Confused about the reno tax credit?

As Mr. Speedy and I slog through our renovation work, I know that I've been keeping the Home Renovation Tax Credit in mind as a small consolation for the mounting bills. But when I'm asked specific questions about what qualifies, or how it works, I'm often found scrambling for my notes.

And, apparently, I'm not the only one. More than 80 per cent of Canadian homeowners say they know little to nothing about the HRTC, according to a recent poll by Angus Reid Strategies for H&R Block Canada. Conducted at the beginning of this month, the survey received answers from 1,398 randomly selected Canadian homeowners.

I think it's a real shame that we're so confused. After all, the HRTC, announced in the 2009 Federal Budget, could result in tax savings up to $1,350 for work done before Feb. 1, 2010 (a deadline 98 per cent of those polled were not aware of).

To qualify, a family must spend at least $1,000 on home renovations, up to a maximum of $10,000, on work performed or goods purchased for an owned, personal dwelling. But that's not all — the work must also be of an "enduring nature" and "integral to the dwelling." So, for example, replacing a few boards on your deck won't qualify, but renovating the whole thing would. Installing a new furnace, renovating a kitchen or bathroom, laying new floors, re-shingling a roof and painting also count. (Read more about the HRTC here.)

And, to help clear up the confusion, here are a few more pointers from H&R Block to make sure you get your money back:

- Keep your receipts and invoices
- All renovation expenses must be incurred after Jan. 27, 2009 and before Feb. 1, 2010
- You must claim a minimum of $1,000 up to a maximum of $10,000 (results in a maximum credit of $1,350 credit).

UPDATE: Much thanks to Ryan Keey for answering reader's queries in the comment section - you can check out his HRTC guide book here.

Comments

[jamie macLean]

A big point has been missed about the "credit" and should be better publicized. As I understand it It is a credit - not a deduction. Therefore the actual money recovered is not $1350 but more likely $200-300 - more if you are in a higher tax bracket. No one seems to talk about this.
I hope I am wrong but a lot of people might be surprised when they don't get that big windfall coming back

[Andrew]

I just checked again, and yes, you do indeed save up to $1,350 in tax!

Check out:

http://www.budget.gc.ca/2009/pamphlet-depliant/pamphlet-depliant3-eng.asp

Andrew

[B.A. Carlyle]

As someone who has prepared income tax returns for the last 40 yrs., I agree 100% with Jamie. It's a credit not a deduction. From what I've heard, you enter your renovation expense under the Non-refundable tax credit portion of the income tax form. so you add up your personal income credit (usually around $10,000., Canada Pension deductions, UIC deductions, pension credits, tuition fees, etc., etc. total them up & multiply the total x 15% = your non-refundable tax credit which is deducted from the amount of federal tax (or provincial tax) you are required to pay. Maybe the government hasn't given us the full details. hopefully more info to come.

[Will]

B.A.Carlyle you better go back to income tax school. A credit is an actual cash value amount taken off of your total taxes payable. This is a credit just like the sales tax credit and other credits one might have.

[canadian not american]

Why is everyone ignoring the fact that the reno tax credit has NOT YET BEEN APPROVED BY PARLIAMENT - as in the Haper gov't has not yet passed it as law, as in you might get NOTHING back and will have spent over $1000 in renovations during a recession. To keep advertising the credit like it is guaranteed is irresponsible and misleading. I would ATLEAST expect journalists to be aware of this and note it to their readers.

[Jennifer Wilson-Speedy]

"Canadian not American" is correct: The bill (C-51) is still in committee, and is expected to be voted on in December.

[Kate Copeland]

I'm just curious....I've bought a condo but the closing date isn't until May2010. If I purchase things for this new condo such as blinds and paint will they count towards the credit as long as all other criteria and deadlines are met? Or do I have to be living in the condo at the time to enjoy this benefit?

[Richard Sanders]

2008 (before the HRTC); Decided to install hardwood flooring but discovered damp sub-floor due to leaking roof shingles & so had to re-shingle the roof first. Would have been really nice to claim this as a tax credit as together they would have max'd-out the $10G limit!
2009 (HRTC now effective); Found tiled floor in kitchen is breaking up, but as I was layed-off in April 2009 there's no money for this repair which, while also coming close to $10G, will have to wait until MY economic situation recovers.
Thanks to Murphy's Law I cannot claim for any of these costs.

