Canada's Economic Action Plan - The Home Renovation Tax Credit

Home renovations are smart investments in the long term value of a home and also create economic activity by increasing the demand for labour, building materials and other goods. Renovations can also reduce energy consumption and the long-term cost of owning a home.

To provide some $3 billion of much-needed fiscal stimulus and encourage investments in Canada’s housing stock, Budget 2009 proposes to implement a temporary Home Renovation Tax Credit (HRTC).


Temporary, Timely and Targeted Stimulus

The HRTC will apply to 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 temporary nature of the credit will provide an immediate incentive for Canadians to undertake new renovations or accelerate planned projects.

The HRTC can be claimed for renovations and enduring alterations to a dwelling, or the land on which it sits.

How the HRTC Will Work

The 15-per-cent credit may be claimed on the portion of eligible expenditures exceeding $1,000, but not more than $10,000, meaning that the maximum tax credit that can be received is $1,350.

The credit can be claimed on eligible expenditures incurred on one or more of an individual’s eligible dwellings. Properties eligible for the HRTC include houses, cottages and condominium units that are owned for personal use.

Renovation costs for projects such as finishing a basement or re-modelling a kitchen will be eligible for the credit, along with associated expenses such as building permits, professional services, equipment rentals and incidental expenses.

Routine repairs and maintenance will not qualify for the credit. Nor will the cost of purchasing furniture, appliances, audio-visual electronics or construction equipment.

Who Can Claim the HRTC?

About 4.6 million families in Canada are expected to benefit from the credit.

Taxpayers can claim the HRTC when filing their 2009 tax return.

Eligibility for the HRTC will be family-based. For the purpose of the credit, a family is generally 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.


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

• Furniture and appliances (refrigerator, stove, couch)
• Purchase of tools
• Carpet cleaning
• Maintenance contracts (furnace cleaning, snow removal, lawn care, pool cleaning, etc.)

REALTORS® welcome federal housing initiatives in stimulating Canadian economy

The Canadian Real Estate Association (CREA) welcomes the federal government initiatives to stimulate economic growth outlined in the 2009 budget, especially those that will encourage home ownership in Canada. The Association applauds the government for recognizing the
economic importance of the housing industry in some of the budget measures.

“The change announced to the popular Home Buyers’ Plan will help Canadians who want to own their own home, and do it in a responsible way that is not a major drain on taxpayers,” says the President of The Canadian Real Estate Association (CREA), Calvin Lindberg.

Research conducted for CREA by the Altus Group shows that each residential real estate transaction in Canada generates $32,200 in ancillary consumer spending. The study also reported that 94,700 full time direct jobs were generated annually by that ancillary or spin-off activity. The study is posted on the www.crea.ca website.

“The federal government has found a way to introduce economic stimulus and housing initiatives for specific groups, and for Canadians who want to buy their first home.” Mr. Lindberg added. CREA had proposed the federal government do that by increasing the limit of the Home Buyers’ Plan (HBP) to help stimulate the housing market.

Introduced in 1992 by a Conservative government and made permanent by a Liberal government in 1994, the HBP has broad political and consumer support. It will now allow first time homebuyers to withdraw up to $25,000 from their RRSP to be used in a down payment on a residential property. The Plan has not had the same impact and relevance it did 16 years ago, when the original $20,000 limit represented 13.3 per cent of the average house price, versus about 6.5 per cent in 2008.

The Association also believes that the success of the proposed home renovation tax credit program will depend on effective administration and promotion. “The use of tax credits will make the program of interest to many Canadians who own their own home,” adds the CREA President, “but the success will be tied in part to the availability of savings or credit, since the expense has to be paid before the tax credit is issued.”


A survey conducted for CREA by IPSOS Reid in October 2008 revealed that only 12 per cent of homeowners had ever applied to some type of government renovation or energy efficiency program. In that same survey, 36 per cent said they would consider replacing windows as a priority to improving home energy efficiency, while another 27 per cent said it would be adding insulation. The Canadian Real Estate Association (CREA) also welcomes federal government initiatives that will encourage home ownership and better communities in Canada.

“The announced measures for aboriginal and social housing are welcomed by REALTORS® as steps to help house those who may be in need, and to modernize existing housing resources,” adds CREA President Calvin Lindberg.

CREA first called on governments to address various issues affecting native home ownership during the World Urban Forum in Vancouver in 2006. The Association’s analysis of native housing issues is available in a booklet posted on the www.crea.ca website. “The budget spending initiatives help address the issue of the quality of native housing, and quality of life on Canadian reserves. Equally as important is the transition to market-based housing on reserves, and
the government in the budget has committed to the transition to that as well,” adds Mr. Lindberg.

“Copyright Canadian Real Estate Association. Reprinted with permission.”

Davies park plan unveiled

A park that has been in the works for at least 14 years — the Davies Street Park — came one step closer to realization.

The illustrative concept plan for the park was presented last Tuesday at the Best Western.

City Manager Kevin Cormack, along with Robert Fershau of Nowell2 Land Design, presented the conceptual plan to council and the public.

“This is an exciting step forward,” said Mayor John Dooley.

