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: Can an individual claim the HRTC on certain expenditures incurred in renovating his house which was owned in August 2009, but not occupied by him or his family members prior to February 1, 2010?
Reasons: Even though his house was owned in August 2009, it was not ordinarily inhabited by him, his current or former spouse or current or former common-law partner, or his children at any time after January 27, 2009, and before February 1, 2010. Therefore, it will not qualify as an eligible dwelling for the purposes of the HRTC. Pursuant to subsection 118.04(1), an eligible dwelling must exist at the time of the renovation or alteration in order for expenditures to qualify for the HRTC.
April 5, 2011
Dear XXXXXXXXXX :
Re: Eligibility for the Home Renovation Tax Credit (HRTC)
We are responding to your correspondence, which we received on April 30, 2010, regarding the HRTC. In particular, you would like to know whether you can claim the HRTC on certain expenditures incurred in renovating your house which you bought in August 2009, but were unable to move into prior to February 1, 2010.
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 HRTC has been enacted and is contained in section 118.04 of the Income Tax Act (ITA). Pursuant to section 118.04 of the ITA, the HRTC is based on qualifying expenditures directly attributable to qualifying renovations made to an eligible dwelling by an individual. Subsection 118.04(1) of the ITA sets out several definitions, including "qualifying expenditure", "qualifying renovation", and "eligible dwelling", that apply for the purposes of the HRTC.
A "qualifying expenditure" of an individual is defined to be an outlay or expense that is made or incurred during the eligible period by the individual or by a qualifying relation in respect of the individual, that is directly attributable to a qualifying renovation by the individual. A "qualifying renovation" by an individual, at any time, is defined to be 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 is integral to the eligible dwelling. An "eligible dwelling" of an individual, at any time, is defined to be a housing unit located in Canada that is owned by the individual, at the time of the renovation, and is 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.
To determine whether a renovation expenditure incurred by an individual is eligible for the HRTC, first we need to establish whether an eligible dwelling exists. The definition of "eligible dwelling" mainly contains three requirements that must be satisfied by a housing unit to qualify as an eligible dwelling for the purposes of the HRTC. The first requirement to be an eligible dwelling is that the housing unit must be located in Canada. We presume that your housing unit is located in Canada. The second requirement is that the housing unit must be owned by an individual at the time of the renovation. Based on the information provided, we understand that you purchased your housing unit in August 2009 and therefore, the second requirement is met. The third requirement is that the housing unit must be ordinarily inhabited at any time during the eligible period by the individual, or his or her current or former spouse or current or former common-law partner, or his or her children. We need to determine whether the third requirement is met in your particular fact situation.
To determine whether your new house was ordinarily inhabited by you, your spouse (or common-law partner), or your children at any time during the HRTC eligibility period, a review of the definition of "ordinarily inhabited" in the context of the home renovation tax credit is required. The phrase "ordinarily inhabited" is not defined in the ITA. Therefore, its interpretation is determined using its ordinary dictionary meaning, the decisions established by the courts, and the policies applied by the Canada Revenue Agency (CRA) in similar situations.
Since the ITA does not define the term "ordinarily inhabited", various dictionaries have been consulted to determine the ordinary meaning of these terms. The Concise Canadian Oxford Dictionary defines "ordinarily" as regularly, normally, customarily or usually and "inhabited" as having inhabitants or lived in. Similarly, various court cases have been consulted to see the principles set out by the courts for similar tax issues. The leading case on the meaning of the expression "ordinarily resided" is the Supreme Court decision in Thomson v. M.N.R.,  S.C.R. 209. In that case, Judge Estey, J. concluded that "... one is ordinarily resident in the place where, in the settled routine of his life he regularly, normally or customarily lives". Applying the principles set out by the Supreme Court of Canada in Thomson v. M.N.R. and the recent court cases (footnote 1) , we are of the view that the reasonable approach to determine whether an individual had ordinarily inhabited a housing unit in a taxation year is to inquire whether he resided there habitually, in the sense that he regularly, customarily, or usually lived in that housing unit.
In addition to the ordinary dictionary meaning and the decisions established by the courts, various tax interpretation bulletins and relevant legislative interpretations have set out the positions taken by the CRA on the meaning of "ordinarily inhabited". Specifically, paragraph 5 of IT-120R6, Principal Residence, dated July 20, 2003, states that the question of whether a housing unit is ordinarily inhabited in the year by a person must be resolved on the basis of the facts in each particular case. Even if a person inhabits a housing unit only for a short period of time in the year, this is sufficient for the housing unit to be considered ordinarily inhabited in the year by that person. Furthermore, pursuant to subsection 118.04(1) of the ITA, a housing unit must be ordinarily inhabited at any time during the eligible period, not throughout the eligible period. This means that a housing unit inhabited by an individual only for a short period during the eligible period may still qualify as an eligible dwelling for the purposes of the HRTC.
Also, an individual may have more than one residence in a taxation year. In such a case, the determination of where the individual ordinarily inhabits is a question of fact. In your fact situation, you had two residences during the eligible period: the rental house and the new house. In your correspondence, you have indicated that even though you bought your house in August 2009 with the intension of moving into your house no later than December 2009, you were unable to move into your house prior to the expiry of the HRTC eligibility period because of several unexpected serious damages that had to be fixed prior to your move and use. Therefore, you continued to live in the rental house until you completed your renovation work for the new house.
Taking into account various dictionary definitions, the relevant case laws, and the policies applied by the CRA in similar situations, we are of the view that during the eligible period, the rental house was the place where you and your family had normally or ordinarily lived in. Therefore, you would likely be considered to be ordinarily inhabited in the rental house rather than in the new house you bought. Furthermore, it is not clear whether the new house was considered inhabitable before its renovation, but based on the information provided, it appears to be not.
Based on the foregoing analysis and the information provided to us, it appears that your new house was not ordinarily inhabited by you, your current or former spouse or current or former common-law partner, or your children at any time after January 27, 2009, and before February 1, 2010, and therefore, it will not qualify as an eligible dwelling for the purposes of the HRTC. Pursuant to subsection 118.04(1) of the ITA, an eligible dwelling must exist at the time of the renovation or alteration in order for expenditures to qualify for the HRTC. Therefore, any expenditures made or incurred to renovate your new house will not qualify for the HRTC.
We trust that the information provided is helpful.
Sharmini Ratnasingham, CGA
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Note to reader: Because of our system requirements, the footnotes contained
in the original document are shown below instead:
1 Huh et al v The Queen, 2000 DTC 2422;  4CTC 2239 (TCC); Shih v The Queen, 2000 DTC 2072;  T. C.J. No. 196;  2 CTC 2921; Lingle v The Queen, 2010 DTC 5100, 2010 FCA 152.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011