[Ryan Keey]

I am a Chartered Accountant and have written a $10 book on the HRTC; available at Chapters and Carswell.com (the Home Renovations Tax Credit Handbook). The book includes a table that list over 100 eligible and ineligible expenses (I consolidated Canada Revenue Agency technical interpretations available to tax publishers; I work for Thomson Reuters as a senior tax writer). Attached is a timely excerpt from my book:

Eligible expenses for goods acquired after January 27, 2009 and before February 1, 2010 qualify even if they are installed after January 31, 2010. However, if an expense involves work
performed by a contractor or a third party, and the work is not completed before February 1, 2010, technically, only the portion of the work that is completed before February 1, 2010 will
qualify even if a payment has been made before February 1, 2010. Eligible expenses for materials acquired after January 27, 2009 and before February 1, 2010 qualify even if they are installed
after January 31, 2010.

Frequently Asked Questions

Do I have to own my home to claim the credit? Yes

Can I claim the credit if I own my home jointly with my spouse or with another person? Yes

Can I claim the HRTC on my U.S. vacation property? No

Can I claim the HRTC on my condo? Yes

Can I claim the HRTC on my family cottage? Generally yes; more details will be provided in this Guide.

Can I claim the HRTC on my rental properties? No

What if my principal residence is used in part to earn business or property income? Expenditures incurred in respect of the personal-use areas of the residence qualify for the HRTC.

What expenses qualify? Home renovation costs qualify. Eligible expenditures include the cost of labour (but not your labour or the labour of related persons who are not registered for GST purposes), building materials, fixtures, equipment rentals, and permits

How do I know what qualifies? See the HRTC Quick Reference Table contained within. The Guide lists over 100 common expenses in alphabetical order and indicates whether they qualify

What if I do the work myself? The cost of your labour does not qualify; however, the cost of materials used in an eligible renovation project qualify

What if I hire a relative to do the work? Any amount you pay the relative will not qualify unless the relative is registered for GST purposes (i.e., unless they have a GST number and charge you GST, which would generally only be the case if they were a professional contractor)

What is the rate of the credit? The credit is equal to 15% of each dollar you spend over $1,000 on eligible expenses

What is the maximum HRTC? $1,350

How much do I have to spend to earn the maximum credit? $10,000

How much do I have to spend to earn any credit? You must spend at least $1,000

Can both my spouse and I claim the maximum credit? No

What is the maximum HRTC my family can claim? $1,350

Who is included in my "family" for this purpose? You, your spouse or common-law partner and your children who were, throughout 2009, under the age of 18

Can I carryforward any unused portion of the credit and use in 2010 or a subsequent year? No

Is the credit phased-out for high-income individuals? No

Will any other tax credits or grants to which I am entitled under other government programs be affected by claiming the HRTC?No.

You can claim the HRTC and another government credit in respect of the same expense (for example, you could claim an energy grant (for example, under the ecoENERGY grant program) or medical expense credit and the HRTC in respect of the same expense)

[Andrea Allen]

My husband and I are seniors with only our pensions as income, so we should not be paying any taxes this year. Presumably, this means we are not eligible for this tax credit even though we will be spending over $1000 on paint and renovations within the allotted time. Am I right? Hopefully someone will tell me we will be eligible, as this is a huge expense for us on a fixed income.

All responses will be welcomed.

[Jennifer Wilson-Speedy]

Hi Andrea,
I'm afraid I can't seem to find a clear answer for your question - I'd recommend calling the government hotline at 1-877-959-1-CRA (1-877-959-1272).
Best of luck!

[Ryan Keey]

I am a chartered accountant. In response to "My husband and I are seniors with only our pensions as income, so we should not be paying any taxes this year. Presumably, this means we are not eligible for this tax credit even though we will be spending over $1000 on paint and renovations within the allotted time. Am I right?."

Yes, you are right. The credit is a non-refundable tax credit, which basically means that it can be applied to offset taxes otherwise payable only. To the extent that the credit cannot be used to offset taxes otherwise payable, the difference is not refundable, cannot be carried-forward, and is basically of no use.

[Buck]

If I spent $1200, how much will I get back???

[Ryan Keey]

Spending $1,200 entitles you to a non-refundable tax credit of $30. The first $1,000 of spending entitles you to no credit; there is a $1,000 threshold which much be exceeded before any credit is earned. If you otherwise owe taxes, the $30 will either increase your tax refund or decrease the amount of taxes you owe for the 2009 year by $30. If you did not earn enough income in 2009 to owe taxes, you will receive no credit.

[Jennifer Wilson-Speedy]

Thanks for your help Ryan Keey!

[Leesha]

Ok, I am hoping someone can help me...
I am lost in this whole thing so here it all is.
We have spent the maximum of $10,000 in the timeframe allowed for the HRTC. I know it depends on our income ect. but I am wondering if we will get anything back? My husband usually breaks even or has to pay $50-100 at tax time and I usually get $150ish back.
Please Help :)

[Jennifer Wilson-Speedy]

For Leesha - I asked Ryan Keey (who's posted above) to help answer your question - here's his explanation:

If the total of your non-refundable tax credits is more than the amount of federal income tax you owe for the 2009 taxation year, you will not receive a refund for the unused portion of your HRTC. Typically, a person under the age of 65 would need to earn at least $21,364 in the 2009 taxation year to realize the full value of the maximum credit available ($10,000 HRTC expenditure limit + basic personal credit amount ($10,320) + Canada employment credit amount ($1,044)). Typically, a person over the age of 65 would need to earn at least $28,728 in the 2009 taxation year to realize the full value of the maximum credit available ($10,000 expenditure limit + basic personal credit amount ($10,320) + age credit amount ($6,408) + pension credit amount ($2,000)).

The amount someone typically receives as a refund in a taxation year is not relevant. What is relevant is how much tax is withheld from a person during the year and how much they earn. A tax refund represents a repayment from the government of taxes already withheld from a person. In the typical case, a person earns employment income in the year and each pay cheque has taxes withheld. Theoretically, taxes withheld during the year should equal taxes owed at the end of the year. Where a person has an HRTC, basically, the HRTC will not have been recognized in taxes withheld during the year and the amount of taxes withheld with therefore too high; in such a case, a refund is received in respect of the excess tax withholdings.

Example

Earnings in Year $30,000
Tax withheld $ 5,000
Take home pay $25,000

File tax return and recognized HRTC

Taxes withheld $5,000
Taxes owed ($5,000)
Less HRTC $1,350
Refund due $1,350

Without the HRTC, the refund due would have been nil

[E.R.Neal]

Hi. We have carried kitchen renovations and which included the first time installation of a built in dishwasher. My question is whether or not the dishwasher, once built in , permanetly connected to power, water and drainage, can then be considered a "fixture" [and therefore qualify for the credit]as opposed to an appliance? Appliances like stoves, friges, etc can be moved by simply unplugging them whereas a built in dishwasher is considered, in real estate dealing, as part of the real property.
I asked the government this question and if their response they do not deal with my question at all.
Thank you

[Ryan Keey]

As I noted in my book, the Canada Revenue Agency has specifically stated that a dishwasher does not qualify (CRA Views Doc 2009-0311701M4; your accountant would have access to this document). Note, however, that kitchen renovations do qualify.

[ROBERT WATSON]

There was a GST credit on renos up to $400,000.00 on principal res. only. Credit was about 46% of the GST monies.
Is that still available?

[Ryan Keey]

The rebate applies to new homebuyers. The rebate is 36% of the GST paid. The maximum rebate available is $7,560 under 6% GST and $6,300 under 5% GST. The rebate is phased-out for homes priced between $350,000 and $450,000. No rebate is available for homes priced at $450,000 and above. Effective January 1, 2008 the rate of GST is 5% and the rate of HST is 13%. From July 1, 2006 to December 31, 2007 the rate of the GST was 6% and the rate of the HST was 14%.

see http://www.cra-arc.gc.ca/E/pub/gp/rc4028/rc4028-09e.pdf

[Ermin]

Hi.I have a question about the HRTC. I know how it is supposed to work and how they calculate it. I have 9 224.39 total spent on reno in 2009 and yesterday i did my tax and there is no change on my refund with the HRTC entered and with out it. Why is that ? Basically what i mean is i filled my tax return with out the HRTC and my Refund was 100 $.I filled it out again adding the 9 224.39 HRTC and my refund is still 100 $.can some one explain it to me why and what ?
Thank you

[Ryan Keey]

The tax credit is non-refundable. That basically means if you don't need the credit to reduce taxes otherwise payable, the credit is of no value to you and you will not receive and increased refund as a result of claiming the HRTC. This would be the case, for example, if you did not earn much income in 2009. If you paid tax in 2009 and are not receiving an increased refund, something is likely wrong with how you are completing your return

[Harle]

Where do you fill this information out on the T1? I am not seeing any lines relating to the reno. tax credit.

[Confused]

Is the amount you enter the pretax amount on your receipt or the post tax amount on your receipt?