Support for home ownership and the housing sector

Subject: The Mortgage Market
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RENOVATION TAX CREDIT


Any Canadian who spends money on home renovations will be eligible to receive up to $1,350 in tax relief thanks to the new Home Renovation Tax Credit proposed in the Harper Government's Economic Action Plan.

"Every time Canadians invest in home renovations, they are helping to create construction and building-supplies jobs in their own communities," said the Prime Minister. "By providing an incentive for Canadians to invest in their homes, we are also encouraging them to invest in local jobs."

To highlight the kind of projects that will be eligible under this plan, the Prime Minister visited an Ottawa-area home renovation site and met with a local contractor who will be better able to protect and create jobs thanks to the additional home renovation projects that will be encouraged through this tax credit.

The Home Renovation Tax Credit will provide a one-year, temporary 15% income tax credit on eligible home renovation expenditures for work performed, or goods acquired between January 27, 2009 and February 1, 2010. The credit may be claimed on eligible expenditures exceeding $1,000 but no more than $10,000.

The Home Renovation Tax Credit is one of several initiatives to help homeowners and homebuyers that is contained within the Harper Government's Economic Action Plan. Before homeowners, homebuyers, and local construction and building supply workers can benefit from these new initiatives, Parliament must pass the 2009-2010 Federal Budget.

Support for home ownership and the housing sector
28 January 2009
Ottawa, Ontario

For many Canadians, owning a home represents both the achievement of a key life goal and the most important investment of their lives. A robust housing sector is also an important source of economic activity in Canada as it promotes demand for labour, building materials and other goods. To provide needed stimulus in these challenging economic times, Budget 2009 proposes four measures to help Canadians purchase and improve their homes.

Home Renovation Tax Credit

Home renovations can represent a smart investment in the long-term value of a home and generate broad-based economic activity. They can also reduce energy consumption and the long-term cost of owning a home. To support economic growth during these challenging times, Budget 2009 proposes to introduce a temporary Home Renovation Tax Credit (HRTC).

The HRTC will provide a temporary incentive for Canadians to undertake new renovation projects or accelerate planned future projects, thus providing timely stimulus to the Canadian economy while boosting energy efficiency and the value of Canada's housing stock.

How the Temporary HRTC Will Work

The proposed HRTC will provide a temporary 15 percent income tax credit on eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, pursuant to agreements entered into after January 27, 2009. The credit may be claimed for the 2009 taxation year on the portion of eligible expenditures exceeding $1,000, but not more than $10,000, and will provide up to $1,350 in tax relief.

Who Can Claim the HRTC

The HRTC will be family-based. For the purpose of the credit, a family will generally be considered to consist of an individual, and where applicable, the individual's spouse or common-law partner. Family members will be able to share the credit.

The amount eligible for the credit will be based on the total value of eligible expenditures incurred across all eligible dwellings. A dwelling will generally be considered eligible if it is used for personal purposes. This will include a house, a cottage, and a condominium unit.
It is estimated that about 4.6 million families in Canada will benefit from the HRTC.

Benefits of the Temporary Home Renovation Tax Credit-Examples

The following examples illustrate how homeowners can benefit from the HRTC.

1. Sally and Ed are a couple who have recently purchased a house. To take advantage of the temporary HRTC, they decide to replace their windows and improve the insulation in their home in 2009, instead of waiting, incurring $10,000 in expenditures. After taking account of the $1,000 minimum threshold, a 15-per-cent credit will be available on $9,000 in eligible expenditures, providing tax relief of $1,350.

2. William and Marie are a couple who are planning to purchase a more energy-efficient furnace for their home, and build a deck at their cottage sometime later. To take full advantage of the temporary HRTC, they decide to do both projects in 2009 rather than waiting. They pay $5,000 for the furnace and $3,500 for the deck. They also decide to have the area around the deck landscaped for $2,500, bringing their total costs to $11,000 ($5,000 + $3,500 + $2,500). Marie claims a credit of $1,350 on the maximum allowable amount of $9,000. This credit is in addition to the ecoENERGY Retrofit grant that William and Marie expect to receive for installing a more energy-efficient furnace.

3. Karen and Heather are sisters who share ownership of a condominium unit. They each incur $7,500 in expenditures renovating the kitchen in the condominium, in part to provide access for Heather's wheelchair. Karen and Heather each claim a $975 credit on eligible expenditures of $6,500 ($7,500 - $1,000).

This credit is in addition to the Medical Expense Tax Credit that Heather may claim on the portion of expenses eligible for that credit.

Expenditures Eligible for the HRTC

It is proposed that the HRTC be claimed for renovations and alterations to a dwelling or the land on which it sits that are enduring in nature. For example, homeowners will be able to claim expenditures for major renovation projects such as finishing a basement, renovating a kitchen, or building an addition. Costs associated with such projects will be eligible for the credit, including permits, professional services, equipment rentals and incidental expenses.

