Principal Issues: [TaxInterpretations translation]
Do the fee paid to a design contractor to develop renovation plans qualify as an eligible expense for the HRTC?
Position:
Question of fact.
Reasons:
As a general rule, costs for renovation plans carried out by a design contractor that are directly attributable to eligible renovation work will be eligible expenditures for HRTC purposes to the extent that the costs for carrying out the renovation plans are incurred within the eligible period and the services of the design contractor are received before the end of the eligible period.
XXXXXXXXXX 2009-031768 I. Landry, M. Fisc. November 2, 2009
Dear XXXXXXXXXX,
Subject: Home Renovation Tax Credit
This is in response to your letter of April 8, 2009 requesting our comments on the home renovation tax credit ("HRTC").
Specifically, you are asking for our comments on the eligibility for the HRTC of fees paid to a design contractor for the development of renovation plans. In your letter, you described a situation where an individual plans to renovate the kitchen, bathroom and reconfigure the dimensions of certain rooms in the individual’s principal residence in 2009. The individual plans to hire a design contractor to develop the renovation plans and then hire another contractor to carry out the renovation work.
The situation you have indicated in your letter appears to be related to an actual situation, which concerns a specific taxpayer. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the directorate's practice 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.
The proposed HRTC is a temporary 15% non-refundable tax credit available to individuals for eligible expenditures. Individuals will be able to claim this credit in the 2009 taxation year on eligible expenditures exceeding $1,000, but of not more than $10,000, which will result in a non-refundable tax credit of up to $1,350.
The legislation regarding the new HRTC was introduced in the House of Commons on September 30, 2009, by the Honourable James M. Flaherty, Minister of Finance. The proposed legislation states that expenditures are generally qualifying expenditures for the HRTC if they are incurred or made during the eligible period and are directly attributable to qualifying renovation work. In addition, such expenditures must represent the cost of goods acquired or services received during the eligible period. Such expenditures will include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits.
Under the proposed legislation, the eligible period for the HRTC is the period beginning on January 28, 2009 and ending on January 31, 2010. As for qualifying renovation work, the proposed legislation defines it as renovation or alteration work performed on an eligible dwelling and such work must be of a durable nature and form an integral part of an eligible dwelling.
An eligible dwelling unit is a housing unit located in Canada that is owned by an individual at the time of the renovation or alteration, and that is ordinarily inhabited by the individual, the individual's spouse or former spouse, common-law partner or former common-law partner, or a child of the individual during the qualifying period.
It is our view that costs incurred for renovation plans by a design contractor will be qualifying expenditures expenses for the HRTC provided that all conditions are met. In order for costs incurred for renovation plans by a design contractor to be qualifying expenditures, the renovation plans must be directly attributable to qualifying renovation work, the costs for carrying out the renovation plans must be incurred within the eligible period, and the services of the design contractor must be received before the end of the eligible period.
Best regards,
Louise J. Roy, CGA
Manager
for the interim Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.