Principal Issues: 1.Allocation of eligible costs and required documentation where HRTC renovations are undertaken by a condominium corporation on behalf of the unit owners.
2. Are landscaping costs incurred by a condominium complex for new plantings, retaining walls and professional fees eligible for the HRTC?
Position: Expenditures incurred for common areas are allocated to unit owners based on the governing documents of the corporation. The condominium corporation must notify each unit owner in writing of their share of the common area expenses. The costs of new plantings, retaining walls and professional fees are eligible expenditures provided they are installed at an eligible dwelling.
Reasons: 1.The actual allocation of common area expenses is determined by the governing documents of the condominium corporation.
2. Annex 5 2009 federal budget documents. Bill C51.
XXXXXXXXXX 2009-032880 Robert Dubis November 30, 2009
Dear XXXXXXXXXX :
Re: Home Renovation Tax Credit
This is in response to your letter of June 17, 2009 wherein you requested an advance income tax ruling on behalf of the XXXXXXXXXX . We apologize for the delayed reply.
The issue in your request for an advance income tax ruling pertains to the new home renovation tax credit (HRTC). At this time we are unable to provide a ruling. As noted in subparagraph 15(h) of Information Circular IC 70-6R5, the Canada Revenue Agency (CRA) will refuse to rule when a ruling would involve the interpretation of a provision of the Income Tax Act that has not been enacted. The legislation regarding the new HRTC, which was introduced in the federal budget tabled on January, 27, 2009 has not yet been made law. In the absence of legislation, we trust the following general comments regarding the HRTC will be helpful.
The proposed HRTC will provide individuals with a temporary 15% non-refundable income tax credit on eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009, and before February 1, 2010, for agreements entered into after January 27, 2009. 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.
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 will qualify 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 will 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 the case of condominium corporations, the HRTC can be claimed by an individual for eligible expenditures incurred to renovate the condominium unit that is the individual's eligible dwelling as well as the individual's share of the cost of eligible expenditures incurred for common areas. Generally, the expenditures incurred for common areas are allocated to condominium owners based on the governing documents of the condominium corporation.
You state that the XXXXXXXXXX plans to undertake new landscaping work at the complex, including the installation of new plantings and retaining walls. The landscaping project will be overseen by a professional landscape architect. The determination of whether an expenditure will meet the above-mentioned criteria is a question of fact. The current list of eligible expenditures on the CRA Web site includes retaining walls, perennial shrubs and flowers, trees, and professional landscape design fees related to those eligible expenditures. Please note that only the expenditures incurred for land that forms part of the eligible dwelling will qualify for the HRTC. An eligible dwelling, as defined in the proposed legislation, includes the land upon which the housing unit stands and any portion of the adjoining land to the extent that the land is less than 1/2 hectare (1.24 acres). Any portion of the land in excess of 1/2 hectare may also be considered part of the eligible dwelling if the individual establishes that the respective portion is necessary for the use and enjoyment of the housing unit. This limitation on land also applies to co-operative housing corporations and condominium corporations. For further information on this restriction, please refer to paragraphs 15 and 16 of Interpretation Bulletin IT-120R6, Principal Residence.
To support a claim for renovations to common areas of the condominium made by the board of directors on behalf of the individual owners, owners will need documentation from the corporation or the board of directors that identifies the amounts incurred for the renovation work. The documentation should clearly identify the individual condominium owner's portion of these expenses. 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 these comments will be of assistance.
Yours truly,
Nerill Thomas-Wilkinson
Acting Manager
For Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch