7 May 2010 External T.I. 2010-0359301E5 - HRTC - Qualifying Expenditures

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: If a strata entered into a rehabilitation project with a contractor prior to January 28, 2009, and the contractor entered into contracts with sub-trades after January 27, 2009, will the expenditures incurred on the strata's rehabilitation project qualify for the HRTC?

Position: It is a question of fact whether expenditures are incurred pursuant to a particular contract.

Reasons: The determination can only be made after a review of all the surrounding facts and circumstances in each particular case.

XXXXXXXXXX 2010-035930
A. Mahendran
May 7, 2010

Dear XXXXXXXXXX :

We are responding to your correspondence, which we received on March 4, 2010, regarding the home renovation tax credit (HRTC). In particular, you would like to know if a strata entered into a rehabilitation project with a contractor prior to January 28, 2009, and the contractor entered into contracts with sub-trades after January 27, 2009, will the expenditures incurred on the strata's rehabilitation project qualify for 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. 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. Accordingly, expenditures incurred pursuant to an agreement entered into before January 28, 2009, are not eligible for the HRTC.

In your letter, you have indicated that the strata entered into a construction management agreement with a contractor prior to January 27, 2009. Therefore, any expenditures incurred under this contract are not eligible for the HRTC even if the work was performed or goods were acquired after January 27, 2009, and before February 1, 2010. You are of the view that the strata's rehabilitation project should qualify for the HRTC as the contracts with the sub-trades were entered into after January 27, 2009. If the expenditures are incurred pursuant to contracts entered into after January 27, 2009, but before February 1, 2010, the expenditures, providing all of the other conditions are otherwise met, will be eligible for the HRTC.

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. However, in the situation you have described, it is unlikely that arrangements between a general contractor and subcontractors and/or suppliers occurring after January 27, 2009, would constitute a different contract as contemplated by the HRTC legislation.

We trust that the information provided is helpful.

Yours truly,

Lita Krantz, C.A.
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch