The federal government is proposing changes in its 2009 budget that will make home ownership more attractive financially for first-time home buyers, and encourage those who already own a home to make renovations over the next 12 months.

“Clearly this budget has some very special incentives for homeowners,” says Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management in Toronto, “whether existing homeowners who want to renovate, or non-home owners who are considering entering the home market for the very first time.”

These incentives include an increase of $5,000 in the home buyers’ plan (HBP) limit, a $5,000 non-refundable tax credit for first-time home buyers toward the closing costs of an eligible home, and a 15% tax credit on up to $9,000 eligible home renovations made by the end of January next year.

In making these changes, particularly the tax-credit incentive for existing homeowners to make renovations, Ottawa is attempting to provide immediate stimulus to a stumbling economy by encouraging Canadians to open their wallets to buy or upgrade a home.

“The government is trying to get people spending to boost the economy,” Golombek says, “encouraging individuals to spend their money now.”

The Home Renovation Tax Credit (HRTC) will provide a 15% income tax credit on eligible home renovation expenditures for work performed, or goods bought, after Jan. 27, 2009, but before Feb. 1, 2010. The credit can be claimed for the 2009 tax year on eligible renovation expenditures more than $1,000 but not more than $10,000. Eligible renovations include expenditures such as renovating a bathroom or kitchen, installing new carpet or replacing a furnace. Ineligible expenditures would include the purchase of new furniture, carpet cleaning or regular maintenance of a functioning appliance.

A married or common-law couple can claim a credit of up to the maximum allowable amount of $9,000 between them. Eligible dwellings for the HRTC can be any home used for personal purposes, although it doesn’t have to be the primary residence. Renovations can be done on more than one home, but the total amount a couple can claim remains $9,000. If two or more Canadians who are not married or common-law jointly own a home, they each can claim up to $9,000 on eligible renovations expenditures.

For Canadians looking to buy a new home, the government proposes increasing the HBP withdrawal limit to $25,000 from $20,000. The existing rules governing the HBP remain the same. The program allows an individual to withdraw money from his or her RRSP without having to include that money in taxable income, for the purpose of buying a first home. The money then has to be repaid over a 15-year period starting the year after the year of withdrawal. If the funds are not repaid, they must be included in income.

The government is also proposing the First-Time Home Buyers’ Tax Credit to help first-time home buyers with “closing” costs associated with buying a home, including legal fees, disbursements and land-transfer taxes. The $5,000 non-refundable income tax credit amount will apply to a qualifying home bought after Jan. 27, 2009. The credit will provide up to $750 in tax relief starting in 2009.

IE