The home renovation tax credit – A great way to save on tax if you have planned on a home renovation, now may be the time.
This is a tax credit which means that you receive a 15% tax credit for expenses greater than $1000. To qualify for the maximum $1350 tax credit you must spend at least $10,000 of which $9000 is eligible for the tax credit ($9000 x 15% = $1350). This is a temporary tax credit and home improvements must be completed between Jan 27 2009 and Jan 31 2010. Expenditures made in Jan 2010 must be claimed on the 2009 tax return.
Amounts above $10,000 are not eligible for the tax credit, but depending on your marginal tax rate the home renovation tax credit may be a better alternative than other tax saving measures. For example at a 30% marginal tax rate you would need to contribute approximately $4,500 to your RRSP to generate a tax refund equal to the maximum credit available for the home renovation tax credit.
The renovations must be made to a personal use property such as a home, cottage, or condominium. The types of home renovations that qualify, generally must be of an enduring nature and integral to the dwelling. The expenditures include building materials, labour, equipment rentals, and the cost of permits. Examples given by revenue Canada include Renovating a kitchen or bathroom, new flooring, decks, retaining walls, a new furnace, water heater, or painting the exterior or interior of the house. Expenditures that cannot be claimed include normal repairs, carpet cleaning, furniture or appliances, financing costs, or tools that retain a value after the renovation.
If you are condo owner you might be eligible for the credit even if you don’t spend any money on your unit. The share you have in spending on improvements to the common areas of the condo also qualify for the 15% credit. Ask your condo manager to find out if this applies to you.
The credit is also limited to one per family, which includes the tax payer’s spouse or common –law partner and any children under the age of 18 throughout the year. If the taxpayer who claims the credit cannot fully utilize it the unused portion may be transferred to one or more of the other family members.
To further increase the amount of government subsidies that you could receive, determine if the renovations are eligible for the eco-energy retrofit-homes grant. Grants of up to $5,000 are available to offset the cost of making energy efficient home improvements such as adding insulation, and replacing windows and doors. If you are considering a new energy efficient furnace or heat pump, the home renovation tax credit, and eco-energy grant could result in a big saving.