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: What are the maximum amounts of qualifying expenditures that two individuals can claim for the HRTC when the individuals marry in the eligible period?
Position: Depends on the facts.
Reasons: The definitions of qualifying renovation and qualifying expenditure are relevant to the determination, as is subsection 118.04(5) of the Act regarding the apportionment of credit.
XXXXXXXXXX 2010-035717
N. Shea-Farrow
March 10, 2011
Dear XXXXXXXXXX :
Re: Home Renovation Tax Credit
This is in response to your letter of February 8, 2010 regarding the home renovation tax credit (HRTC) requesting clarification of the amount of qualifying expenditures each individual is entitled to claim in the following scenario:
1. In the spring of 2009 an individual incurred $5,500 on qualifying expenditures to his home.
2. In the spring of 2009 the fiancé of the individual incurred $6,000 on qualifying expenditures to her home.
3. The couple were married in June 2009 and did not live together prior to getting married.
4. After their marriage they moved to a new home and incurred another $8,000 on qualifying expenditures on the third house.
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 as set out in Information Circular IC 70-6R5 dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments, which may be of assistance.
Our Comments
Section 118.04 of the Income Tax Act (ITA) provides individuals with a temporary 15% non-refundable income tax credit on qualifying expenditures, directly attributable to qualifying renovations made to an eligible dwelling by an individual, 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 qualifying expenditures exceeding $1,000, but not more than $10,000, which will result in a non-refundable tax credit of up to $1,350.
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, the eligible period. Therefore, any housing unit that an individual owns and uses personally, including a home and a cottage, qualifies for the HRTC.
The maximum amount of qualifying expenditures two individuals can claim that marry in the eligible period is a question of fact. In the example given, individual "A" and individual "B" have three dwellings in the eligible period; their own eligible dwellings "A" and "B" when these two individuals are single and a third eligible dwelling "C" that they purchase together and live in, subsequent to selling the dwellings they each had when single, and after they marry in the eligible period. It is also assumed that the two individuals do not live together before marriage and that each dwelling has had renovations done in the eligible period. The definitions of qualifying renovation and qualifying relation are particularly relevant to this determination, as is subsection 118.04(5) of the Act regarding the apportionment of the credit.
Pursuant to subsection 118.04(1) of the Act, a qualifying renovation, by an individual, at any time, means a renovation or alteration, of a property, that is at that time an eligible dwelling of the individual or of a qualifying relation in respect of the individual, that is of an enduring nature and that is integral to the eligible dwelling.
Pursuant to subsection 118.04 (1) of the Act, a qualifying relation in respect of an individual means a person who is the individual's spouse or common-law partner, or a child of the individual who has not attained the age of 18 years before the end of 2009 (other than a child who was, at any time during the eligible period, a married person who is in a common-law partnership or a person who has a child).
The definition of qualifying renovation states that the renovation to the property is only a qualifying renovation of an individual if at the time of the renovation it is an eligible dwelling of the individual or of a qualifying relation. This means that if the renovation is performed at the time, individual "A" is single, the renovation only qualifies as a qualifying renovation for individual "A" since at the time of the renovation the eligible dwelling "A" is only an eligible dwelling of individual "A" since individual "B" neither ordinarily inhabits it or owns it and at the time of the renovation individual "B" is not a qualifying relation of individual "A". This also means that the expenditures are only qualifying expenditures of individual "A" since the expenditures must be attributable to a qualifying renovation by the individual. Similar reasoning would be applicable to eligible dwelling "B". In addition, if the renovation is performed at the time, individual "A" and individual "B" are married, the renovation qualifies as a qualifying renovation for both individual "A" and individual "B" since at the time of the renovation the eligible dwelling "C" is an eligible dwelling of individual "A" and individual "B" since they both ordinarily inhabit it and own it. This also means that the expenditures are qualifying expenditures of individual "A" and individual "B" since the expenditures are attributable to a qualifying renovation by individual "A" and individual "B".
Subsection 118.04(5) of the Act states that if more than one individual is entitled to a deduction for the HRTC for a taxation year in respect of a specific qualifying expenditure of an individual, then the total of all of these amounts cannot exceed $10,000 and if the individuals cannot agree as to what portion of the amount each can deduct, the Minister may fix the portions. Thus either one spouse or both spouses can share the qualifying expenditures in respect of the eligible dwelling "C" but the expenditures that are claimed in respect of it cannot exceed the $10,000 maximum.
Subsection 118.04(5) of the Act does not impact the expenditures incurred to renovate eligible dwellings "A" and "B" since only one individual is entitled to a deduction for the HRTC in respect of the qualifying expenditures for each of these dwellings. However, individual "A" would only be entitled in total to $10,000 of qualifying expenditures maximum, for the dwelling "A" owned when single and those allocated to him from the marital dwelling "C", because of subsection 118.03(3) of the Act. Individual "B" would only be entitled in total to $10,000 of qualifying expenditures maximum, for the dwelling "B" owned when single and those allocated to her from the marital dwelling "C", because of subsection 118.03(3) of the Act.
Therefore, for your particular scenario, the man would be entitled to claim the $5,500 of qualifying expenditures that he incurred on his home before marriage and the woman would be entitled to claim the $6,000 of qualifying expenditures that she incurred on her home before marriage. In addition, either one spouse or both spouses can share the $8,000 of qualifying expenditures incurred on the home they owned after marriage, however, each individual can not claim more than the $10,000 maximum of qualifying expenditures in the eligible period.
We hope that these comments will be of assistance to you.
Yours truly,
Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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