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How the Tories’ renovation tax credit promise may affect Canada’s hot housing market

Blog by Heather Davis | August 11th, 2015

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The renovation tax credit was first introduced in 2009 as a temporary measure intended to spur the economy by incentivizing consumers to spend during the recession. Currently experts are divided on the impact a federal Conservative promise to revive a home renovation tax credit could have on the real estate industry. In a hot market such as Calgary, this could continue to push soaring home prices even higher. Others argue that the tax credit is not going to make an impact at all simply because the money offered is too low.

On the other hand it could encourage homeowners to renovate, thus causing them to stay in their current home, leading to lower inventories on the market. It could even encourage Canadians to flip houses; purchase a house that needs fixed up and then put it back on the market. A benefit of the program forces homeowners to get receipts for the tax credit, thus helping protect them from ‘cash’ contractors who are not always a reliable sources and can lead to broken promises.

David Madani, an economist with Capital Economics, said the government is “playing with fire” by encouraging homeowners to take on more housing-related debt, noting that most Canadians fund renovations by borrowing against their homes.

Homeowners, would be able to claim up to 15 per cent of the cost of permanent “substantial” renovations to homes, condos and cottages. The tax credit would apply to renovation costs between $1,000 and $5,000, allowing a taxpayer to get back up to $600 a year.

The Conservative leader said the program was good news for businesses as well as homeowners, citing the tile company as one firm that stood to benefit.

“This tax credit will help generate jobs, jobs for professional trades people . . . good quality, well-paying jobs,” Harper said.

The move is expected to cost $1.5 billion a year. But exactly when the tax credit would become a reality is a question mark. Harper said it would likely be implemented near the middle of the next mandate of a Conservative government.



Source: Alexandra Posadzki, The Canadian Press