Millions of Canadians are expected to claim the federal Home Renovation Tax Credit this year -- but as it turns out, not all of them will be eligible. Some homeowners may be in for an unpleasant surprise.

Ron and Barbara Johnson of Welland, Ont. had been putting off doing repairs, but when they heard about the home renovation tax credit they dug into their savings and spent $10,000 on a new roof, garage door and fence.

They were expecting a $1,350 refund -- but after doing their taxes they got quite a shock.

Barbara told us "We thought we would get a tax refund of $1,350. But after we down loaded the tax program U-File and my husband did our taxes it said we were going to get nothing back."

Thinking they made a mistake, they called the federal government and were told "the home renovation tax credit is a non-refundable tax credit based on eligible expenses for improvements to your house, condo or cottage. "

Gena Katz, a tax expert with Ernst and Young, says the home renovation program has been a great success for stimulating the economy, but she says seniors or low income earners who don't pay federal tax won't get a tax refund.

Katz says that "if someone just hears tax credit without an understanding of what a tax credit is, they may think they are going to get that $1,350 if they spend $10,000. But in the case of this retired couple, because of the tax rules, they are ineligible for it."

Â鶹´«Ã½ caught up with Finance Minister Jim Flaherty while he was speaking in Windsor. He told us the renovation program was always referred to as a tax credit -- never a rebate.

"It is a credit," Flaherty said. "We've have called it a credit from day one. Retailers have also been speaking of it that way from the start."

The Johnsons say many retailers told them they would get some money back on renovations. They say they would have spaced out repairs to their home if they knew they wouldn't have qualified. Ron says it should have been clearer.

"More explanation was needed -- especially when it's low income earners that won't qualify," Ron said. "Perhaps they should be more out front about how it works."

Barbara says: "The wonderful part would be if they made it a rebate and then we could at least get back the PST and GST we paid on the $10,000 worth of merchandise we bought."

Key Points:

  • The Home Renovation Tax Credit is a non-refundable tax credit based on eligible expenses for improvements to your house, condo or cottage
  • It can be claimed on your 2009 income tax return and applies to work performed after January 27, 2009 and before February 1, 2010
  • The HRTC applies to eligible expense of more than $1000 but nor more than $10,000, resulting in a maximum credit of $1,350
  • The Conservative government estimates 4.6 million households will claim the credit
  • However a non-refundable tax credit like the HRTC reduces taxes owed, unlike a tax deduction. If your tax credit is larger than your taxes owed, you will not be getting any money back