23 March 2010 External T.I. 2009-0348521E5 - HRTC - Qualifying expenditure - Goods acquired

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: When are goods "acquired" for the purposes of the HRTC?

Position: The determination of when goods are acquired is a question of law and the facts in each particular case.

Reasons: The word "acquired" is not defined in the ITA.

XXXXXXXXXX 2009-034852
A. Mahendran
March 23, 2010

Dear XXXXXXXXXX :

We are responding to your correspondence, which we received on November 17, 2009, regarding the new home renovation tax credit (HRTC). In particular, you requested clarification with respect to when goods are acquired for the purposes of 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. However, we offer the following general comments regarding the HRTC.

Pursuant to subsection 118.04(1) of the Income Tax Act (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 of the individual for goods acquired or services received during the eligible period that is directly attributable to a qualifying renovation of the individual. The eligible period means the period that begins on January 28, 2009 and that ends on January 31, 2010.

The word "acquired" is not defined in the ITA. Therefore, its interpretation is determined using its ordinary dictionary meaning, common law, and the policies applied by the Canada Revenue Agency (CRA) in similar situations.

The ordinary dictionary meaning of the word "acquire" is to get, obtain, have control over or possess. Relevant case law indicates that goods are acquired not only by obtaining ownership, but also by obtaining normal aspects of ownership such as possession, use or risk. Paragraphs 17-20 of Interpretation Bulletin IT-285R2, Capital Cost Allowance - General Comments, discusses the time of acquisition of depreciable property. The CRA comments in those paragraphs can be applied to determine the time when goods are acquired for purposes of the HRTC. Those paragraphs state, in part, that

"17. Generally, a taxpayer will be considered to have acquired a depreciable property at the earlier of:

(a) the date on which title to it is obtained, and

(b) the date on which the taxpayer has all the incidents of ownership such as possession, use, and risk, even though legal title remains in the vendor as security for the purchase price (as is commercial practice under a conditional sale agreement).

In order that the cost of an asset may fall within a specified class, the purchaser must have a current ownership right in the asset itself and not merely rights under a contract, of which the asset is the subject, to acquire it in the future.

18. In determining whether or not depreciable property is acquired by a taxpayer, the legal relationship between the vendor and the purchaser of the property should be reviewed. For example, where chattels are being acquired, the relevant sale of goods legislation would be applicable. Each of the provinces (other than Quebec) has a Sale of Goods Act pertaining to sales of chattels laying down substantially the same rules for the ownership rights to assets bought and sold. The basic rule is that property in respect of specific assets passes, and is therefore acquired by the purchaser, at the time when the parties to the contract intend it to pass as evidenced by the terms of the contract, the conduct of the parties and any other circumstances.

19. If, however, the intention of the parties is not evidenced as discussed above, the following rules apply to determine when property is to pass:

(a) if there is an unconditional contract for the sale of a specific asset in a deliverable state, property will pass to the purchaser when the contract is made, and it is immaterial whether the time of payment or delivery or both are postponed;

(b) if there is a contract for the sale of a specific asset and:

(i) the seller is bound to do something to the asset to put it into a deliverable state, or
(ii) the asset is in a deliverable state, but the seller must weigh, measure, test or do some other act or thing to ascertain the price,
then property does not pass until the seller has satisfied those conditions and the purchaser has notice thereof.

20. For the purpose of 18 and 19 above, property can pass and acquisition take place only if the asset is in existence and, even then, only if it is a "specific" asset, i.e., one that can be identified as the object of the contract."

The above may be used as a general guideline, but it is our view that the determination of when goods are acquired for the purposes of the HRTC is a question of law and the facts in each particular case. The fact that an agreement was signed during the eligible period does not mean, in and of itself, that the goods were acquired during the eligible period.

Such a determination can only be made after a review of all the surrounding facts and circumstances in each particular case. This review would be carried out by the audit officials in the local tax services office and would include a review of all the relevant documents and agreements between the purchaser and vendor.

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