A recent Tax Court of Canada decision discussed the purpose and application of the Home Accessibility Tax Credit under the Income Tax Act.
What is the “HAT Credit”?
The Home Accessibility Tax Credit (the “HAT Credit”) is a new provision, encompassed within section 118.041 under the Income Tax Act (the “Act”). Its purpose, when enacted in 2015, was to allow seniors and Canadians with reduced mobility a deduction for expenditures used to gain greater accessibility to and inside their homes.
The HAT Credit is capped at a maximum of $10,000.
The taxpayer claimed the HAT Credit in the 2016 taxation year after fixing stairs leading to his home. He claimed the full amount permitted: $10,000.
The taxpayer and his wife had owned their house in Alberta since 1989. The house had a backyard and garden. Until 2016, the entry from the house to the yard was by virtue of two wooden steps without any railing or landing area, which were described as “rickety”. The taxpayer’s wife suffered from reduced mobility owing to profound atrial fibrillation and Type II diabetes. She was 76 years old.
The renovations undertaken to ease the wife’s accessibility were the removal of the pre-existing steps and the construction of a deck made of footings, joists, decking, railings and a 5-foot wide stairway, all surrounded with sturdy aluminum railings. The cost incurred by the taxpayer for the construction, the expenditure of which was not disputed, exceeded $11,000.
Though it was uncontested that the wife was an “eligible individual”, the house was an “eligible dwelling” and the taxpayer was a “qualifying individual” as regards to the HAT Credit and its definitions within the Act, the Minister denied the taxpayer the HAT Credit. It was denied on the basis that the modifications undertaken to the property did not fall within the definition of a “qualifying renovation” and/or the modifications were “made or undertaken primarily for the purpose of increasing or maintaining the value of the … dwelling.”
Specifically, the Minister disallowed the HAT Credit for two primary reasons:
- The wife’s enhanced accessibility to the house did not fall within the required definitional ambit and/or consequential threshold for such improvements to be a qualified renovation and therefore an eligible renovation (the “outside the prescribed scope” grounds for disallowance);
- Even if the renovations had been qualified renovations, such renovations were primarily made to enhance or maintain the value of the house and are therefore specifically excluded (the “primary value intention” exclusion).
The taxpayer appealed the Minister’s decision.
Tax Court of Canada Decision
The court began by explaining that:
“[Th]e purpose of the new legislation is to make accessible renovations more affordable to seniors living in the community, in turn, within the safety and comfort of their houses. The health cost savings to society, dignity of the elderly and lessening of isolation in institutions, where not a choice of the senior or immobile person, comprise the proximate goals of extending this fiscal benefit to seniors and the mobility compromised.”
After reviewing the facts, the court found that the renovations fell within the two conditions of a qualified renovation and were within the prescribed scope; the first condition being that the renovations were of “an enduring and integral nature to the dwelling” and the second being that it enabled access or mobility or function within or gaining access to the house.
Additionally, the court rejected the Minister’s suggestion that the taxpayer had made the improvements primarily to enhance or maintain the value of the property, stating:
“The intention to add or maintain value must be primary. Absent some evidence that the taxpayer foremost sought to improve or maintain the value of the property and only secondarily solve accessibility, the exclusion […] of being “primarily undertaken” to increase or maintain value cannot be sustained. If the drain on the federal treasury is too great because of the existing wording, then Parliament can repeal or amend its textually clear provisions. Until then, the Minister and her agents must have some prominent factual basis for asserting a taxpayer’s primary economic purpose in undertaking these improvements before this exclusion is invoked.”
As a result, the court allowed the appeal, finding that the taxpayer was entitled to the HAT Credit.
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