As you are aware, in December 2009, the Federal Government introduced a Home Renovation Tax Credit (“HRTC”) that can be claimed by an individual on eligible expenditures incurred on an individual’s eligible dwelling which includes condominium units.
There have been many concerns expressed by both condominium boards and property managers in relation to the application of this legislation and the corresponding requirements that the Canada Revenue Agency expects unit owners/taxpayers to meet.
The Association of Condominium Managers of Ontario, in conjunction with CCI Toronto & Area Chapter, retained David Chodikoff of Miller Thomson LLP, who specializes in tax law, to coordinate a meeting with Canada Revenue Agency (“CRA”) representatives in order to address the many concerns of members regarding the legal interpretation of the HRTC rules and how they impact condominium corporations. Michael Gwynne of Miller Thomson LLP, who is a member of our condominium practice group, also attended and participated in these discussions.
Although the information provided by CRA representatives is not binding, it does provide all stakeholders with some valuable direction from the Taxman’s perspective as to the obligations of condominium corporations. Here is their position:
- There is no legal requirement for either a condominium corporation or a property management company to provide an HRTC receipt summarizing the eligible expenses incurred by a condominium corporation on behalf of all owners.
- If a receipt is issued, it should indicate the supplier/contractor name, the GST number of the supplier/contractor, the type of work/service performed, and the dollar amount of the expenditure incurred during the eligible period. This receipt should also show the unit owner’s proportionate share of expenditures that may be claimed, calculated in accordance with Schedule D of the corporation’s declaration. Receipts do not need to be provided by February 28, 2010 although is recommended that owners receive their receipt in sufficient time to meet the April 30th filing deadline for the 2009 taxation year. If a receipt is issued after February 28, 2010, CRA has advised that taxpayers have the right to file and request an adjustment. Taxpayers have 10 years to file a claim for the HRTC credit.
- Condonium corporations may not be justified in taking the position that a receipt will only be issued to the owner of record on January 31, 2010. The credit belongs to the owner of record at the time the expense was incurred. Where there is a transfer of ownership of a unit during the year, more than one receipt may be required. ACMO and CCI are attempting to address this issue with the CRA.
- Owners are entitled to claim their share of qualifying expenditures as part of their HRTC credits and are therefore entitled to review copies of the invoices relating to work which they believe is eligible.
- Reserve fund expenditures generally qualify if the monies are used for an enduring improvement to the building, including the land that forms part of the building (and not an annual or recurring renovation). It is important to make a determination of what is an eligible expenditure, regardless of whether it was paid from the reserve or operating fund. As a general rule, if the item purchased does not become a permanent part of an eligible dwelling/building, it is not eligible.
- Ancillary expenditures related to eligible expenses (professional engineer fees, security costs related to eligible work etc.) qualify as eligible expenditures. Ancillary costs associated with the completion of a project that is an eligible expenditure are eligible.
- Condominium corporations and/or property management companies are generally not liable in the event that an expenditure is deemed to be ineligible by CRA, provided that the condominium makes an honest error in judgment in determining whether an expenditure is eligible.
- Condominium corporations do not need to supply copies of the invoices being claimed as eligible expenditures by an owner or a copy of Schedule D of the declaration for that condominium corporation. If the condominium corporation provides a receipt for eligible expenses incurred on behalf of all owners, the unit owner can rely on that receipt. The condominium corporation is responsible to maintain the records and proof of expenses to support the receipt which it provided to owners. Condominium corporations should maintain those records to assist a taxpayer in the event that the unit owner is assessed.
- Receipts that are issued should be based on the total expenditures incurred during the qualifying period. There is no minimum amount required in order to issue a receipt.
- Condominium corporations are not obliged to advise unit owners in the event that there are no qualifying expenditures. However, it is recommended that a notice be sent to owners indicating that the Corporation has not incurred any eligible expenditures.
- If it is determined after issuing receipts that an error was made, owners should be notified as soon as possible and advised that they should forward the information on the correction to the CRA in order to have their personal income tax return re-assessed.
- Condominium corporations should include a disclaimer on any receipts issued.
As a service to owners, it is highly recommended that condominium corporations and/or their property managers provide owners with receipts summarizing the qualifying eligible expenditures. It is further recommended that boards of directors and property managers seek the advice of tax counsel to assist in the determination of the eligibility of expenditures for purposes of the HRTC.
For further information on the rules and guidelines relating to the HRTC please visit http://www.cra-arc.gc.ca/hrtc.
Our readers are advised that tax legislation is subject to interpretation. Moreover, interpretation of legislation by Canada Revenue Agency officials is not binding on the Canada Revenue Agency and is subject to determination by the Courts.