[Article curtsey of James Davidson, LLB, FCCI, Nelligan O’Brien Payne LLP, Condominium Law Group. Thanks Jim!]

The Home Renovation Tax Credit
What does it mean for Condominiums?

February 2009

The Federal Government’s 2009 Budget contained various items intended to stimulate the sunken economy.  One of those items was the new Home Renovation Tax Credit (HRTC).

The Tax Credit

The HRTC is a non-refundable income tax credit available to families for certain types of renovations to the principal residence of one of the members of the family.

Applies to Homes

So, the tax credit is essentially available to homeowners (and their families) for renovations to their homes.  The credit does not apply to business renovations or to renovations in respect of residential tenancies. 

What about Condominiums?

The credit can of course apply to unit renovations (if the unit is a principal residence and all other requirements are met).  But what about common element renovations?

The website of the Canada Revenue Agency (CRA) states as follows:

“In the case of condominiums and co-operative housing corporations, the individuals share of the cost of eligible expenditures for common areas will qualify.”

So, if a condominium corporation carries out a qualifying renovation during the applicable period, and if any of the units in the condominium are principal residences, then the credit can apply to the owner’s share of the cost (in the case of those qualifying residences).

Note 1:  There is no requirement that there be a special assessment.  The individual’s share is of course determined by taking the condominium corporation’s cost and then applying the percentage contribution for the particular unit (found in the condominium declaration).

Note 2:  If only part of a unit is used as a principal residence, CRA says that the expense must be divided between the “personal use and income-earning use”.

For condominiums containing any residential units, the bottom line is as follows:

• There may be an added reason to perform qualifying renovations between now and February 1, 2010, namely:  Some of your owners may be entitled to receive income tax credits for 2009.

• My reading of the CRA website is as follows:  Most reserve fund expenditures will qualify.   Most improvements will also qualify.  Maintenance that repeats annually generally will not qualify.

• For each qualifying renovation performed, I recommend that the condominium corporation prepare a separate statement of all costs incurred by the condominium corporation in relation to that renovation (see below); and provide that statement (along with a copy of the Schedule of percentage contributions contained in the Declaration) to all owners, as early as possible in 2010.  [Preferably, these packages should be distributed in February or March 2010, so that owners can meet the April 30 tax reporting deadline for the previous year.]

 [Note:  The condominium corporation will need to consider, in each case, if these procedures are economically worth taking.]

• Each owner will then do what he or she needs to do to claim the credit with the 2009 tax return. 

Details

Here is additional detail provided by Canada Revenue Agency (on its website):

How will the credit be calculated?

The credit will only be available for the 2009 tax year and applies to eligible expenditures of more than $1,000, but not more than $10,000, resulting in a maximum credit of $1,350 ($9,000 x 15%).
 
Remember, in the case of a condominium, these numbers apply to the owner’s share.

What is the eligibility period?

The credit will be based on eligible expenditures for work performed or goods acquired after January 27, 2009, and before February 1, 2010. Expenditures incurred pursuant to an agreement that was entered into before January 28, 2009, will not be eligible for the credit.

What are eligible expenditures?

To be eligible, expenditures incurred in relation to a renovation or alteration to an eligible dwelling (or the land that forms part of the eligible dwelling) must be of an enduring nature and integral to the dwelling, and includes the cost of labour and professional services, building materials, fixtures, rentals, and permits.
Eligible expenditures must be supported by acceptable documentation.

What does the CRA consider to be acceptable documentation?

Documentation, such as agreements, invoices, and receipts, must clearly identify the type and quantity of goods purchased or services provided, including, but not limited to, the following information:

• information that clearly identifies the vendor/contractor, their business address and, if applicable, the GST/HST registration number;
• a description of the goods and the date when the goods were purchased;
• the date the goods were delivered (keep your delivery slip as proof) and/or when the work or services were performed;
• a description of the work (including the address of where the work was performed);
• the amount of the invoice; and
• proof of payment.

NOTE:  However, the CRA website also includes the following question and answer:

“Do I have to submit any supporting documents with my income tax return?

No.    However, you must ensure that this information is available, should it be requested by the CRA.”

Therefore, I believe that you will just need to give the owners a fairly simple statement (prepared by the condominium corporation), setting out:

• A full description of the work performed;
• The amount spent on the work by the condominium corporation during the eligibility period;
• The name and address of the contractor and/or consultant involved in the work (and their GST number).

And, again, you would also give the owners the Schedule of contributions (in the Declaration), so that each owner can figure out his or her share of the cost.
So, Im thinking that you dont necessarily have to send out (to the owners) the more detailed documentation (required by CRA) mentioned above.  As long as the condominium corporation has that other documentation (contracts, invoices, receipts) properly organized and set aside for each project, then if CRA asks any owner for more documentation, you would be able to easily provide it to the owner.

Could you provide me with some examples of eligible and ineligible expenditures? 

Yes, some examples are:

What types of expenditures will not qualify?

The following expenditures will not be eligible for the HRTC:

• the cost of routine repairs and maintenance normally performed on an annual or more frequent basis;
• expenditures that are not integral to the dwelling, and other indirect expenditures that retain a value independent of the renovation;
• expenditures for appliances and audio-visual electronics; and
• financing costs.

For more information respecting their particular situations, condominium owners or corporations can consult the CRA website at www.cra-arc.gc.ca and search under “Home Renovation Tax Credit”.

James Davidson, LLB, FCCI
Nelligan O’Brien Payne LLP
Condominium Law Group