess of $1,000 to a maximum of $10,000. Therefore, the maximum federal tax savings as a result of this credit is $1,350 – 15% x (10,000 – 1,000).
The HRTC is, however, a temporary credit that can only be applied to the 2009 taxation year. More importantly, eligible expenses include expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010 and so, there is some urgency if your clients wish to take advantage of the federal credit.
If the goods are acquired before February 1st but are not installed until after that deadline, the expense will still qualify. However, if the expense involves the services of a contractor or third party professional and the work is not completed by February 1st then only the portion that is completed prior to February 1st will qualify, regardless if payment for the services has been made. Therefore, clients will need to make sure their contractors get the job done prior to February 1st in order to maximize the benefit.
Eligibility for the HRTC is family based, meaning that one credit will need to be shared amongst your client, his or her spouse or common-law partner and any children under 18 throughout 2009. If your client does not require full use of the credit to reduce his or her taxes payable, any unused portion can be shared with his or her family, but cannot exceed the maximum amount for the family.
In addition, for clients who share ownership with a sibling or adult child, it is important to note that they fall outside of the definition of the ‘family unit’ for the purposes of the HRTC. A sibling or adult child will have their own respective HRTC available to them for renovation expenses they have incurred personally on the same property. For example, if your client owns a cottage with his sister and they each incur $10,000 of eligible renovation expenses, they each will be entitled to their own respective HRTC.
If your clients own more than one property that qualifies for the HRTC (for example, where they own a city home and vacation property, both of which are used personally), they may claim expenses on both properties, up to the $10,000 maximum.
The Canada Revenue Agency (CRA) has been quite busy this year responding to taxpayer requests regarding the types of expenses that qualify for the HRTC. Although the types of expenses your clients incur will vary, the general rule is that the expense will qualify if it relates to a renovation or an alteration of a home (including the land that forms part of the home) and it is of an enduring nature and integral to the home. This will include the cost of materials, fixtures, equipment rentals, permits, labour and professional services. Routine maintenance and repairs will not qualify. A few of the more common examples of eligible expenses include;
- Renovations to a kitchen, bathroom, or basement
- Installation of new carpet or flooring (including sanding and refinishing of existing hardwood flooring)
- Building an addition, dock, shed, deck, fence or retaining wall
- A new furnace, water heater or permanently installed air conditioning unit
- Painting the interior or exterior of a house
- Resurfacing a driveway
- Installation of weeping tiles.
- Permanently wired home security systems
- Laying new sod and general landscaping projects
Quebec Tax Credit for Renovations and Home Improvements (TCRHI)
Unlike other provinces and territories, a similar tax credit was introduced for Quebec homeowners during 2009 which complements the federal HRTC. The Tax Credit for Renovation and Home Improvement (TCRHI) is a temporary refundable tax credit available to Quebec residents for the cost of work performed, or goods acquired, to carry out renovations and home improvements on an eligible property located in Quebec. The credit is equal to 20% of eligible renovation or home improvement expenses incurred in excess of $7,500, but not more than $20,000. Therefore, working through the mathematics, a maximum tax credit of $2,500 is available from the Ministry of Revenu Quebec for your Quebec resident clients. If they also qualify for the federal credits, they may save up to $3,850 in combined savings.
While the two tax credits are similar in many respects, the Quebec rules are more restrictive. This creates some subtle differences that will affect any of your Quebec resident clients who are undergoing home renovations. Here are some of the rules and how they differ from the federal HRTC:
To qualify for the Quebec TCRHI, the renovation or home improvement work may be performed, or the goods acquired, at any time, provided;
- the work is entrusted to a contractor under the terms of an agreement entered into after December 31st, 2008 and before January 1st, 2010, and;
- the expenses are paid before July 1st, 2010
Therefore, while there is some time still for your clients to incur expenses that will qualify for the federal HRTC, it is too late for the Quebec credit, if the clients did not enter into an agreement before the end of 2009.
Also, since the work must be entrusted to a licensed contractor, the Quebec rules exclude the ‘do-it-yourself’ home renovators. Only the cost of the contractor services plus any goods acquired for the renovation qualifies for the TCRHI. This leads to another significant difference between the two programs. The cost of goods and materials used in the renovation project must be acquired through the licensed contractor in Quebec, whereas homeowners may purchase the supplies needed for the renovation project on their own to qualify for the federal tax credit.
There are also some differences in the types of property and expenses that will qualify for the Quebec TCRHI. The Quebec rules allow for the credit only for a property built before 2009 that is your principal residence at the time the renovation expense is incurred. This would suggest that, unlike the federal rules which allow for a more expansive definition of a principal residence and could include a seasonal property, such a property would not qualify under the Quebec rules. In addition, unlike the federal rules, the land upon which the home is located is not part of the principal residence and therefore certain expenses for lot improvements (such as a driveway, a shed, fence) would not qualify for the Quebec TCRHI, even though they may qualify for the federal HRTC.
Finally, the TCRHI can be claimed as long as your client is a Quebec resident. If more than one individual is entitled to the TCHRI on the same property, the combined claim cannot exceed the $20,000 maximum and the credits will need to be split amongst your clients. Unlike the federal rules where it is possible for more than one individual to be entitled to their own federal HRTC on the same property (ie. brother and sister); the Quebec rules require your client to share the credit with anyone else claiming the credit on the same property.
If there’s ever a good time to take on a home renovation project, do it while clients can reap tax savings from it. The deadline to reap any federal tax savings on home renovations is around the corner. Encourage your clients to take advantage while they can, as it will help reduce the cost of the renovation project and also reduce their tax bill when they file their tax returns in the coming months.