By Troy Peart B.B.A., CFP,CFA
Ever since the beginning of the global economic crisis, governments from around the world have been trying to help their respective economies spend their way back to health. The theory behind this reasoning is that increased spending will jump start the economy to a more normal state instead of one typified by job losses and reduced production which then causes more job losses. Unfortunately, many of the initiatives designed to advance this process have yet to take affect despite being most needed now. One exception to this general trend is the Home Renovation Tax Credit (HRTC).
As the name suggests, the HRTC is a tax credit for undergoing home renovations. Despite widespread advertising and media coverage of the HRTC since its introduction in January, a recently conducted survey suggests that 80% of Canadians admit to knowing very little about this program. If accurate, this would be quite unfortunate as many opportunities to take advantage of this benefit would inevitably be squandered.
In a nutshell, the HRTC can save a family unit up to $1,350 in taxes on their 2009 income tax return. The amount of this benefit is calculated as 15% of eligible expenditures above $1,000 and below $10,000. Eligible expenditures include labour and material costs for “renovations and alterations of an enduring nature that are integral to the eligible dwelling”. Examples of qualifying expenditures are: renovations, windows, doors, flooring, a furnace, fixtures, swimming pools or even costs associated with permits, equipment rentals and incidental expenses. Non-eligible expenses include: furniture, routine repairs done on an annual or more frequent basis, cleaning and financing costs. Unfortunately, 52 inch big screen TVs are on the non eligible expense list.
Since this is a federal government initiative designed to encourage immediate spending, the program is only in affect from January 27th 2009 until January 31st 2010. Although supporting documentation (like invoices) are not required to be submitted with one’s tax return, the Canada Revenue Agency does require that one ensure this information is available should it be requested.
The Home Renovation Tax Credit can be an effective way to reduce one’s taxes by doing activities they might have done anyway. Consider consulting professional advice to ensure that this and other opportunities like the ecoEnergy Program are maximized. I have yet to hear of the Canada Revenue Agency recommending that a tax filer take advantage of a tax saving opportunity that the they either forgot or were unaware of.