Taxation

The Envelope Please

When the federal government offers a tax incentive, it’s always worthwhile to consider taking advantage, if possible.

A rare opportunity to reduce our taxes while benefiting ourselves and helping our fellow Canadians keep working during tough economic times is available until the end of January. Don’t let it slip by.

In its February 2009 budget, the federal government created the Home Renovation Tax Credit (HRTC) to encourage families to help stimulate the economy by spending money on renovations at their house, condo or cottage. The federal government is even providing special envelopes obtainable at participating hardware stores and other renovation centres for keeping the relevant receipts and other records of the work done.

A tax credit is a direct dollar-for-dollar reduction of taxes payable; it is more beneficial than an itemized deduction, which merely reduces the amount of taxable income. The HRTC is a one-time-only tax credit: all work will have to be done or goods acquired in the period after January 27, 2009, and before February 1, 2010, in order to be claimed on your 2009 return. It should be emphasized that January 2010 expenditures can be included in the 2009 claim.

To be eligible, expenditures must be greater than $1,000 but less than $10,000 and must relate to a dwelling that can be treated as a principal residence of the individual or other family member.. To obtain the maximum $1,350 the family unit must spend the $10,000, deduct $1,000 and calculates the 15 % on the balance of $9,000 which is $1,350. (A family unit is considered to be an individual, spouse or common law partner and children under the age of 18).

For those with $10,000 available for investment, the opportunity to earn a return of 13.50 % should look attractive in the current interest rate climate. Even if the $10,000 has to be borrowed (current low interest rates allow the homeowner to borrow $10,000 at 5% or less) and assuming full repayment of the loan within 12 months, the return on the upgrade of your domestic assets will be greater than that provided by most financial instruments.

Receipts are Necessary
To prevent unscrupulous contractors from taking advantage of the government’s largesse, the CRA has provided guidelines outlining acceptable documentation. The FAQ portion of the website (www.cra-arc.gc.ca/hrtc) indicates the following:

"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 that clearly identifies the vendor/contractor, the 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

• 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."

Although it will not be necessary to include the receipts at the time of filing your 2009 return it would be prudent to keep them for at least six years. To ensure compliance with information requirements and to assist your chartered accountant when compiling your personal tax return we suggest you print the CRA worksheet and provide the completed form along with the supporting documents to your chartered accountant at tax time.

What is Allowed?
The government requires eligible expenditures to be “of an enduring nature and integral to the dwelling.” Thus expenditures on permanent hot tubs, new windows, etc. would likely be acceptable but television sets or portable air conditioners would likely not be. Costs associated with the eligible expenditures, such as building permits, labour of tradesmen or architects, equipment rental, building materials, and fixtures are considered part of the HRTC — but the purchase of tools to do the job are not. Routine maintenance expenses such as furnace cleaning, carpet cleaning or lawn care are not eligible. If you are unsure whether your planned expenditure will fall into the acceptable category, visit the above-mentioned website for a list of the allowable items.

Additional Incentive
The tax credit for the HRTC does not interfere with the deductibility permitted under the medical expense tax credits. Thus, if renovations are necessary for health or disability reasons supported by your medical practitioner, you will be able to claim both on your 2009 tax return.

If part of your home renovation includes energy-saving retrofits such as a new high-efficiency furnace, the HRTC will apply. As a homeowner you may also be eligible for tax-free cash grants that would reduce the cost of your expenditure. In some jurisdictions the province or utility companies may provide additional incentives.

If two or more families own a home jointly, each is entitled to the HRTC credit. Thus, if joint ownership is established each taxpayer would be able to spend $10,000 on the renovation and each would receive the full tax credit of $1,350.

If you own a condominium or a co-op unit your share of eligible expenses incurred for the common area will be eligible for the HRTC.

It’s Not Too Late
Given that the eligible expenditures must be made by the end of the day January 31, 2010, little time is left to help the economy recover and improve your home or cottage while taking advantage of a tax credit for your 2009 filing. For further information or if you have any questions, speak with your accountant or check the website.