3 March 2010 External T.I. 2009-0348831E5 - HRTC - Expenditures covered by insurance

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: Whether home renovation expenditures covered by an insurance company will qualify for the HRTC

Position: It depends on who made the outlay or incurred the expense.

Reasons: Qualifying expenditures must be made or incurred by the individual or a qualifying relation in respect of the individual.

XXXXXXXXXX 								2009-034883
A. Mahendran
March 3, 2010

Dear XXXXXXXXXX :

We are responding to your correspondence, which we received on November 18, 2009, regarding the new home renovation tax credit (HRTC). In particular, you would like to know if your eligible dwelling is damaged and your insurance company pays for the complete cost of restoration, are you entitled to claim the HRTC.

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. We are, however, prepared to offer the following general comments, which may be of assistance.

The legislation regarding the new HRTC has been enacted and is contained in section 118.04 of the Income Tax Act (ITA). The HRTC provides individuals with a temporary 15% non-refundable income tax credit on qualifying 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.

Pursuant to subsection 118.04(1) of the ITA, a "qualifying expenditure" of an individual means an outlay or expense that is made or incurred by the individual, or by a qualifying relation in respect of the individual, for goods acquired or services received during the eligible period, that are directly attributable to a qualifying renovation by the individual. It is a question of fact and law whether the policyholder or the insurance company has made or incurred an outlay or expense where the costs of home renovation expenditures are covered under a contract of insurance. If it is determined that the outlay or expense was made or incurred by the insurance company, then the home renovation expenditures will not qualify for the HRTC. Expenditures must be made by the individual or a qualifying relation in respect of the individual. If on the other hand, it is determined that the outlay or expense was made or incurred by the individual or a qualifying relation in respect of the individual, then the home renovation expenditures will qualify for the HRTC providing all the other conditions are met (e.g., enduring in nature, integral to eligible dwelling).

We trust that the information provided is helpful.

Yours truly,

Nerill Thomas-Wilkinson
Acting Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch