It could be argued that we are in an economic crisis because we spent too much, saved too little and binged on credit. It is ironical, therefore, that the biggest tax measure in Budget 2009 would be a tax credit that encourages Canadians to spend even more. Leaving aside the larger question of how putting extra money in our pockets for replacing a roof or furnace that we would be replacing anyway, calling it “stimulus spending” and financing it by going into deficit makes much economic sense, let’s look at the big questions people have about the new Home Renovation Tax Credit (HRTC):
How much are we talking about anyway?
The HRTC is a non-refundable tax credit that could provide up to $1,350 in tax relief. The 15% credit applies on all eligible spending exceeding $1,000 but not more than $10,000. For example, if you have $3,000 in eligible spending, you’ll qualify for a tax credit of ($3,000 – $1,000) x 15% = $300. Remember that the tax credit is family-based. If both you and your spouse are working, either of you (but not both) can claim the credit in your 2009 tax return.
I replaced our furnace in December, 2008. Would the spending qualify for the HRTC?
No. The HRTC is a temporary tax credit and eligible expenses should be incurred after January 27, 2009 and before February, 1, 2010. The budget document also says stipulates that the expenses should be under agreements entered into after January 27, 2009.
What qualifies as “eligible” spending?
Budget 2009 states that “renovations and alterations to a dwelling or the land on which it sits that are enduring in nature” qualify as eligible spending for the HRTC. The renovations could be done on a home, cottage or condominium. The budget document says the following qualify as eligible spending: Renovating a kitchen, basement or bathroom; installing new carpets or hardwood floors; building a, addition, deck, fence or retaining wall; a new furnace or water heater; painting the interior or exterior of a house; resurfacing a driveway; laying new sod; etc.
I’d like to replace our kitchen appliances. Does it qualify for the HRTC?
No. Purchase of appliances, furniture, electronics and tools does not qualify for the credit. Routine maintenance such as carpet cleaning, furnace tune-up, snow removal, lawn care and pool cleaning does not qualify.
While it makes sense take advantage of the credit for home improvements that you were thinking of making anyway, it may not make much sense to incur additional expenses just to get 15% back. Also, it is possible that the HRTC becomes too popular and contractors jack up their prices in light of heavy demand. So, you might want to get quotes for home improvement jobs now when most people don’t seem to be aware of a new temporary tax credit.
A further concern is that you need receipts to claim the tax credit. With many contractors working on a cash basis, it is possible that the tax credit would be reduced by a higher renovation bill. Still, this year you may want to keep every Home Depot and Rona receipt in a separate file so that claiming the credit becomes easier at tax time. The relevant portion of the budget that deals with the HRTC can be found here.