Two people, a writer and a traveller, meet at a farmers’ market. They fall in love. They get married. They build themselves a funky little straw-bale home and, as an added bonus, create a beautiful child. Is there nothing these people can’t do?
Taxes. For the love of God, don't let them anywhere near your taxes.
More than five years ago, about the time we started building our house, Nick and I were given a heads up about Canada’s GST/HST New Housing Rebate. The good news is, you can claim back a large portion of the tax you spend on building or substantially renovating your home. The bad news: The process is so onerous, you might be better off walking away.
The winter after we moved in, I spent most evenings pregnant and on my laptop, working hard to complete our claim. Not only was the expense spreadsheet I’d created during housebuilding unwieldy at 12 pages, but I hadn’t realized that Canada Revenue Agency (CRA) has specific categories that each expense needs to be slotted into. Nick never would have been allowed so many power tools if I’d known they weren’t on that list.
It meant that I needed to re-organize our 263 entries, which ranged from $8.48 to $13,000. It was also my first glimpse into CRA’s rigid view of how home construction works.
At some point in the midst of these calculations, I had a baby. That return was the furthest thing from my mind for roughly a year and a half. Then, as the two-year window in which to file was about to close, I threw myself at it, spending many more evenings at the computer. With weeks to spare, I printed our return and put it in the mail, fingers crossed. If you haven’t realized by now, I’m a words person, not a numbers person.
Nor am I a details person.
The first call from a CRA reviewer was pleasant enough. She pointed out that our receipts ended spring 2014, a good six months before our stated move-in date. It appeared that we had finished earlier than claimed, thereby missing our two-year deadline to file. She needed evidence that we had indeed still been working on the house into the fall.
After tearing our house apart to find the stash of invoices Nick had mysteriously started filing elsewhere (Nick!) as our construction drew to a close, I sent a large envelope to CRA with a dozen or so additional receipts taking us into the fall.
The next call from the reviewer was less pleasant: We could have lived in the home without flooring, she told me, discounting a receipt for hardwood. Exterior finishings didn’t count. Screws and nails and drywall mud and paint brushes weren’t evidence of our ongoing labours. She was after something we didn’t have: A nice, tidy bill from a contractor or subcontractor showing a significant project had been completed allowing us to move in.
And here’s where I call bias on CRA’s reviewing process: The guidelines say you must file within two years of your home’s “substantial completion.” They do not say you must file within two years of your last big invoice or your budget’s substantial completion. They indicate actual physical completion.
In the months leading up to our move in, progress looked something like this: Nick, mostly working alone, installing trim from leftover wood scraps, windowsills salvaged from abandoned cedar logs and doors purchased secondhand from our local buy-and-sell. There were no contractors, no crews and very little in the way of large invoices. The odd friend dropped by to sweep a trowel in exchange for beer.
When the reviewer called a third time to let me know she was denying our claim, I hung up on her. But not before getting the information to appeal.
The woman assigned to our appeal made it clear that she was prepared to also decline our claim unless we could come up with something other than receipts for screws and drywall mud. I talked to a lawyer friend. I wracked my brain. I harkened back to those final weeks and months before our move in.
I came up with this: a BC Assessment evaluation dated two months before our move in stating our home had “bathrooms plumbed but no fixtures installed, kitchen partially finished”; our plumber, who was also our neighbour, vouched that he had offered to loan us tools to install bathroom fixtures on our own; a letter from a friend verifying that he had helped plaster our bathroom in preparation for installing fixtures that fall.
Because, really, that’s what our homebuilding was about: It was about friends and neighbours and work bees and us, alone, working hard. It wasn’t about handing a fat cheque to our contractor in exchange for a set of keys.
The takeaway: Revenue Canada doesn’t tailor the New Housing GST Rebate for unconventional, owner-built homes. If this applies to you (or even if it doesn’t) here are a few tips to avoid a similar mess.
Create an Excel spreadsheet based on CRA’s worksheet (or download one here) so you’re organizing your invoices correctly from the get-go. This will make filing much more efficient.
Then, complete and submit your forms as soon as you can. Just get that thing in the mail to avoid any uncertainty around when “substantial completion” occurred.
Create a paper trail. If, like us, you’re doing much of the work yourself and scrimping on materials, find ways other than receipts to prove work on the home was ongoing: digital photos with the date embedded, a recorded site visit by your building inspector, utility bills indicating a move-in date.
Be aware that you can only claim expenses going back a certain number of years. So if, like us, you’re doing the work yourself and it takes several years, by the time you file you may not be able to claim the taxes on your earlier expenses. If your biggest expense was your foundation, this may make filing a claim not worth your while.
Hiring accounting help
Have a serious heart-to-heart with your accountant before spending out of pocket on your claim. Mine won’t do New Housing Rebate claims at all, citing the poor investment-to-return ratio (and too many disappointed clients as a result). The question we kept grappling with was when to stop throwing good after bad and walk away.
Last week, more than eight months after filing our claim, I sat in my car with trembling hands holding a letter from CRA. It was no longer about the money (well, it was a little about the money). What truly terrified me was the wave of anger and frustration that I knew that envelope could unleash. I pulled out the letter and quickly scanned it, trying to take in what it was telling me.
We’d won our appeal. A few days later, the cheque arrived. We’ll put some of it toward — finally — finishing our drywall. But, first, we’ll be throwing a housewarming party to thank all those friends who supported us, from the first timbers to the final paperwork.