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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Various HRTC issues related to several hypothetical fact situations.
Position: General comments.
Reasons: Legislative analysis.
XXXXXXXXXX
2010-035708
I. Landry, M. Fisc.
June 28, 2010
Dear Mr. XXXXXXXXXX ,
Subject: Home Renovation Tax Credit
This is in response to your email of February 10, 2010 in which you asked us, using hypothetical factual situations, various questions regarding the home renovation tax credit ("HRTC").
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
The situations you indicated in your email appear to be related to actual situations involving specific taxpayers. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves specific taxpayers and one or more transactions, you should provide all relevant facts and documentation to the appropriate Tax Services Office for their views. We are, however, prepared to provide the following general comments, which we hope you will find helpful.
In accordance with the legislation for the HRTC, an outlay or expense that is made or incurred, by the individual or by a qualifying relation in respect of the individual during the eligible period, that is directly attributable to a qualifying renovation by the individual and that is the cost of goods acquired or services received during the eligible period are generally qualifying expenditures for the HRTC (as defined in subsection 118.04(1)).
By virtue of subsection 118.04(1), qualifying renovation work is defined as a renovation or alteration of a property that is of an enduring nature and that is integral to the eligible dwelling.
By virtue of subsection 118.04(1), an eligible dwelling includes a housing unit located in Canada in respect of which the following conditions are satisfied. First, at the time of the qualifying renovation, the individual, or a trust under which the individual is a beneficiary, must own, whether jointly with another person or otherwise, at that time, the housing unit or a share of the capital stock of a co-operative housing corporation acquired for the sole purpose of acquiring the right to inhabit the housing unit owned by the corporation.
Second, the housing unit dwelling must be ordinarily inhabited at any time during the eligible period by the individual, by the individual’s spouse or common-law partner or former spouse or common-law partner or by a child of the individual.
For ease of reference, we have reproduced each of the questions submitted, commenting on them in turn.
Question 1
You asked us what the HRTC expenditure limit is for Mr. A and Ms. B who were in a common-law relationship for several years but who separated during the eligible period, in the following hypothetical situation:
(i) Mr. A and Ms. B had been common-law partners for years and were co-owners of a housing unit that qualifies as an eligible dwelling;
(ii) in March 2009, Mr. A incurred $7,000 of qualifying expenditures (as defined in subsection 118.04(1)). In May 2009, Ms. B incurred qualifying expenditures (as defined in subsection 118.04(1)) in the amount of $3,000. All of the renovations to this housing unit were made while they were still common-law partners;
(iii) on July 1, 2009, they separated and sold their home;
(iv) in July 2009, Ms. B purchased a new housing unit that qualifies as an eligible dwelling. In September 2009, less than 90 days after her separation, Ms. B incurred $6,000 in qualifying expenditures (as defined in subsection 118.04(1)). As a result, the renovations to the new housing unit were made while the individuals were still common-law partners.
Comments
In this hypothetical situation, the eligible expenses that Mr. A and Ms. B could claim for HRTC purposes would be limited to a maximum of $10,000 in total.
Common-law partners are no longer qualifying relations only if they live separate and apart due to a breakdown in their relationship for a period of at least 90 days. At the time of Ms. A's renovation work in September 2009, Mr. A and Ms. B were still qualifying relations because they had been living separate and apart for less than 90 days. Consequently, they could share the credit between them, but the total amount they could claim could not exceed the maximum eligible amount that only one of them could claim.
Question 2
You asked us when a person must be the owner of a housing unit, or a qualifying relation of the owner, in order for expenses that the person incurred for renovations to the housing unit to be a qualifying expenditure under the HRTC.
Comment
In order for expenses incurred by an individual to be qualifying expenditures for the HRTC, the individual or a qualifying relation must, among other things, own the housing unit at the time the renovation is carried out.
Question 3
You asked us what the HRTC expenditure limit is for co-owners of a unit, Mr. A and Ms. B, in the following hypothetical situation where they were not common-law partners at the time the HRTC qualifying expenses were incurred, but became common-law partners during the eligible period:
(i) in July 2008, Mr. A and Ms. B purchased a residential condominium unit that qualified as an eligible dwelling. At that time, they were not common-law partners or spouses;
(ii) in April 2009, Mr. A incurred qualifying expenditures (as defined in subsection 118.04(1)) totalling $6,000 for which the renovations were completed in April 2009;
(iii) in May 2009, Ms. B incurred qualifying expenditures (as defined in subsection 118.04(1)) totalling $7,000 for which the renovations were completed in May 2009.
