Now that we’ve all had time to digest the new federal budget, perhaps we can take a look at what effects the policies will have on the real estate industry.

Some critics are saying that the new credit for home renovations is “arbitrary.”

I couldn’t possibly disagree more…

Locker-room talk has certainly evolved over the course of my lifetime.

When I was in high school, the locker-room talk was always about girls, booze, and or a combination of both.

Nowadays, the locker room talk at my gym at Davisville & Mount Pleasant is a little more refined.

I overheard two guys chatting about the federal budget the other day, and as I put Nike sweatbands around my forehead, wrists, and ankles, I began to listen in…

“Well at least the government is giving us some money,” said one tall, wirey gentleman.  “The rebates are pretty sweet.  Like that $1,300 tax credit for home renovations – that’s really awesome!”

“Sure, in theory,” said his friend as he slowly climbed up on his soapbox.  “But the credit only extends to those people who, ya know, actually own a house.”

“Don’t you and Susan own a house?” inquired the tall, wirey man.

And that’s when wirey-man’s friend completely missed the issue, in my opinion, and said, “Yeah, but what if we want to spend our money on something other than a renovation – like a trip to Jamaica.”

I swear I could have mistaken his soapbox for a Reebok stepper as his opinions started out with some merit but ended up sounding ridiculous.

Here’s the beef, straight from the budget itself:

Home Renovation Tax Credit – For 2009, a new, non-refundable temporary tax credit will be available to homeowners for home improvements to a principal residence.  The credit will apply to expenditures in excess of $1000 and up to $10,000, made for work performed or goods acquired after 27 January 2009 and before February 2010, in relation to an agreement entered into after January 27 2009.  Eligible expenditures must be for renovations or alterations of an enduring nature.  Routine repairs, appliances, furnitures, and fixtures are ineligible for the credit.

That’s a lot to digest!

I guess before we delve into the actual quotation from the budget, let’s examine the argument made by my locker-room-companion (that kinda sounds weird, doesn’t it?).

He argues that first of all, the credit is only available to homeowners so it’s somewhat unfair.

But what about tax credits or cash disbursements to single mothers with children?  Isn’t that unfair since a married man with no kids is ineligible? 

And how about grants for small business owners?  Isn’t that unfair since I don’t own a small business but I still want to qualify?

I think I’ve made my point.

As for the idea that it’s inefficient to “limit” the rebate to just home renovations, where should we draw the line?

This rebate has a purpose – it’s to stimulate the home improvement industry and to a lesser extent, reinvigorate the real estate industry.

You can’t just announce a $1,300 rebate for “anything and everything.”  Sure, my locker-room-friend would like to spend the $1,300 on a trip to Jamaica instead of home improvements, but that’s just silly.  Maybe if the Canadian tourism industry was suffering badly and was the hot political topic, the government would step in and announce rebates to Canadians choosing to travel within the country in an attempt to keep some of the cash outflows within our borders.

But that’s not the issue at hand.

Tax credits such as the Home Renovation Tax Credit are created for a certain purpose, not just to give back money to those who cry foul in locker rooms.

As for the credit itself, let’s start with the first sentence:

“….to homeowners for home improvements for a principal residence.”

If you own an investment property and you were hoping to fix that leaky roof and apply for the credit, forget it.  The government is limiting this tax credit only to principal residences, otherwise every single property owner in the city would be looking to take advantage.

“Eligible expenditures must be for renovations or alterations of an enduring nature.”

By “enduring nature” they are trying to stress that you can’t try to get away with planting some annuals in your flowerbed and calling that a “renovation.”  A renovation of an “enduring nature” will grow with the house itself, such as a new roof, back deck, finished basement, etc.

Keep in mind that the government (despite popular opinion) is not entirely stupid and has thought of all the ins and outs of this tax credit so that people (like me!) can’t try and take advantage.

“Routine repairs, appliances, furnitures, and fixtures are ineligible for the credit.”

I’ve often heard the expression “the law is one, large grey area, with no black or white.”  Well this new tax credit could have also been one large grey area and thus one large headache, if not for the specific wording above.

You can’t buy a new plasma-TV, mount it on your wall, and call that a “renovation.”

I suppose if you could, then my locker-room-friend would yell “hurray” since the retail sector (Best Buy, Future Shop, and a host of small business owners) would feel the effects of the tax credit.

But where does the area actually become grey?

Well, as Derek DeCloet pointed out in his column in The Globe & Mail on January 29th, “If you lay a new carpet, that’s worthy of a tax credit.  But if you clean an existing carpet, it’s not.  What about a throw rug?  The budget is not clear.”

Critics are already having fun with this new tax credit, as they would with almost any policy or general thought from the Federal government.  They argue that this tax credit is only here to be taken advantage of, and that the money saved by homeowners for things they would do anyways should go to health-care or education instead.

While I agree in part, I also believe that there are homeowners that will make repairs and renovations where they otherwise would not have.  I know that I, for one, will find something, anything to do around my condo simply to apply for this “free money.”

And doesn’t that mean that a contractor or handyman will thus make $1,300 more this year than he would have without this new tax credit?

I might install hardwood floor or finally have my condo professionally painted.  Maybe I need to renovate my bathroom, or perhaps it’s time to lay some sod down on my 450 square foot patio.

Whatever the case, I’m definitely one homeowner who is saying, “Thank You” to Ottawa, and I’ll take the money and run.

Is the new tax credit right, or wrong?

I don’t care.

I’m in real estate, not politics…