11 August 2010 External T.I. 2010-0368971E5 - HRTC Eligible Expense under a change order

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: Will expenses incurred under a change order qualify for the HRTC, where the original contract was entered into before January 28, 2009?

Position: Not likely, Question of fact

Reasons: A change order or amendment becomes part of the original contract, unless the change order or amendment is a stand alone contract.

XXXXXXXXXX 	 						Our file: 2010-036897
       							George A. Robertson, CMA
August 11, 2010

Dear XXXXXXXXXX :

Re: Eligibility of Expenses for Home Renovation Tax Credit (HRTC)

This is in response to your request of May 21, 2010 requesting our views on whether additional qualifying expenses for the HRTC incurred after January 2009 from a change order/amendment to an original contract qualify for the HRTC? The original contract is acknowledged as being ineligible as it was entered into prior to the eligibility period.

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

The legislation regarding the new HRTC has been enacted and is contained in section 118.04 of the Income Tax Act (the Act). 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. Subsection 118.04(1) of the ITA states that 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. The eligible period begins on January 28, 2009, and ends on January 31, 2010. This subsection also states that a qualifying expenditure does not include an outlay or expense made or incurred under the terms of an agreement entered into before January 28, 2009.

In your letter, you have indicated that the strata corporation entered into a contract with a contractor prior to January 27, 2009 and agree that expenditures incurred under this [original] contract are not eligible for the HRTC even if that work was performed or goods were acquired after January 27, 2009, and before February 1, 2010.

It is a question of fact whether expenditures are incurred pursuant to a particular contract. Such a determination can only be made after a review of all the surrounding facts and circumstances in each particular case. Where the change order/amendment causes a separate complete contract, the expenditures incurred pursuant to that contract may be eligible provided the requirements of the HRTC legislation are otherwise met. However, in the situation you have described, it is unlikely that a change order/amendment entered into during the eligibility period could be read without reference to the original contract, entered into before the eligibility period, and therefore, would probably not be a different contract as contemplated by the HRTC legislation.

While we trust that these comments will be of assistance, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.

Yours truly,

Sharmini Ratnasingham
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch