Principal Issues: 1. How are costs allocated to unit owners when there is a change in ownership?
Position: 1.Generally, the qualifying expenditures incurred by a condominium corporation are allocated to owners based on the governing documents of the condominium corporation. The condominium corporation must notify individual owners, in writing, of the individual owner's share the corporation's qualifying expenditures.
Reasons: the legislation
XXXXXXXXXX 2010-035702 Robert Dubis May 28, 2010
Dear XXXXXXXXXX :
Re: Home Renovation Tax Credit
This is in response to your correspondence of February 9, 2010, regarding the new home renovation tax credit (HRTC). You asked how costs incurred by your condominium complex to replace windows should be allocated to individual unit owners.
The legislation regarding the new HRTC is contained in section 118.04 of the Income Tax Act. The HRTC provides individuals with a temporary 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 (eligible period). 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 qualifying 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 during the eligible period.
The HRTC can be claimed for qualifying expenditures incurred to renovate the condominium unit that is the individual's eligible dwelling. The HRTC may also be claimed for the individual unit owner's share of the qualifying expenditures incurred by the condominium corporation. You state that the condominium replaced windows and paid for the expenditure from its reserve funds. Renovations and alterations paid from a contingency or special purpose fund administered by the corporation will qualify for the HRTC provided all other requirements (e.g., integral to the dwelling, enduring nature) are met. Replacing windows is a qualifying expenditure for the HRTC.
The HRTC legislation requires the condominium corporation to notify each individual unit owner, in writing, of his/her share of the corporation's qualifying expenditures. The legislation, however, does not prescribe how to determine the individual unit owner's share of the corporation's qualifying expenditures. Generally, the corporation's qualifying expenditures are allocated to the individual unit owners based on the governing documents of the condominium corporation. Where there is a change in ownership, the purchase and sale agreement may have clauses regarding owner liability for expenditures incurred by the corporation. Where a unit changes owners during the eligible period, the corporation must notify each owner of their share of any outlays or expenses, however, the total amount allocated to the different owners of a unit should not exceed the amount that would be allocated had the unit been owned by only one owner during the eligible period. For example, if $24,000 in qualifying expenditures were incurred by the condominium corporation during the eligible period in respect of a particular unit and an ownership change of that unit occurred during that period, $24,000 could be allocated in total by the corporation to the various owners; however each claimant is still limited to the maximum threshold of $10,000 in qualifying expenditures for the HRTC.
To support a claim for an individual owner's share of the condominium corporation's qualifying expenditures, owners will need documentation from the corporation or board of directors that identifies the amounts incurred for the renovation work. The documentation should clearly identify the individual unit owner's share of those expenditures. Supporting documentation should include the name of the contractor and, if applicable, the goods and services tax/harmonized sales tax registration number, a description of the work performed, and the dates when the work or services were performed. Generally, such documentation can be a letter from the corporation that is signed by an authorized individual and can include copies of any agreements, invoices, or receipts.
You can find more information on the HRTC on the CRA Web site at www.cra.gc.ca/hrtc.
We trust our comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson
Acting Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch