new tax on assignment sale

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Sale & tax history

3839 71st St N , SAINT PETERSBURG , FL 33709

About this home

Under Construction. NEW CONSTRUCTION, NO HOA FEE'S OR CDD'S! This beautiful architecturally designed home features 4 Bedrooms/3.5 baths, 2-covered balcony's. Engineered hardwood flooring, crown molding, gourmet kitchen that has a large oversized island that is perfect for entertaining. The gorgeous flooring compliments the expansive luxury of this home. Upstairs there are 3 bedroom, a jack and jill bath, and a master bedroom with a master bath that anyone would love with a spa like feel to it. There is also a loft upstairs and a laundry room! Too much to list. Excellent location, close to shopping, beaches and airport. Schedule your showing today! Solar by Sunnova.

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Property details for 3839 71st St N

Garage Spaces: 2
Has Attached Garage
Virtual Tour (External Link)
# of Bedrooms: 4
# of Full Baths (Total): 3
# of Half Baths (Total): 1
Laundry Features: Electric Dryer Hookup, Laundry Room, Upper Level
# of Rooms: 5
Heating Information: Electric, Solar
Cooling Information: Central Air
Interior Features: Crown Molding, High Ceilings, Kitchen/Family Room Combo, Solid Wood Cabinets
Window Features: Impact Glass/Storm Windows
Appliances: Built-In Oven, Cooktop, Dishwasher, Disposal, Electric Water Heater, Microwave, Range, Refrigerator
Flooring: Hardwood, Tile
Construction Materials: Metal Siding, Wood Frame
New Construction
Roof: Shingle
Patio And Porch Features: Front Porch, Rear Porch
Exterior Features: Balcony, Irrigation System, Private Mailbox, Rain Barrel/Cistern(s), Sliding Doors
Universal Property Id: US-12103-N-063116928620510060-R-N
Waterfront Feet Total: 0
Water View Y/N: 0
Water Access Y/N: 0
Water Extras Y/N: 0
Projected Completion Date: 2024-09-30T00:00:00.000
Homestead Y/N: 0
Property Type: Residential
Property Sub Type: Single Family Residence
Property Condition: Under Construction
Total Acreage: 0 to less than 1/4
Lot Size Acres: 0.14
Road Surface Type: Asphalt
Lot Size Square Meters: 574
Permit Number: 22-6000152
Builder License Number: CGC1523749
MFR_BuildingAreaTotalSrchSqM: 316.80
Tax Annual Amount: $1,870.48
Tax Year: 2023
Lease Restrictions YN: 0
Water Source: Public
Sewer: Public Sewer
Utilities: Cable Available, Electricity Available, Electricity Connected
Unit Number YN: 0
MFR_Association2YN: 0
Association Approval Required Y/N: 0
Elementary School: Seventy-Fourth St. Elem-PN
Middle Or Junior High School: Azalea Middle-PN
High School: Dixie Hollins High-PN
Directions: From I-275, exit 25, head west, to 71st Street and turn right to home.

Public facts

Finished Sq. Ft.: —
Unfinished Sq. Ft.: —
Total Sq. Ft.: —
Lot Size: —
Style: Single Family Residential
Year Built: —
Year Renovated: —
County: Pinellas County
APN: 06-31-16-92862-051-0060

Zone name	Neighborhood Suburban Single Family
Zone type	Residential Single Family
Zone code	NS-1

Permitted:	Single-Family
	Multi-Family
	ADU
	Commercial
	Industrial

Not Permitted:	Two-Family
Not Permitted:	Short-Term Rentals

Accessory use and structure
Adaptive reuse
Home occupation
Accessory dwelling unit
Accessory living space
Community residential home 1 to 6 residents
Single family dwelling
Passive park
Public pre k through 12 governmental school
Family day care home
Recreation use accessory to residential use
Recreation use accessory to public park
Cemetery accessory to a house of worship
Large tract planned development
Golf course or country club
Active park
Government building and use
House of worship
Meeting hall and other community assembly facility
Private pre k through 12 nongovernmental school
Post secondary school
Parking surface accessory
Utility substation utility storage tanks
Redevelopment of grandfathered uses
Accessory dwelling unit owner or manager
Accessory artist in residence
Assisted living facility
Community residential home 7 to 14 residents
Community residential home more than 14 residents
Live or work dwelling
Multifamily dwelling
Mobile home
Bed and breakfast
Nursing home
Indoor pet care
Indoor or outdoor pet care
Bank without drive through
Bank with drive through
Neighborhood scale cafe
Car wash and detailing
Catering service or food service contractor
Drive thru facility or use with a drive through
Drug store or pharmacy
Gas or fueling station
Indoor urban vehicle sales
Microbrewery
Mixed use mixture of permitted and accessory uses
Motor vehicle service and repair
General office
Medical office
Temporary labor and day labor office
Veterinary office
Accessory use outdoor sales
Accessory use garden oriented outdoor sales
Principal use outdoor oriented goods outdoor sales
Outdoor sales principal use garden oriented
Accessory commercial outdoor storage
Brewpub restaurant and bar
Indoor restaurant and bar
Accessory outdoor area restaurant and bar
Indoor and outdoor restaurant and bar
Retail sales and service
Retail neighborhood scale
Service establishment
Fleet based service
Service office
Personal service
Construction establishment
Laboratories and research and development
Light manufacturing assembly and processing
Heavy manufacturing
Principal use outdoor storage
Accessory industrial outdoor storage
Publishing and printing
Recycling center
Salvage yard
Storage self or mini warehouse
Towing and freight trucking
Wholesale establishment
Adult use establishment
Adult use business
Club community service and fraternal
Indoor commercial recreation
Outdoor commercial recreation
Health club 5000 square feet or less
Health club more than 5000 square feet
Motion picture theater or cinema 500 seats or less
Motion picture theater or cinema more than 500 seats
Outdoor performing arts venue
Performing arts venue 500 seats or less
Performing arts venue more than 500 seats
Adult day care center
Birthing center
Child care facility
Crematorium
Funeral home mortuary or crematory
Probation or parole correction office
All others school
Social service agencies
Airports and air transportation
Heliport accessory
Mass transit center
Parking structured
Parking surface principal use
Wireless communication antennae
Wireless communication support facility
Utility plant and storage
Third Party YN: 1
Attribution Contact: 727-316-5100
Home Warranty YN: Yes
Status Contractual Search Date: 2024-08-27
Calculated List Price By Calculated Sq Ft: 392.15
Green Verification Count: 0
Direction Faces: West
Green Energy Generation: Solar
Living Area: 2471
Living Area Units: Square Feet
Living Area Source: Builder
Living Area Meters: 229.56
Building Area Total: 3410
Building Area Units: Square Feet
Building Area Source: Builder
Foundation Details: Slab
Builder Name: DHM
Builder Model: 3839
Stories Total: 2
Levels: Two

Sale and tax history for 3839 71st St N

Sale History
Tax History

Public, PreK-5 • Assigned • 0.2mi

Public, 6-8 • Assigned • 1.1mi

Public, 9-12 • Assigned • 1.0mi

Around this home

Transportation near 3839 71st st n, walk score ®, transit score ®, bike score ®.

6 groceries, 27 restaurants, 3 parks

18, 20, 22, 23, 38, 5, 62, 68, 73, 75, 79

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1924 15th Ave S, Saint Petersburg, FL 33712

What's special.

Welcome home! Don't miss your opportunity to become a homeowner in the thriving and developing St. Petersburg Florida. Ranked one of the best cities in Florida for Work-Life Balance in 2023. Home of Pinellas County’s Clearwater Beach (named one of 2024’s top beaches in the World) and home to The Tampa Bay Rays! This home is eligible for up to $50,000+ in Down Payment Assistance for first-time home buyers or any eligible veteran (eligibility and restrictions vary). This turn-key, new construction home is nestled in the heart of one of St. Petersburg's emerging neighborhoods with NO HOA or CDD fees. Conveniently a short drive from The City of Gulfport, under 6 miles from Tropicana Field, Downtown St. Pete, St. Pete Pier, Vinoy Park, The Dali Museum, and less than 15 minutes from St. Pete Beach, Clearwater/St. Pete Airport and more! Enter your new home to a fantastic open floor plan that offers 3 bedrooms, 2 bathrooms, high ceilings, and beautiful waterproof luxury vinyl flooring throughout adding a modern touch and easy maintenance. The tray ceiling and crown-molded spacious living area seamlessly connect the dining space and kitchen, creating a welcoming atmosphere for gatherings and entertaining. The open kitchen is highlighted with 42” cabinets, modern hardware, pendant lights, and beautiful quartz countertops featuring an island that provides extra room for the home chef to cook, prepare meals, and later serve as a casual eating space for the family. Walk into the owner's suite and find your dream retreat and ensuite featuring a dual vanity topped with quartz countertops and a tiled walk-in shower. Exploring the rest of the home you will find two additional bedrooms that share a bathroom featuring tiled shower walls, quartz countertop vanity, and modern hardware. Bedrooms provide appropriate space for a secondary/guest bedroom, home office, or kid’s playroom. All bedrooms and living areas have impact-resistant windows that pour in lots of Florida natural light and are equipped with ceiling fans with corresponding remote controls. This home is looking for it's first owner schedule your private showing today so you can start enjoying the Florida living lifestyle! Show more

Travel times

Tour with a buyer’s agent.

We’ll find a local expert to take you on a private tour of 1924 15th Ave S .

Next available tour time: Tomorrow at 11am

Facts & features, bedrooms & bathrooms.

Bedrooms : 3
Bathrooms : 2
Full bathrooms : 2

Primary bedroom

Features : Ceiling Fan(s), Walk-In Closet(s)
Level : First
Dimensions : 12x15
Dimensions : 12x11
Dimensions : 12x10

Primary bathroom

Features : Dual Sinks, En Suite Bathroom, Exhaust Fan, Stone Counters, Linen Closet
Dimensions : 5x12
Features : Exhaust Fan, Stone Counters, Tub With Shower
Dimensions : 8x5

Dining room

Dimensions : 16x10
Features : Pantry, Kitchen Island, Stone Counters
Dimensions : 11x10

Living room

Features : Ceiling Fan(s)
Dimensions : 17x15
Central Air
Included : Dishwasher, Disposal, Electric Water Heater, Microwave
Laundry : In Kitchen, Laundry Closet
Ceiling Fan(s), Crown Molding, Eating Space In Kitchen, High Ceilings, Kitchen/Family Room Combo, Living Room/Dining Room Combo, Open Floorplan, Solid Surface Counters, Solid Wood Cabinets, Stone Counters, Thermostat, Tray Ceiling(s), Walk-In Closet(s)
Flooring : Vinyl
Windows : Blinds, Impact Glass/Storm Windows, Window Treatments
Has fireplace : No

Interior area

Total structure area : 1,733
Total interior livable area : 1,369 sqft

Virtual tour

View virtual tour
Total spaces : 1
Parking features : Covered, Driveway
Attached garage spaces : 1
Has uncovered spaces : Yes
Levels : One
Stories : 1
Patio & porch : Covered, Front Porch
Exterior features : Lighting, Private Mailbox, Sidewalk
Fencing : Vinyl
Size : 3,942 sqft
Dimensions : 41 x 88
Features : Cleared, City Lot, Landscaped, Sidewalk, 0 to less than 1/4 Acre
Parcel number : 253116115020000140
Special conditions : None

Construction

Type & style.

Home type : SingleFamily
Property subtype : Single Family Residence
Foundation : Slab
Roof : Shingle
New Construction,Completed
New construction : Yes
Year built : 2024
Builder name : Top 2 Bottom Property Preservation Llc

Utilities & green energy

Sewer : Public Sewer
Water : Public
Utilities for property : Cable Available, Electricity Available, Electricity Connected, Phone Available, Sewer Available, Sewer Connected, Street Lights, Water Available, Water Connected

Community & HOA

Subdivision : Brightwood
Has HOA : No
Pet fee : $0 monthly
Region : Saint Petersburg

Financial & listing details

Price per square foot : $275/sqft
Annual tax amount : $738
Date on market : 8/8/2024
Listing terms : Cash,Conventional
Ownership : Fee Simple
Lease term : Min (8 to 12 Months)
Total actual rent : 0
Electric utility on property : Yes
Road surface type : Asphalt, Paved
Pinellas County
Saint Petersburg
Jordan Park
1924 15th Ave S

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New US rules try to make it harder for criminals to launder money by paying cash for homes

REHOBOTH BEACH, Del. (AP) — The Treasury Department has issued regulations aimed at making it harder for criminals to launder money by paying cash for residential real estate.

Under rules finalized Wednesday, investment advisers and real estate professionals will be required to report cash sales of residential real estate sold to legal entities, trusts and shell companies. The requirements won't apply to sales to individuals or purchases involving mortgages or other financing.

The new rules come as part of a Biden administration effort to combat money laundering and the movement of dirty money through the American financial system. All-cash purchases of residential real estate are considered a high risk for money laundering.

The Treasury's Financial Crimes Enforcement Network, also known as FinCEN, will administer the rules.

Money laundering in residential real estate can also drive up housing costs – and rising home prices are one of the big economic issues i n this year’s presidential campaign . A 2019 study on the impact of money laundering on home values in Canada, conducted by a group of Canadian academics, found that money laundering investment in real estate pushed up housing prices in the range of 3.7% to 7.5%.

Under the new rules, the professionals involved in the sale will be required to report the names of the sellers and individuals benefitting from the transaction. They will also have to include details of the property being sold and payments involved, among other information.

Treasury Secretary Janet Yellen said in a news release that the new rules address some of the nation's biggest regulatory deficiencies.

“These steps will make it harder for criminals to exploit our strong residential real estate and investment adviser sectors,” she said.

Ian Gary, executive director of the FACT Coalition, a nonprofit that promotes corporate transparency, called the rules “much-needed safeguards” in the fight against dirty money in the U.S.

“After years of advocacy by lawmakers, anti-money laundering experts and civil society, the era of unmitigated financial secrecy and impunity for financial criminals in the U.S. seems to finally be over," Gary said.

Some industry representatives welcome the new rules.

Tori Syrek, a spokesperson for the National Association of Realtors, said FinCEN’s final rule is a pragmatic approach to combating money laundering and other crimes. “Bad actors are exploiting the current vulnerabilities,” Syrek said. “FinCEN’s final rule is a pragmatic, risk-based approach to combating money laundering and these other crimes.”

The Biden administration has made increasing corporate transparency part of its overall agenda, including through creating a requirement that tens of millions of small businesses register with the government as part of an effort to prevent the criminal abuse of anonymous shell companies.

However, an Alabama federal district judge ruled in March that the Treasury Department cannot require small business owners to report details on their owners and others who benefit from the business.

(844) 538-2937 or ( 416) 593-4357

Real Estate Assignment Sales – New Tax Rules

The Federal Budget for 2022 has made amendments to Part IX of the Excise Tax Act (“ETA”). Effective May 7, 2022, all assignment sales in respect of newly constructed or substantially renovated single unit residential complexes or residential condominium units are taxable.

For clarity, with respect to residential housing transactions, the purchaser (assignor) enters into an agreement of Purchase and Sale with the builder and then sells (assigns) their “rights and obligations” in the agreement of Purchase and Sale to another person (assignee).

Typically, the closing date for a pre-constructions residential property can take several months or even years. During this time, purchasers may decide to assign their rights outlined in the Purchase and Sale agreement to an assignee. The Federal Budget for 2022 now imposes GST/HST tax obligations on assignors and assignees. Essentially, an individual assignor of residential real estate now must collect GST/HST remit it to the CRA. This rule is applicable even to those who do not have a GST/HST number and believe that they are not purchasing and assigning in the course of commercial activity. In cases where the assignor is a non-resident, the assignee is obligated to self-assess the GST/HST. Prior to this amendment, the GST/HST liability depended on whether an individual purchased and assigned their rights in the course of commercial activity and if the purchaser’s true intentions were to live in and use the property, then there would be no GST/HST liability.

Deposit Portion of Assignments

Where an assignment agreement is entered into on or after May 7, 2022, the Budget confirms that GST/HST would not be applicable to the deposit portion of the assignment price. However, it must be indicated in writing that a part of the consideration is attributable to the reimbursement of a deposit paid by the assignor to the builder under the Purchase and Sale agreement. This means that an assignor would only be liable for GST/HST on the amount above the deposit. This also eliminates double taxation and is consistent with the holding from current caselaw, Casa Blanca Homes Ltd. v. The Queen , 2013 TCC 338 .

Where an assignment agreement is entered into before May 7, 2022, and the assignment sale is taxable, the total amount payable for the sale is subject to the GST/HST, this includes any amount paid by the assignor as a deposit to the builder, whether or not this amount is separately identified.

“Anti-flipping” Rule

Budget 2022 further proposes that sales of residential properties owned for less than 12 months are deemed to generate business income under the Income Tax Act (“ITA”). These are subject to limited exceptions such as divorce, or relocation for employment purposes. In terms of assignment sales, it has not yet been determined whether the proposed “anti-flipping” rules would apply since taxpayers do not technically “own” the properties. Tax practitioners are carefully monitoring this. For more information see our previous blog discussing this .

If you have questions about the new rules contact us today !

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.

