The Home Renovation Tax Credit
You have to admire the confidence of the Bank of Nova Scotia for their optimistic tag line “You are richer than you think,” which in less optimistic terms could be translated into “You have lots of equity in your home so come on down and we will lend you money for any type of crap that you may desire.” It will be interesting to see how long the Bank of Nova Scotia will hold onto that tagline in a recession and if the naysayers will be right about an over abundance of Canadian debt, after all, in hard economic times “You are richer than you think,” can easily turn into “you are stupider than you think.”
But still the housing market defies expectations and Mark Carney at the Bank of Canada recently said that he will not increase interest rates to correct the overheating housing market and that he’d prefer to leave safeguards up to the Minister of Finance. We can translate this one into “If someone is going to burst a housing bubble it sure is hell isn’t going to be me.”
Whatever your position on the looming housing market one thing is for sure in Vancouver: it is an expensive city for working folk to own and maintain a home. In order to pass on a little relief and in an effort to help jumpstart the economy the feds introduced the Home Renovation Tax Credit (HRTC) which will apply to your 2009 taxes. What is important to know is that you still have until the end of the month to utilize this tax credit.
In this post I will explain the basics of the Home Renovation Tax Credit and show you how to best use it without driving up your accounting bill.
What is the Home Renovation HRTC?
The HRTC is a 15% non-refundable tax credit that will apply to eligible expenses that you incur to renovate your principal residence. You can claim up to $10,000 in expenses but the credit does not apply to the first $1,000. This means that you need to spend a $1,000 before you see any benefit and from there the credit will apply up to $9,000 of additional expenses for a potential credit of $1,350. The term “non-refundable” simply means that the credit will not apply to someone who has not paid any tax.
This credit is also a family credit which means that collectively a family will be able to save $1,350. For instance, a husband and wife who have spent $20,000 can still only claim $10,000 for the $1,350 credit. If you have a rental suite in your house you cannot claim the credit for work done on the suite (but of course you can use these expenses to offset rental income.) With house prices rising it is not uncommon for renters to renovate their own rental units but unfortunately you must own the home being renovated. For those of you living in Co-ops you can claim the credit on renovations to your unit and/or to a portion of work done on common areas (you should be informed in writing what your share of the costs are.)
What Costs Can I Claim?
The HRTC covers improvements to your home but not regular maintenance or items such as appliances. As an example sweeping your chimney would not be covered but fixing the mortar on your chimney would be. Buying a flat screen TV won’t work.
You can hire a contractor for renovations or you can do it yourself and claim the materials. In claiming the materials remember that the supplies are covered but the tools are not. If you are painting your house you can cover the costs of incidentals such as brushes and such but you can’t buy yourself a $500 band saw to cut a piece of wood to fix a door frame. You can claim the expense for permits and also for equipment rentals.
If you are hiring a contractor to renovate your home then you can only claim the portion of the work that has been completed by the deadline. However, you can claim the cost of any materials that you have purchased provided that you do so before February 1st. So if you were planning on painting your house this summer then you could buy the paint now, leave it in your garage and still claim the cost of the paint in 2009.
How to Reduce My Accounting Bill for the HRTC?
When a generous tax credit like the HRTC comes out politicians like to emphasis their generosity. The HRTC is a substantial tax credit that home owners should utilize but within the workings of Canada Revenue Agency there is more to the story. CRA is always looking for ways to clamp down on the underground economy and the HRTC is a tool for them to find out who in Canada is doing home renovations and which of them are paying income tax and GST. For this reason CRA are going to want to see your receipts so that they can track the activities of the people who renovated your home. Because of this your accountant is expecting a call from CRA to go over your HRTC receipts and your accountant will most likely bill you right up front for this expected inconvenience.
On top of that your accountant is also expecting most of you to bring in a disorganized bag of receipts that will include eligible expenses along with everything else you thought might help. In fact extra receipts don’t help and you will most likely have to pay to have an accountant sort through them. A person who is looking for a $1,350 credit with a bag of disorganized receipts could expect to increase their accounting fee by a substantial amount.
To keep your accounting bill down, keep eligible expenses separated from ineligible expenses. If you are buying paint at Home Depot and you grab a pack of gum and a few magazines at the checkout then have the cashier put them on a separate receipt. You don’t want an accountant to have to pull out a calculator to adjust every receipt you bring in. You may even tabulate all your receipts and if you are really ambitious download and fill out the HRTC form and take that to your accountant.
Many accountants will have a set fee for just filling in this form and it will be based on the assumption that you are disorganized and that CRA will be contacting them for receipts. If you arrive well organized then don’t be shy about telling your accountant how well prepared you are and that you would appreciate him not overcharging for the HRTC form. If you are comfortable dealing with CRA you may even ask your accountant to give you your receipts back with your return and tell them to ask CRA to contact you directly if they need to see them. You may have to mail them to CRA later but a postage stamp is cheaper than an accounting bill and remember when it comes to tax you are smarter than you think.
Brad Cran is the Poet Laureate of the City of Vancouver and in his spare time he works as a tax accountant at Cran and Co. on Kingsway. This is the first in a series of articles that will explain tax tips in an attempt to help you save money. He can be reached for tax services at firstname.lastname@example.org or at (604)872-7263.