Comment
In this situation, the qualifying expenditures that Mr. A and Ms. B could claim under the HRTC would be limited to a maximum total of $10,000.
To be a qualifying expenditure (as defined in subsection 118.04(1)), the expenditure must have been made by the individual or, in particular, by a person who became the individual's common-law partner in the eligible period. Since Mr. A and Ms. B became common-law partners in the eligible period, and assuming that the expenses in this situation are otherwise qualifying expenditures within the meaning of subsection 118.04(1), the expenses incurred by Ms. B will therefore be qualifying expenditures for Mr. A and the expenses incurred by Mr. A will be qualifying expenditures for Ms. B.
By virtue of subsection 118.04(5), if more than one individual is entitled to the deduction in respect of a qualifying expenditure, the total of all amounts deductible in respect of that expenditure cannot exceed the maximum amount that any one of those individuals could deduct, which is $10,000.
Question 4
You asked us what is the limit on HRTC qualifying expenditures for two spouses who are living separate and apart because of a breakdown of their relationship without a divorce judgment.
Comment
For the purposes of the Act, two spouses who are living separate and apart due to a breakdown of their relationship without a divorce judgment having been granted are still considered to be spouses. However, under an administrative position applicable only for HRTC purposes, we apply the rules that apply to common-law partners who are separated because of a breakdown of their relationship to spouses who are separated because of a breakdown of their relationship without a divorce judgment. For example, we consider two spouses who have been living separate and apart for more than 90 days because of a breakdown of their relationship without a divorce judgment to no longer be qualifying relations within the meaning of subsection 118.04(1). Consequently, they will both be entitled to claim the credit in respect of their qualifying expenditures up to a maximum of $10,000 each.
Question 5
You asked us whether an individual can claim the HRTC in a situation where the individual acquired the home during the eligible period, incurred qualifying expenditures (as defined in subsection 118.04(1)) and renovations during the eligible period, but moved into the home:
(a) in December 2009.
Comment
To be an eligible dwelling, the individual or a qualifying relation of the individual must, among other things, be the owner of the housing unit at the time of renovation and have ordinarily occupied the housing unit during the eligible period. Where an individual acquires a unit that is habitable during the eligible period but moves into the unit later in the eligible period, for example, in December 2009, the unit will have been ordinarily occupied during the eligible period. Consequently, expenses incurred in such a situation will generally be eligible for the HRTC provided all other conditions are otherwise satisfied.
(b) March 2010.
Comment
If the move occurs after the eligible period, in this example in March 2010, the unit will not be an eligible dwelling of the individual or a qualifying relation of the individual since it will not have been ordinarily occupied during the eligible period. As a result, the individual's expenses will not be eligible for the HRTC in a similar situation.
Question 6
You asked whether qualifying expenditures incurred by an individual may qualify for the HRTC if a portion of those expenses has been reimbursed by an insurance company.
Comment
Where renovation work is covered by an insurance policy, then it is a question of fact and law as to which, of the individual and the insurance company, incurred or made the qualifying expenditures related to the qualifying renovation work.
For purposes of the HRTC, it is generally our view that it is the individual, and not the insurance company, who has incurred or made qualifying expenditures as defined in the HRTC in a situation where, among other things, the individual has contracted directly with the contractor, is personally liable for the payment of expenses relating to qualifying renovations, and has ultimately paid for the renovations himself or herself.
In such a situation, and provided that all other conditions are otherwise satisfied, including that the expenditure is a qualifying expenditure within the meaning of the HRTC, all expenditures incurred by the individual will be eligible for the HRTC.
Question 7
You asked us whether expenses otherwise eligible for the HRTC remain qualifying expenditures for HRTC purposes if they also qualify for a partial refund of the goods and services tax and Quebec sales tax paid.
Comment
We are generally of the view that this rebate does not reduce the amount of qualifying expenditures for the HRTC.
Best regards,
Randy Hewlett
Manager
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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