11 February 2011 External T.I. 2010-0362421E5 - HRTC - Stratas - Change in ownership

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: 1. Who can claim a share of the qualifying expenditures incurred for common areas of a strata where there is a change in ownership of the strata unit during the HRTC eligibility period - the previous owner or the current owner?

2. How are the qualifying expenditures allocated between the previous owner and the current owner of the unit, if a unit changes its owners during the HRTC eligibility period?

Position: 1. Both, the previous owner who sold the unit and the current owner who bought the unit, may claim their share of the qualifying expenditures incurred by the strata council while they were the owner of the strata unit, providing all of the HRTC requirements are otherwise met.
2. Generally, the qualifying expenditures incurred for common areas are allocated to strata unit owners based on the governing documents and/or special resolutions of the strata corporation.

Reasons: 2009 Federal budget statements; Section 118.04 of the ITA

XXXXXXXXXX 					2010-036242
						A. Mahendran
February 11, 2011 

Dear XXXXXXXXXX :

Re: Eligibility for the Home Renovation Tax Credit (HRTC)

We are responding to your correspondence, which we received on April 1, 2010, regarding the HRTC. In particular, you would like to confirm whether you are entitled to claim the HRTC on your share of the qualifying expenditures incurred by your strata corporation if you sold your housing unit during the HRTC eligibility period.

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 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 eligible home renovation expenditures 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.

Under section 118.04, expenditures qualify for the HRTC if they are directly attributable to a renovation or an alteration of an eligible dwelling, including land that forms part of the eligible dwelling, and if the renovation or alteration is of an enduring nature and is integral to the eligible dwelling. Such expenditures include the cost of labour and professional services, building materials, fixtures, equipment rentals, and permits.

In your letter, you have indicated that the strata council replaced a fence on its property in the spring of 2009 and paid for the expenditures from its contingency fund and special assessment levies. You are of the view that the strata council provided your share of the HRTC benefit to the purchaser of your strata unit who contributed nothing to the renovation project.

Pursuant to paragraph 118.04(2)(a), the HRTC can be claimed for qualifying expenditures incurred by the strata corporation to renovate a strata unit that is the individual's eligible dwelling as well as for the individual unit owner's share of qualifying expenditures for common areas. Accordingly, if renovations are made in a common area of a strata and the strata unit is an eligible dwelling, the strata unit owner is entitled to claim the HRTC on his or her share of the qualifying expenditures incurred by the strata corporation.

Pursuant to subparagraph 118.04(2)(a)(i), a qualifying expenditure of a strata corporation is determined as if the corporation were a natural person and the property of the strata corporation were an eligible dwelling of that natural person. Generally, a qualifying expenditure of a strata corporation refers to an outlay or expense that is made or incurred during the eligible period by the strata corporation, and that is directly attributable to a qualifying renovation by the strata corporation. Therefore, only the actual outlays and expenses incurred for perimeter fencing are eligible for the HRTC and not the special levies or the replacement fees charged by the strata corporation. Furthermore, we would like to emphasize that expenditures for perimeter fencing will qualify for the HRTC providing the contract for the work was not entered into by the strata corporation before January 28, 2009.

In accordance with the definitions provided under subsections 118.04(1) and (2), in order for a strata unit owner to qualify for the HRTC, the replacement of the fence must be a qualifying renovation and the related outlays and expenses must be qualifying expenditures for the purposes of the HRTC. A qualifying renovation by an individual, at any time, is defined to be a renovation of a property that is at that time an eligible dwelling of the individual. To be an eligible dwelling, a housing unit must be located in Canada, owned by an individual at that time of the renovation and ordinarily inhabited at any time during the eligible period 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. Therefore, any housing unit that an individual owns and uses personally, including a strata unit, qualifies for the HRTC.

In your letter, you have indicated that you sold your strata unit during the HRTC eligibility period and the closing date of the sale was XXXXXXXXXX , 2009. Prior to the closing date, the housing unit was owned and ordinarily inhabited by you (the seller) and on or after the closing date by the purchaser. Therefore, the housing unit is not considered to be an eligible dwelling of the purchaser prior to the closing date and of the seller afterwards. Pursuant to subsection 118.04(1) of the ITA, if the housing unit is not an eligible dwelling of an individual at that time of the renovation, the expenditure will not qualify for that individual. Furthermore, subsection 118.04(2) would not apply if an individual does not own a housing unit of the strata corporation at that time of the renovation by the strata corporation. Accordingly, in the case of change in ownership of a strata unit, the purchaser is not entitled to claim any expenditures incurred by the strata corporation while the seller was the owner of the strata unit. Similarly, the seller is not entitled to claim any expenditures incurred by the strata corporation while the purchaser was the owner of the unit.

Section 118.04 of the ITA does not prescribe how the individual unit owner's share of the qualifying expenditures incurred for common areas is determined. Generally, the qualifying expenditures incurred for common areas by the strata corporation are allocated to strata unit owners based on the governing documents of the strata corporation and/or special resolutions of the strata council. In this particular case, we are of the view that, if the strata corporation's governing documents adhere to section 109 of the British Columbia Strata Act, the expenditures incurred prior to the closing date should have been attributed to the seller and not to the purchaser.

To support a claim for an individual unit owner's share of the strata's qualifying expenditures, owners will need documentation from the strata council that identifies the amounts incurred for the renovation work. The documentation should clearly identify the individual unit owner's share of these expenditures, as well as the name of the contractor and, if applicable, the goods and services tax/harmonized sales tax registration number, a description of the work performed, and the dates when the work or services were performed. Generally, such documentation can be in the form of a letter from the strata council signed by an authorized individual and can include copies of agreements, invoices, or receipts.

Based on the foregoing provisions of the ITA, you are entitled to claim the HRTC on your share of the qualifying expenditures incurred by the strata council while you were the owner of the strata unit, providing all of the requirements of the HRTC are otherwise met.

We trust that the information provided is helpful.

Yours truly,

Steve Fron
Acting Manager
for Assistant Director
International and Trusts Division
Income Tax Rulings Directorate