“These lands have been targeted for a park for many years and I am confident that we will be able to move forward to realizing this goal in 2009.”

The park’s plan was composed by using a park planning committee, and in the end all members came up with the same basic idea.

“We mixed the committee with residents in the area, some youth and a man from the Eagles,” said Cormack.

“We wanted to have a broad committee that had some representation from different perspectives.”

The new park will have two bathrooms, a natural area, advanced bike trails and a beginner bike skills park.

The hard court multi sports area will be brought back to date for sports like basketball, street hockey and skateboarding. There will also be a footbridge connector trail, adventure playground (which instead of using plastic will use concrete cylinders and stumps), toddler playground, community garden and a tree zoo.

More trees and benches will also be put in along the main path to slow down bike traffic on the steep incline.

“The involvement of the committee allowed us to understand the needs of the community as well as the needs of the city,” said Fershau.

“Through this collaborative process we were able to develop a concept plan that accomplished the committee’s goals while preserving and enhancing the unique features of the site.”

The park will be the third largest park in Nelson behind Lakeside Park and Gyro Park.
The Lakeside Park will be 4.8 hectares and will cost about $600,000 to complete.

The planners hope the park will be accessed by everyone of all ages during all four seasons and that it will become the major trailhead to the Nelson-Salmo Great Northern Trail.

“When completed, Davies Street Park will transform a former gravel pit into another first-class amenity in the city that compliments and improves on an expanding network of green spaces,” said Fershau.

By Darryl Pollock - Nelson Star Published: January 14, 2009 6:00 PM

Bank of Canada cuts interest rates again in January

As widely expected, the Bank of Canada lowered its benchmark overnight lending rate by a half of a percentage point to one per cent at its setting on January 20th, 2009. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, declined to 1.25 per cent.

The Bank acknowledged the global economy has deteriorated further since it last lowered rates in December 2008, when it announced Canada had entered a recession. “Major advanced economies, including Canada’s, are now in recession and emerging-market economies are increasingly affected,” said the Bank when it again lowered interest rates on January 20th.

The Bank has repeatedly lowered its policy interest rate to support economic growth. Since December 2007, the Bank has cut its overnight lending rate by a total of 3.5 per cent.

“The Canadian economy is widely expected to begin growing in the second half of 2009, as government spending and easier credit begins to lift economic growth,” said CREA Chief Economist Gregory Klump. “Business and consumer confidence are unlikely to improve much until such evidence appears.”

The Bank downwardly revised its forecast for economic growth in 2009, but revised it upward for 2010. It also pushed the goalposts out to the middle of 2011 as to when it expects inflation to climb back to the two per cent midpoint of its target range between one and three per cent. The Bank targets the core rate of inflation at two per cent. The rate has stayed below the target level since October 2007.

“The Bank’s revised forecast for economic growth and inflation means it won’t raise interest rates anytime this year, but credit conditions have tightened, which will mute the benefit of the Bank of Canada’s recent interest rate cuts for consumers, business, and the economy,” said Klump.

Echoing previous messages about for the potential for additional interest rate cuts when it next meets in March to set its policy interest rates, the Bank also said it “will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the two per cent inflation target over the medium term.”

When the Bank cut interest rates on January 20th, the advertised five-year conventional mortgage rate stood at 6.75 per cent. This is down 0.74 per cent from one year earlier, and 0.2 per cent below where it stood when the Bank made its previous interest rate announcement on December 9th, 2008.

The ongoing credit crunch has led mortgage lenders to reduce discounts on advertised mortgage interest rates, and in some cases these have been completely eliminated.

“Sales activity and prices will decline this year, as many buyers hunker down and put off buying decisions during the economic recession,” said Klump. “Housing market prospects will improve in 2010 in tandem with a rebound in economic growth.” (CREA 20/01/2009)

“Copyright Canadian Real Estate Association. Reprinted with permission.”

REALTORS® call on federal government to stimulate housing market

The Canadian Real Estate Association is calling on the federal government to include several housing initiatives in the upcoming budget. The association believes the proposals are even more important in today’s recessionary times, based on the impact housing has on the overall economy and the reported results of MLS® residential sales in 2008.

“Bay Street needs to take a back seat to Main Street in the next federal budget,” says the President of The Canadian Real Estate Association, Calvin Lindberg. “The government has already moved to help credit markets and our chartered banks, now it’s time to take direct and immediate action to help ordinary Canadians.”

Statistics released today by the CREA show that the residential housing market sales volume withdrew in 2008 to levels not seen since 2002. More importantly, the most recent statistics from December 2008 show that sales activity reached its lowest level for the month of December since 2000. Some 434,477 homes traded hands via the MLS® systems of real estate boards in Canada in 2008, down 17.1 per cent from the record 523,855 properties sold in 2007.

“We are pleased the Minister of Finance and the government have recognized the need for action by ranking housing as one of the top six issues in its pre-budget consultations,” Mr. Lindberg added.

CREA has met with senior government officials and proposed several measures to help stimulate the housing market, both for residential and commercial investors.

For residential homebuyers, CREA proposes the government increase the limit of the Home Buyers Plan (HPB). Introduced in 1992 by a Conservative government and made permanent by a Liberal government in 1994, the HPB has broad political and consumer support.

