Principal Issues: Will a cottage, which is situated on leased land, qualify as an eligible dwelling if it is not an individual's primary residence?
Position: The cottage will qualify as an eligible dwelling, if the cottage is owned by the individual and ordinarily inhabited by the individual, his or her current or former spouse or current or former common-law partner, or his or her children at any time after January 27, 2009, and before February 1, 2010. However, the leased land on which the individual's cottage is situated does not form part of the individual's eligible dwelling.
Reasons: s.118.04(1) - definition of eligible dwelling
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Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to my predecessor, the Honourable Jean-Pierre Blackburn, a copy of your correspondence, which was received on January 14, 2010, regarding the new home renovation tax credit (HRTC).
The legislation regarding the new HRTC has been enacted and is contained in section 118.04 of the Income Tax Act. The HRTC, only available for the 2009 tax year, provides individuals with a 15% non-refundable income tax credit on eligible home renovation expenditures for services received or goods acquired after January 27, 2009, and before February 1, 2010. However, expenditures for services received or goods acquired under agreements entered into before January 28, 2009, do not qualify for the HRTC. Taxpayers can claim this credit for the 2009 tax year on eligible expenditures exceeding $1,000, but not more than $10,000, which will result in a non-refundable tax credit of up to $1,350.
Under section 118.04, expenditures qualify for the HRTC if they are directly attributable to a renovation or an alteration of an eligible dwelling, including land that forms part of the eligible dwelling, and if the renovation or alteration is of an enduring nature and is integral to the eligible dwelling. Such expenditures include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits.
An eligible dwelling is a housing unit located in Canada that is owned by the individual at the time of the renovation, and ordinarily inhabited by the individual, his or her current or former spouse or current or former common-law partner, or his or her children at any time after January 27, 2009, and before February 1, 2010. Therefore, any housing unit that an individual owns and uses personally, including a home and a cottage, qualifies for the HRTC.
In particular, you ask if your cottage, which is not your primary residence, qualifies as an eligible dwelling for purposes of the HRTC. According to paragraph 5 of Income Tax Interpretation Bulletin IT-120R6, Principal Residence, "a seasonal residence can be considered to be ordinarily inhabited in the year by a person who occupies it only during his or her vacation, provided that the main reason for owning the property is not to gain or produce income." However, the leased land on which your cottage is situated does not form part of your eligible dwelling. As such, the cost of any renovations or alterations to the leased land will not qualify for the HRTC.
You can find more information on the HRTC on the Canada Revenue Agency Web site at www.cra.gc.ca/hrtc and in the Government of Canada brochure available at www.actionplan.gc.ca/grfx/docs/hrtc_eng.pdf.
I trust that the information I have provided is helpful.
Yours sincerely,
Keith Ashfield
Minister of National Revenue
William King
(905) 721-5194
2010-035457