The January 27th federal budget was chock full of goodies for homeowners and first-time homebuyers. Below are some highlights from the budget that you may find useful.

Home Renovation Credit
If you’ve been thinking about doing some home renovations, a 15% Home Renovation Tax Credit (HRTC) of up to $1,350 on eligible home renovation expenses undertaken before February 1, 2010 that was proposed in the new budget may help in your decision to invest in improvements to your home.

The credit will apply to expenditures in excess of $1,000, but not more than $10,000, for the 2009 taxation year. Expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, will be eligible for the credit. The credit will, however, not be available in respect of expenditures for work performed or goods acquired in that period if the expenditure is made pursuant to an agreement entered into before January 28, 2009. Individuals may claim this credit (including expenditures made in January 2010) in their 2009 income tax returns.

Eligibility for the HRTC will be family-based. For this purpose, a family will generally be considered to consist of an individual, and where applicable, the individual’s spouse or common-law partner, and their children who were under the age of 18 throughout 2009.

Two or more families that share ownership of an eligible dwelling will each be eligible for their own credit. Each family’s credit will be determined by their respective eligible expenditures in excess of $1,000, but not more than $10,000.

Individuals will be able to claim the HRTC on eligible expenditures made in respect of dwellings that are eligible at any time after January 27, 2009 and before February 1, 2010 to be their principal residence or that of one or more of their other family members under the existing tax law.

In general, a housing unit is considered to be eligible to be an individual’s principal residence where it is owned by the individual and ordinarily inhabited by the individual, the individual’s spouse or common-law partner or their children.

In the case of condominiums and co-operative housing corporations, the credit will be available for eligible expenditures incurred to renovate the unit that is eligible to be the individual’s principal residence as well as the individual’s share of the cost of eligible expenditures incurred in respect of common areas.

Individuals who earn business or rental income from part of their principal residence will be allowed to claim the credit for the full amount of expenditures made in respect of the personal-use areas of the residence. For expenditures made in respect of common areas or that benefit the housing unit as a whole (such as re-shingling a roof), the administrative practices ordinarily followed by the Canada Revenue Agency (CRA) to determine how business or rental income and expenditures are allocated between personal use and income-earning use will apply in establishing the amount qualifying for the credit.

Expenditures will qualify for the HRTC if they are incurred in relation to a renovation or alteration of an eligible dwelling (including land that forms part of the eligible dwelling) provided that the renovation or alteration is of an enduring nature and is integral to the eligible dwelling. Such expenditures would include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits.

Expenditures will not be eligible if the related goods or services are provided by a person not dealing at arm’s length with the individual, unless that person is registered for Goods and Services Tax/Harmonized Sales Tax purposes under the Excise Tax Act. Any eligible expenditure claimed for the HRTC must be supported by receipts.

ecoENERGY Retrofit – Homes Grants
The new budget also proposes an expanded ecoENERGY Retrofit – Homes program, and Natural Resources Canada is currently working to finalize the details.

The new expanded program includes a $300 million increase over two years for support to property owners looking to make their homes more energy efficient. It is estimated that additional funds will extend the reach of the current program to an additional 200,000 homeowners.

Under the current program, ecoENERGY Retrofit – Homes provides home and property owners with grants of up to $5,000 to offset the cost of making energy-efficient improvements. ecoENERGY Retrofit grants apply to a host of measures that reduce energy consumption and provide for a cleaner environment, from increasing insulation to upgrading a furnace.

Only homes that have undergone a residential energy efficiency assessment by an energy advisor certified by Natural Resources Canada will be eligible for grants.

Detached homes, row housing, duplexes, triplexes and mobile homes on permanent foundations and some small apartment buildings of three storeys or less may qualify for ecoENERGY Retrofit – Homes grants.

The ecoENERGY Retrofit grant is based on the type and number of energy improvements that have been made and how much the efficiency of the home has been improved. The grant is based on how effective that upgrade is in saving energy, not on the cost of the upgrade.

The maximum grant one can receive per home or multi-unit residential building is $5,000; whereas the total grant amount available to one individual or entity for eligible properties over the life of the program is $500,000. The average grant is expected to be more than $1,000 and will yield an average 25% reduction in energy use and costs.

RRSP Home Buyers’ Plan Increase
The budget proposes a $5,000 increase to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment – tax- and interest-free.

Tax Credit for First-Time Homebuyers
Also proposed in the new budget is a $750 tax credit for first-time homebuyers to help with closing costs, such as legal fees, disbursements and land transfer taxes.

The tax credit is based on an amount of $5,000 for first-time homebuyers who acquire a qualifying home after January 27, 2009 (ie, the closing is after that date). The credit for a taxation year will be calculated by reference to the lowest personal income tax rate for the year and is claimable for the taxation year in which the home is acquired.

An individual will be considered a first-time homebuyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years.

A qualifying home is one that is currently eligible for the Home Buyers’ Plan that the individual or individual’s spouse or common-law partner intends to occupy as the principal place of residence no later than one year after its acquisition.

With interest rates falling as of late, refinancing your existing mortgage and switching to a lower rate may save you a lot of money – possibly thousands of dollars per year.

Imagine what you could do with the savings – anything from renovating or investing to going on a much-needed vacation or putting money towards your children’s education.

Perhaps your home is financed through a first and second mortgage. If so, reviewing your options to combine the two could also result in having more money left over at the end of each month.

With the high cost of holiday gift-buying and entertaining now behind you, this may also be the perfect time to get 2009 off to a fresh start by refinancing your mortgage and freeing up some money to pay off high-interest credit card debt. With access to more money, you will be better able to manage your debt.

By refinancing now and paying off your debt, you can put yourself and your family in a better financial position. It’s very important to not rack up your credit cards after refinancing, however, so set your goals and budgets, and stick to them.

There are penalties for paying out your existing mortgage loan prior to renewal, but these may be offset by the extra money you could acquire through a refinance.

Also keep in mind that by refinancing you may extend the time it will take to pay off your mortgage. That said, there are many ways to pay down your mortgage sooner to save you thousands of dollars. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

You can also change the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage.

If, for instance, you have a $100,000 mortgage, an interest rate of 5% and an amortization period of 25 years, your monthly mortgage payment would be $581.60 and your total payments for a year would be $6,979.20 ($581.60 x 12).

To understand the savings accelerated bi-weekly mortgage payments can make, take the monthly mortgage payment of $581.60 and divide it by two ($581.60 ÷ 2 = $290.80).  Next, take that payment and multiple it by 26 to arrive at your total payments for the year ($290.80 x 26 = $7,560.80).

As you can see, by using the monthly mortgage payment plan, you’ve made payments totalling $6,979.20 for the year, while using the accelerated bi-weekly mortgage plan you’ve made payments totalling $7,560.80 – a difference of $581.60. 

Basically, with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year.

Using this example, you would reduce the amortization on your $100,000 mortgage from 25 years to just over 21 years and your total savings on interest over the life of the mortgage would be just over $12,000.

As always, if you want to talk about your refinancing options, I’m here to help.