Principal Issues: [TaxInterpretations translation] Are the costs of completely demolishing a residence and the costs of rebuilding it eligible expenses for the HRTC?
Position: No.
Reasons: The demolition is not a qualifying renovation within the meaning of subsection 118.04(1) since it is for the purpose of destroying the dwelling rather than renovating it.
The rebuilding of the dwelling cannot qualify as a qualifying renovation within the meaning of subsection 118.04(1) and therefore cannot qualify for HRTCs. Indeed, following the demolition of the dwelling that would qualify as an eligible dwelling if all conditions were otherwise satisfied, the demolished dwelling and the rebuilt dwelling will be two separate dwellings. Therefore, the rebuilding work is for the construction of a new dwelling and not for the renovation of an eligible dwelling.
XXXXXXXXXX 2009-035067 I. Landry, M. Fisc. February 4, 2010
Dear XXXXXXXXXX,
Subject: Home Renovation Tax Credit
This is in response to your email of December 8, 2009 in which you asked us whether the costs of completely demolishing a residence and the costs of rebuilding it are eligible expenses for the purposes of the home renovation tax credit ("HRTC").
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
The situation you have indicated in your letter appears to be related to an actual situation involving specific taxpayers. 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.
In accordance with the legislation in respect of the HRTC, only an outlay or expense that is made or incurred during the period that begins on January 28, 2009 and that ends on January 31, 2010 that is directly attributable to qualifying renovation work performed is eligible for the HRTC.
By virtue of subsection 118.04(1), qualifying renovation is defined as a renovation or alteration of an eligible dwelling that is of an enduring nature and that is integral to the eligible dwelling.
By virtue of subsection 118.04(1), an eligible dwelling includes a housing unit located in Canada in respect of which the following conditions are satisfied. First, at the time of the qualifying renovation, the individual, or a trust under which the individual is a beneficiary, must own, whether jointly with another person or otherwise, the housing unit or a share of the capital stock of a co-operative housing corporation acquired for the sole purpose of acquiring the right to inhabit the housing unit owned by the corporation.
Second, the housing unit must be ordinarily inhabited by the individual, by the individual’s spouse or common-law partner or former spouse or common-law partner or by a child of the individual during the period that begins on January 28, 2009 and that ends on January 31, 2010.
If a dwelling satisfies these conditions before it is demolished, it may qualify as an eligible dwelling. On the other hand, the demolition work is not a qualifying renovation within the meaning of subsection 118.04(1) since it is intended to destroy the dwelling rather than renovate it.
The rebuilding of the dwelling will also not qualify as a qualifying renovation within the meaning of subsection 118.04(1) and therefore will not be eligible for HRTCs. Indeed, following the demolition of a dwelling that could qualify as an eligible dwelling if all conditions were otherwise satisfied, the demolished dwelling and the rebuilt dwelling will be two separate dwellings. Consequently, the rebuilding work is for the construction of a new dwelling and not for the renovation of an eligible dwelling.
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.