Routine repairs and maintenance normally performed on an annual or more frequent basis (e.g. cleaning, lawn fertilization, and snow removal) will not qualify for the credit.

The cost of purchasing furniture, appliances, audio-visual electronics and construction equipment will not be eligible.
Individuals will need to keep receipts for expenditures, and may claim the HRTC when filing their income tax returns for 2009.

Examples of HRTC-Eligible and Ineligible Expenditures

Eligible
Renovating a kitchen, bathroom or basement
New carpet or hardwood floors
Building an 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

Ineligible
Purchase of furniture and appliances (e.g. refrigerator, stove, and couch)
Purchase of tools
Carpet cleaning
Maintenance contracts (e.g. furnace cleaning, snow removal, lawn care, and pool cleaning)

The HRTC will complement support provided by the Government for Canadians to undertake energy-saving improvements to their homes. Federal grants paid through the ecoENERGY Retrofit program will not reduce the value of claims made for these expenditures under the HRTC.

Eligible renovation expenditures claimed under the Medical Expense Tax Credit may also be claimed under the HRTC.

The effectiveness of the HRTC will be enhanced to the extent that retailers also encourage homeowners to undertake renovations to their properties.

It is estimated that this measure will cost $500 million in 2008-09 and $2.5 billion in 2009-10.




''We don't do optimism; we don't do pessimism; we do realism at the Bank of Canada,'' he said. "We don't do spin.''




Julian Beltrame
The Canadian Press OTTAWA
Canada's economy can bounce back next year, but only if the United States and other world governments take "exceptional'' measures to end the crisis in financial markets, says Bank of Canada governor Mark Carney.
The hopeful and sobering assessment comes a month after the central banker put his credibility on the line with what other economists called an overly optimistic forecast pointing to a strong rebound next year after a tough 2009.
''Decisions taken in the coming weeks in the United States and in other major economies to isolate toxic assets in order to create a core of 'good' banks will be critical,'' Carney said in his first appearance before the House of Commons finance committee since the recession hit Canada in the fall.
'If these national and multilateral measures are not timely, bold, and well-executed, Canada's economic recovery will be both attenuated and delayed.''
Shortly after Carney spoke, the U.S. Senate approved President Barack Obama's giant economic stimulus measure, part of a string of powerful government steps that could marshal close to $3 trillion US in taxpayer and private money to revive the collapsing U.S. economy.
The 61-37 vote by the Senate was a key victory for Obama but sets up tough talks with the House of Representatives, which passed a slightly different version than the $838 billion bill approved yesterday.
In another development yesterday, a senior Canadian Finance Department official called the U.S. Senate approval and the pending passage of a bailout package helpful in helping stabilize the financial system and restarting the flow of credit.
The U.S. plan will be a topic at the weekend meeting in Rome of G7 finance ministers and central bank governors where Finance Minister Jim Flaherty is expected to be the lead speaker on a discussion on financial markets.
In his Commons committee appearance, Carney pointed to the U.S. bailout bill as an example of the extraordinary policy initiatives he believes can rescue the global economy. In Canada, MPs approved in principle last week the federal government's budget containing a $40-billion stimulus -- initiatives Carney believes will fully kick in in 2010.
Under skeptical questioning from MPs, the central banker stuck to his prediction of a 3.8 per cent growth in 2010 and dismissed criticism that his forecast was overly rosy.
''We don't do optimism; we don't do pessimism; we do realism at the Bank of Canada,'' he said. "We don't do spin.''
Liberal finance critic John McCallum was encouraged by Carney's optimism, but said he is not convinced the Harper government is committed to rolling out the $40-billion stimulus contained in the budget as quickly and effectively as possible.
Although Canada is doing slightly better than the U.S., McCallum noted that 129,000 jobs were lost in January alone, while personal bankruptcies soared by 51 per cent nationally in December from a year ago -- indications the slump is broadening.
The TD Bank has estimated job losses could hit 325,000 by year's end, pushing the unemployment rate to 8.8 per cent.
In another sign of the bleak times, General Motors Corp. became the latest of a growing list of companies announcing massive layoffs. It said it is cutting 10,000 salaried employees worldwide, including an unspecified number in Canada, where the company has 2,000 white collar workers.
Economists expect the Canadian economy to shrink by more than one per cent this year as the troubled manufacturing sector in Ontario and Quebec continues to shed employment and resources industries in Western Canada cut jobs to cope with lower prices for oil, grain, metals and minerals.




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Home Buyers' Plan
The Home Buyers' Plan (HBP) allows first-time home buyers to withdraw amounts from a Registered Retirement Savings Plan (RRSP) to purchase or build a home without having to pay tax on the withdrawal. Budget 2009 proposes to increase the HBP withdrawal limit to $25,000 from $20,000.
First Time Home Buyers' Tax Credit

The First Time Home Buyers' Tax Credit is an income tax credit to offset closing costs such as legal fees and disbursements and land transfer tax. The credit is applied on closing costs up to $5,000, which equates to a maximum tax savings of $750.

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