Principal Issues: Does the installation of a water well for a rental property qualify for the HRTC?
Position: No. Although the installation of a water well is of an enduring nature and integral to the dwelling, a rental property is not considered an eligible dwelling.
Reasons: 118.04- Qualifying Expenditure
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Dear XXXXXXXXXX :
The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to my predecessor, the Honourable Jean-Pierre Blackburn, a copy of your correspondence regarding the home renovation tax credit (HRTC). You asked whether the installation of a water well qualifies for the HRTC. Please accept my apology for this delayed response.
The legislation regarding the 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.
Your correspondence states that the water well was to be installed at a rental property that you own but which is not your current residence. Although the installation of a water well is of an enduring nature and is integral to the dwelling, if you own and use the entire property for earning rental income, the property is not considered an eligible dwelling for HRTC purposes. Therefore, any renovation expenditures incurred for the property do not qualify for the HRTC.
You can find more information on the HRTC on the Canada Revenue Agency Web site at www.cra.gc.ca/hrtc and in the Government of Canada brochure available at www.actionplan.gc.ca/grfx/docs/hrtc_eng.pdf.
I trust that the information I have provided is helpful.
Yours sincerely,
Keith Ashfield
Minister of National Revenue
Robert Dubis
(905) 721-5191
2009-033570