The HBP allows first time homebuyers to withdraw up to $20,000 from their RRSP to help purchase a residential property, which must be repaid over a period of 15 years.

Unfortunately, the HBP has not kept pace with inflation or home prices. As a result, the HPB does not have the same impact and relevance it did 16 years ago, when $20,000 represented 13.3 per cent of the average house price, versus about 6.5 per cent today.

“The government should immediately raise the HBP limit from $20,000 to $25,000 and it should keep pace with annual inflation. Additionally, it should be available to all home buyers, not just first time buyers,” the CREA President added.

To address issues facing the commercial and investment property markets, CREA is seeking amendments to the Income Tax Act to promote increased reinvestment in real property. The CREA proposal calls for the deferral of capital gains taxes and the capital cost allowance recovery for all real property investments when an investment property is sold and the proceeds are re-invested in another real property within the subsequent year.

“Our proposal has benefits across the board for the economy, for rental housing and for the small investor, as well as some significant environmental benefits as old buildings are renovated and made more energy efficient. The budget is the perfect time for this sort of stimulus,” Calvin Lindberg added.

Studies show that more than 29 jobs are created for every $1 million invested in property renovation. A study prepared by Altus Clayton for CREA also shows that each residential MLS® transaction generated an additional $32,200 in consumer spending. Commercial and investment property transactions can generate even higher levels of economic spinoffs.

Canada Mortgage and Housing Corporation (CMHC) reported that rental construction is not growing fast enough to offset demand. At the same time, the Ontario Housing Supply Working Group has found that tax changes, such as the proposed rollover, “will not only lower the rent threshold at which a new project will be viable…new supply will help reduce demand pressures and…increase the supply of vacant units in existing stock.”

CREA’s proposed deferral and reinvestment will help the small investor disproportionately. Research based on the 2006 tax year indicates that 58 per cent of those reporting real property gains had net incomes of $50,000 or lower.

“Copyright Canadian Real Estate Association. Reprinted with permission.”

BC Home Sales Decline by One-Third in 2008

British Columbia Real Estate Association (BCREA) reports residential sales dollar volume on the Multiple Listing Service® (MLS®) in BC declined 31 per cent to $31.3 billion in 2008, compared to 2007. Residential unit sales declined 33 per cent to 68,923 units last year, the lowest level since 2000, when 54,179 transactions were recorded. The average MLS® residential price in 2008 was $454,599, up 3.5 per cent from 2007.

“The housing market came in like a lion and went out like a lamb in 2008,” said Cameron Muir, BCREA Chief Economist. “Home prices reached a record high in March, but edged lower during the balance of the year.” The average residential sales price hit $483,291 in March and ended the year at $429,210, an 11 per cent decline in nine months.

“The global financial crisis, a sharp correction in the equity markets and a recessionary environment in Canada has wreaked havoc on consumer confidence,” added Muir. “While it’s difficult to predict when consumer confidence will strengthen, home affordability is quietly improving as lower prices and mortgage interest rates increase the buying power of BC households.”

December MLS® residential sales dollar volume in the province declined 52 per cent to $1.05 billion, compared to December 2007. Provincial MLS® sales were down 49 per cent to 2,456 units, while the average residential price declined 6 per cent to $429,210 over the same period.

“Copyright British Columbia Real Estate Association. Reprinted with permission.”

Housing Starts Moderate in December

The seasonally adjusted annual rate1 of housing starts was 177,300 units in December, down marginally from 178,000 units in November, according to Canada Mortgage and Housing Corporation (CMHC).

“Housing starts in December were almost unchanged compared to November,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “At an estimated 212,366 units, housing starts in 2008 breached the 200,000 unit mark for a seventh consecutive year.”

Pent-up housing demand which built up over the 1990's enabled Canadian housing starts to exceed long run demographic demand for the majority of this decade. This excess demand has gradually decreased and CMHC expects construction levels in 2009 to be more aligned with long run demographic demand.

The seasonally adjusted annual rate of urban starts decreased 0.5 per cent to 150,100 units in December. Urban multiple starts increased 3.2 per cent to 87,400 units, while urban single starts eased 5.1 per cent to 62,700 units in December.

December’s seasonally adjusted annual rate of urban starts moderated in three of the five regions in Canada. Urban starts declined 12.6 per cent to 36,700 units in Quebec, 6.3 per cent to 25,100 units in the Prairies, and 3.6 per cent to 8,100 units in the Atlantic Region. British Columbia urban starts rose 9.9 per cent to 19,900 units and Ontario urban starts climbed 8.6 per cent to 60,300 units.

Rural starts were estimated at a seasonally adjusted annual rate of 27,200 units in December2.
For the year 2008, actual starts in rural and urban areas combined moderated by an estimated 7.0 per cent, compared to the same period last year. Year-to-date actual starts in urban areas have decreased by an estimated 3.3 per cent compared to 2007. Actual urban single starts for 2008 were 18.1 per cent lower than they were a year earlier while urban multiple starts were up by 9.8 per cent over the same period.

CMHC OTTAWA, January 9, 2009