Principal Issues: 1. Do used wood fired outdoor boilers qualify for the HRTC?
2. Do leased wood fired outdoor boilers qualify for the HRTC?
3. Do wood fired outdoor boilers acquired through a finance contract qualify for the HRTC?
Position: Depends
Reasons: Eligible expenditures for the home renovation tax credit include only expenditures that relate to a renovation or an alteration of an eligible dwelling (including land) that is enduring in nature and integral to the dwelling.
1. A used wood fired outdoor boiler installed on land that forms part of an eligible dwelling will qualify as a qualifying expenditure for the HRTC, except if the used wood fired outdoor boiler was previously used or leased by the individual now acquiring the wood fired outdoor boiler or by a qualifying relation in respect of the individual, for any purpose.
2. Leasing of a wood fired outdoor boiler would not qualify as the individual does not acquire ownership of the wood fired outdoor boiler.
3. A wood fired outdoor boiler acquired through a financing contract would qualify except the financing costs would not qualify.
XXXXXXXXXX 2009-033468 George A. Robertson, CMA January 13, 2010
Dear XXXXXXXXXX :
We are writing in response to your email dated July 30, 2009, regarding the new home renovation tax credit (HRTC) wherein you asked if the purchase and installation of a used wood fired outdoor boiler (boiler) would qualify for the HRTC. You also asked if the cost of a boiler that is leased or financed by an individual would also qualify for the HRTC. We apologize for this delayed reply.
The legislation regarding the new HRTC has been enacted and 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. 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 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.
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 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.
Providing the above conditions are met, the costs, including installation, of a used boiler on land that forms part of the individual's eligible dwelling will qualify as a qualifying expenditure for the HRTC, except if it was previously used or leased by the individual or by a qualifying relation in respect of the individual, for any purpose. A qualifying relation in respect of an individual is the individual's spouse or common-law partner and their children who will be under 18 years of age at the end of 2009, except if the child, at any time during the eligible period [after January 27, 2009 and before February 1, 2010], has a child, a spouse or common-law partner.
A boiler that is leased will not qualify for the HRTC as the individual would not have acquired ownership of the boiler during the eligible period. The determination of whether a contract is a lease or sale is based on the legal relationship created by the terms of the agreement. In the absence of a sham, it is our view that a lease is a lease and a sale is sale. It should be noted that even if the individual acquires ownership at the end of the lease period, the boiler still will not qualify as section 118.04 excludes the cost of goods that were previously leased by the individual.
It is our understanding that where the boiler is financed, the contractor is paid in full by the financing corporation and the individual becomes indebted to the financing corporation. Providing the above conditions are met, the cost and installation of the boiler on land that forms part of the individual's eligible dwelling will be a qualifying expenditure for the HRTC, however no part of the financing costs associated with the purchase will qualify for the HRTC.
As noted in our previous correspondence to you, where the boiler is used for personal and business purposes (e.g. farm business operation), the portion of the cost relating to the business will not qualify for the HRTC. The following Canada Revenue Agency (CRA) publications: Guide T4002, Business and Professional Income, Guide T4036, Rental Income, and Guide T4003, Farm Income, provide guidance on how to allocate costs between personal and business use.
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 Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch