Principal Issues:
Can an amount paid as a deductible under an insurance policy qualify for the HRTC?
Position:
Question of fact.
Reasons:
Legislative analysis.
XXXXXXXXXX 2010-035894 I. Landry, M. Fisc.
April 13, 2010
XXXXXXXXXX,
Subject: Home Renovation Tax Credit
This is in response to your email of March 1, 2010 in which you requested our comments regarding the eligibility for the home renovation tax credit ("HRTC") of an amount paid as a deductible under an insurance policy.
More specifically, you described a situation where an individual, covered by an insurance policy, carried out renovation work following water damage in the spring of 2009. After completing the renovation work, the insurance company reimbursed the individual for the cost of the renovation work in full, except for the $300 deductible provided for in the insurance contract. You wish to know if that deductible amount is eligible for the HRTC.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
The situation you described in your email appears to be related to an actual situation concerning a specific taxpayer. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the practice of the Directorate to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments, which we hope you will find helpful.
In accordance with the HRTC legislation, an outlay or expense that is made or incurred by the individual or by a qualifying relation in respect of the individual (as defined in subsection 118.04(1)) during the period that begins on January 28, 2009 and that ends on January 31, 2010, that is directly attributable to a qualifying renovation by the individual and that is the cost of goods acquired or services received in the period that begins on January 28, 2009 and that ends on January 31, 2010 are eligible for the HRTC. Subsection 118.04(1) specifically excludes certain expenses from the concept of qualifying expenditures. Among other things, expenditures made or incurred to acquire, for example, a household appliance or a property that can be used independently of the qualifying renovation are not eligible expenditures.
By virtue of subsection 118.04(1), qualifying renovation work is defined as a renovation or alteration, of a property that is at that time an eligible dwelling of the individual or of a qualifying relation in respect of the individual, that is of an enduring nature and that is integral to the eligible dwelling.
Where renovation work is covered by an insurance policy, then it is a question of fact and law as to which of the individual and the insurance company incurred or made the expenditures related to the qualifying renovation work.
For purposes of the HRTC, we are generally of the view that it is the individual, and not the insurance company, who has incurred or made qualifying expenditures for the purposes of the HRTC in a situation where, inter alia, the individual has contracted directly with the contractor, is personally liable for the payment of expenses relating to qualifying renovations, and has ultimately paid for the renovations himself or herself.
In such a situation, and provided that all other conditions are otherwise satisfied, including that the expenditure is a qualifying expenditure as defined in subsection 118.04(1), the total cost of the qualifying renovation, including the amount representing the deductible amount, will be eligible for the HRTC.
Best regards,
Louise J. Roy, CGA
Manager
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.