1 February 2010 External T.I. 2009-0335491E5 - HRTC - Housing Co-operatives

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. Will members of housing co-operatives qualify to claim the HRTC?

2. Will the receipt of government assistance payments for capital projects impact what will qualify as eligible expenses?

3. Will an individual's share of the eligible common area expenses paid by the housing co-operative include the unit specific expenses paid by the housing co-operative?

4. Will improvements to the land surrounding the housing co-operative qualify as eligible expenses?

Position: 1. Yes
2. No

3. It depends on the housing co-operative's governing documents.

4. Yes

Reasons: 1. In accordance with subsection 118.04 (1) of the ITA, a share of the capital stock of a co-operative housing corporation acquired for the sole purpose of acquiring the right to inhabit a housing unit owned by that corporation will be an eligible dwelling of an individual where it is owned by the individual and the housing unit is ordinarily inhabited by the individual or a member of his or her family.

2. Section 118.04 of the ITA. Annex 5 of 2009 budget documents states that the HRTC will not be reduced by any other tax credits or grants to which a taxpayer is entitled under other government programs.

3. Legislation does not prescribe method of allocation or definition of common expense.

4. Paragraph 118.04(2)(a) of the ITA

XXXXXXXXXX  							2009-033549
A. Mahendran
February 1, 2010

Dear XXXXXXXXXX :

Re: Home Renovation Tax Credit - Housing Co-operatives

We are writing in response to your letter of July 29, 2009, wherein you requested our response to a number of questions regarding the home renovation tax credit (HRTC) and how it will apply to housing co-operatives located in British Columbia. We apologize for the delayed reply.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we offer the following general comments regarding the HRTC.

The legislation regarding the new HRTC has been enacted and is contained in section 118.04 of the Income Tax Act (ITA). Subsection 118.04(1) of the ITA sets out definitions that apply for the purposes of the HRTC. Under this subsection, 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. Qualifying expenditures for the HRTC are not reduced by other government tax credits or grants received or receivable. Therefore, the government assistance, as described in your letter, received by the housing co-operative for renovating its units will not reduce qualifying expenditures for the HRTC.

As defined in subsection 118.04(1) of the ITA, 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. In the case of a co-operative housing unit, the individual must own at the time of the renovation, alone or jointly with another person, a share of the capital stock of the co-operative housing corporation which the individual acquired for the sole purpose of inhabiting the housing unit owned by that corporation. If the above-mentioned conditions are met, the co-operative housing units will qualify as eligible dwellings and individuals who are members of the co-operative housing corporation will be eligible to claim the HRTC, providing all the other requirements for the HRTC are met.

Subsection 118.04(2) of the ITA sets out the application rules for co-operative housing corporations, condominium corporations or, for civil law, a syndicate of co-owners. Specifically, paragraph 118.04(2)(a) of the ITA provides that where a property is owned, administered or managed by a co-operative housing corporation and that property includes an eligible dwelling of the individual, a qualifying expenditure of the individual includes the individual's share of the qualifying expenditures of the corporation. A qualifying expenditure of the corporation is an outlay or expense that would otherwise qualify for the HRTC if the corporation were considered a natural person and the property was considered an eligible dwelling of that natural person. The corporation must notify the individual, in writing, of the individual's share of the expenditures. The legislation does not prescribe how the individual's share is determined. Generally, the qualifying expenditures incurred by the corporation are allocated to the members based on the governing documents of the corporation.

You have also asked whether improvements to land surrounding the co-operative housing will qualify for the HRTC. An eligible dwelling 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 or equal to 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. Therefore, if all of the above conditions are met, qualifying expenditures incurred for the land surrounding the housing co-operative will qualify for the HRTC.

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