27 October 2009 Internal T.I. 2009-0325111I7 - HRTC- Condominium Corporations

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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. Eligibility of renovations contracted for or commenced prior to January 28, 2009.

3. Eligibility of renovations not completed before February 1, 2010.

4. Payment of renovation costs from a condominium special purpose fund.

5. Allocation of eligible costs to condominium owners where changes in ownership occur during the period between January 28, 2009 and February 1, 2010.

Position: 1. Expenditures incurred for common areas are allocated to unit owners based on the governing documents of the corporation. The condominium corporation must issue a letter to each unit owner detailing the renovation work in respect of the common areas and each unit owner's share.

2. Goods and services contracted for or commenced prior to January 28, 2009 are not eligible for the HRTC.

3. Only costs pertaining to work performed or goods acquired after January 27, 2009 and before February 1, 2010 are eligible.

4. Eligible expenditures paid for from a special purpose fund administered by the condominium corporation will qualify for the HRTC provided all other requirements are met.

5. Where a unit changes owners during the period between January 28, 2009 and February 1, 2010, the expenditures are allocated to owners based on the governing documents or special resolutions of the corporation and purchase and sale agreements.

Reasons: Annex 5 of the 2009 federal budget documents. Notice of Ways and Means motion released September 14, 2009.

October 27, 2009

Re: Home Renovation Tax Credit- Condominium Corporations

This is in response to your e-mail dated May 29, 2009, wherein you requested that the Income Tax Rulings Directorate respond to queries regarding the proposed home renovation tax credit (HRTC) and condominiums.

Question 1

Will it be acceptable for the property manager to provide a summary statement to each owner outlining the nature of the project, the start and completion date, the total cost and the owner's share of those costs, together with a statement certifying that the costs and the project qualify for the HRTC and that all contracts, invoices and payment cheques are available if required. Alternatively, will the property manager have to provide each owner with copies of all documentary evidence that would be required of the owner of a single property making the claim?

Response

In the case of condominiums, the HRTC will be available for eligible expenditures incurred to renovate the condominium unit that is an eligible dwelling as well as the individual's share of the cost of eligible expenditures incurred for common areas of the condominium. Generally, the expenditures incurred for common areas are allocated to condominium unit owners based on the governing documents of the condominium corporation.

To support a claim for renovations to individual condominium units or common areas of the condominium made by the condominium corporation, owners will need documentation from the corporation or the board of directors that identifies the amounts incurred for the renovation work. For work performed on common areas, 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 GST/HST registration number, a description of the work performed and the dates when the work or services were performed. Generally, documentation may be in the form of a letter from the corporation and signed by an authorized individual. It is not necessary for the corporation to provide all unit owners with copies of agreements, invoices or receipts.

Question 2

Will projects started before January 27, 2009 or not completed before February 1, 2010 be eligible and what will be the criteria used to establish what parts of the project are eligible? What will be the treatment of a deposit that was paid to a contractor before January 27, 2009 for work to be completed after that date but before February 1, 2010?

Response

Home renovations completed under agreements entered into before January 28, 2009 will not qualify for the HRTC. The proposed legislation has no exceptions. The determination of whether the renovations or alterations were contracted for before January 28, 2009 is a question of fact.

Where the agreement is entered into after January 27, 2009, only those costs pertaining to work performed or goods acquired before February 1, 2010, and that are directly attributable to a qualifying renovation, are eligible for the HRTC. Such a determination can only be made after a review of all the facts and circumstances in each particular case. The claimant is responsible for determining which costs have been incurred by February 1, 2010. Supporting documentation should include the date when the goods were purchased and/or delivered and the date when the work or service was performed.

Question 3

We assume that a project paid for from a contingency or special purpose fund (such as a painting fund or roofing fund) will qualify for the HRTC if the other qualifications are met. How will a new owner of a unit in a building be treated for purposes of the credit? If a project was completed in June and a new owner buys in November, who gets to claim the credit? Alternatively, what if a roofing project starts in February, 2009 and is completed in September 2009? A building could have multiple sales in that period. Who will get credit for the project and how is the property manager expected to account for the project costs?

Response

Renovations and alterations of the common areas paid for from a contingency or special purpose fund administered by the condominium corporation will qualify for the HRTC provided all other requirements (i.e., integral to the dwelling, enduring nature) are met.

Generally, the expenditures incurred for common areas are allocated to condominium owners based on the governing documents or special resolutions of the condominium corporation. Where there is a change in ownership, the purchase and sale agreement may have clauses regarding liability for common area expenses. Where a unit changes owners during the year, the corporation should notify each owner of their share of any outlays or expenses, however, the total amount allocated to the different owners of a unit should not exceed the amount that would be allocated had the unit been owned by only one owner during the year.

For your information a copy of this memorandum will be severed using Access to Information Act criteria and placed in CRA's electronic library. A severed copy will also be distributed to the commercial tax publisher's for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

We hope that 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