If Reno’s on Your Mind, The GVT Can Be Kind

What is it? = HOME RENOVATION TAX CREDIT

The Home Renovation Tax Credit (HRTC) is a non-refundable tax credit on eligible expenses for improvements to your house, condo or cottage. It can be claimed on your 2009 income tax return and it`s for eligible purchases made after January 27, 2009, and before February 1, 2010.  A maximum amount of eligible expenditures you can claim is  $10,000 per family.

What does non-refundable tax credit mean?

A non-refundable tax credit, like the HRTC, reduces your federal income tax. If the total of all your non-refundable tax credits is more than your federal income tax, a refund will not be given for the difference.

What`s an eligible purchase?

Eligible purchases are those incurred for renovations/alterations to an eligible dwelling (which is usually your principal residence or land of principal residence) and are permanent in nature.

As a general rule, if an expense for the house will not be a permanent part of your home or property, it’s not eligible.

Obviously, there are some small exceptions  to this rule which we’ll talk about below.

And as a strict rule, if the expenses are not in writing (invoice or contract) you can forget about it`s eligibility. The CRA (Canada Revenue Agency) is pretty severe on this point.

Examples of eligible expenses

• Renovating a kitchen, bathroom, or basement
• Windows and doors
• New carpet or hardwood floors
• New furnace, woodstove, fireplace, water softener, water heater, or oil tank
• Permanent Home ventilation systems
• Central air conditioner
• Septic systems
• Electrical wiring in the home
• Home Security System (monthly fees do not qualify)
• Painting the interior or exterior of a house
• Building an addition, garage, deck, garden/storage shed, or fence
• Re-shingling a roof
• A new driveway or resurfacing a driveway
• Permanent swimming pools (in ground and above ground), hot tub and installation costs/ Pool liners
• Solar heaters and heat pumps for pools (does not include solar blankets)
• Landscaping: new sod, perennial shrubs and flowers, trees…
• Associated costs such as installation, permits, professional services, equipment rentals, and incidental expenses
• Fixtures – blinds, shades, shutters, lights, ceiling fans, etc.

Examples of ineligible expenses… SORRRYYY!

• Furniture, appliances, and audio and visual electronics, tools
• Carpet/house/pool cleaning
• Maintenance contracts (i.e. furnace cleaning/snow removal/lawn care)
• Financing costs

Other useful info about the eligible expenses:

• Work performed by electricians, plumbers, carpenters, architects qualifies as long as it`s in writing (invoice or contract)
• If a family member is hired for renovations the expense can ONLY be eligible if that person is registered GST/PST.

How to calculate your HRTC?

Basically you can only claim the HRTC if your eligible expenses are more than $1 000, but there`s a cap of $10 000. So that maximum you could possibly get in HRTC is as follows ….don`t worry it`s not that complicated:

=($10 000 − $1 000) × 15% = 1 350$ maximum HRTC (I MEAN IT`S SOMETHING !)

Here`s a cool comprehensive simulation:

Joe & Annie just got married and bought a condo. They plan to renovate it this  summer. They expect these expenses for the reno which will take place from September to November 2009:

• New windows: $3,000
• Labour – installation of windows (no invoice) :$1,500
• Carpet cleaning: $200
• Buying tools: $500
• New roof: $3,500
• Interior painting: $500
• New toilet and tub: $600
• New deck: $1,000

To save money, they will do most of the home renovations themselves. Joe’s friend Rob will install the windows for them for $1,500 cash, BUT he won`t give an invoice (duhhhh).

The $200 expense for carpet cleaning and the $500 expense for tools are NOT eligible for the HRTC. And the $1 500 in window installation is NOT eligible either because it`s not in writing.

Basically, this is how they would calculate their HRTC:

Eligible expenses	Amount
New windows	$3,000
New roof	$3,500
Interior painting	$500
New toilet and tub	$600
New deck	$1,000
Total eligible expenses(TEE)	$8,600
Maximum eligible expenses (lesser of TEE or $10,000)	$8,600
Base amount	- $1,000
Maximum allowable home renovation expenses	$7,600

Either Joe or Annie can claim the total home renovation expenses of $7,600 or they can split these expenses between them as long as the total amount claimed is not greater than $7,600. Their maximum HRTC is $1,140 ($7,600 x 15%).

Why is this suddenly only available this year?

Well the CRA wants to get the economy rolling by encouraging investments in Canada’s housing, giving employment to trades people and increasing sales of building products. And because claiming an HRTC implies getting things in writing, the CRA is also cracking on the renovation black-market by creating a disincentive to chose the “Cheaper for cash” option.

So if you were thinking about renovating… TRY TO DO IT NOW! This tax credit is only temporary (i.e. only for 2009 so far) so help stir up our economy.

Reference: http://www.cra-arc.gc.ca/hrtc

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