Withholding Tax for Non-Residents on Real Estate Sales
Assigning Property and the GST/HST Implications
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Tax Guidance for Assignors in Real Estate Assignment Transactions

Published: November 13, 2020

Last Updated: April 26, 2021

Tax Guidance for Assignors in a Real Estate Assignment Transaction – a Toronto Tax Lawyer Analysis

Introduction – what is real estate assignment.

Buying and Selling real estate assignments is a common form of transaction in the real estate market. An assignment is a transaction of the rights to a property before the legal ownership of the actual property is transferred. In the real estate context, the buyer of an assignment (the “assignee”) would purchase the rights to a real estate property, typically but not always a condo, that is being built under a Purchase and Sale Agreement, between the assignment seller and the builder, from the seller of the assignment (the “assignor”). This transaction would take place before the closing date of the property, and the ownership of the property legally remained with a third party, the builder, throughout the assignment transaction. Hence only contractual rights to a piece of property were assigned from one party to another in an assignment transaction and not the property itself.

Tax Guidance to Reporting Profits from an Assignment Sale – Capital Gains and GST/HST

The two main tax issues associated with the assignor in an assignment transaction are whether the profits from the sales are to be characterized as business income or taxable capital gain and whether the sales of assignments give rise to the obligation for the assignor to collect and remit GST/HST.

While many assignors would report their profits as taxable capital gains as well as taking the position that assignors are exempt from collecting and remitting GST/HST for sales of the assignments, over the past few years, the CRA has been aggressively going after assignment transactions, often auditing Canadian taxpayers for both unreported taxable business income and unremitted excise tax.

Whether a particular assignment sale will give rise to taxable business income will depend on the facts involved in the case. Similarly, whether the assignor has an obligation to collect and remit GST/HST will also depend on the facts. In short, there is no single answer and simple tax guidance as to how to report your taxes on every assignment transaction. We will breakdown the relevant tax factors below

Taxable Capital Gain vs. Taxable Income

The determination of income versus capital gain is a complex tax topic in which the Income Tax Act itself provides no tax guidance. This means the Tax Court will look to case law for a holistic set of relevant tax factors to determine taxable income vs. taxable capital gains. Please see our article on this general topic for a detailed breakdown (https://taxpage.com/articles-and-tips/a-canadian-tax-lawyers-introduction-to-business-income-vs-capital-gains/).

In the leading case on this issue, Happy Valley Farms Ltd v MNR, the Federal Court chose a set of holistic factors based on the principle of circumstantially determining the taxpayer’s intention at the time of the acquisition of the property. When a taxpayer acquired a property with the intention to resell at a higher value, such intention would strongly suggest the taxpayer has been carrying out business. Therefore, the taxpayer’s income should be characterized as taxable business income.

However, the mere fact an assignor ended up selling his or her legal interest in a piece of real estate property does not evidence that he or she had an intention to resell when he or she initially acquired the property. Usually, CRA has to prove an intention to resell through circumstantial evidence to make an inference that the taxpayer had an intention to resell upon acquisition. In the Happy Valley Farm case itself, the Federal Court determined the intention of the taxpayer by looking at his conduct while holding the property as well as his relevant past conducts.

Factors such as frequency or number of other similar transactions by the taxpayer and circumstances that were responsible for the sale of the property are ultimately tools to help the court to determine the taxpayer’s intention at the time of acquisition. No single Happy Valley Farms factor outside the motive factor is determinative, and the determination of taxable business income versus taxable capital gains in assignment transactions will depend on a holistic assessment of the facts.

GST/HST on Assignment Sales

Unlike the income tax implications of assignment sales, the GST/HST implication of assignment transactions is more clear. The seller in an assignment transaction can often be deemed as a “builder” under the Excise Tax Act, which gives rise to the obligation to collect and remit GST/HST upon the sales of the transaction.

However, even if the seller is not deemed to be a builder, an assignment sale is at the very least a transaction involving a “chose in action” which is considered an enforceable legal right in the property itself. A chose in action is specifically mentioned in the definition of “property” under section 123(1) of the Excise Tax Act

property means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money; On the other hand, the seller of an assignment transaction can also claim Input Tax Credits for his or her initial purchase of the assignment rights from the builder. Since many buyers and sellers of real estate assignments are likely unaware of the GST/HST implications of assignment transactions, a crucial issue to keep in mind is the deadline and extension mechanism for claiming Input Tax Credit under subsection 225(5) of the Excise Tax Act.

Pro Tax Tips – Prepare for Different Tax Implication for Each Assignment Transaction

The tax implication of an assignment transaction for the assignor will depend on whether the assignor was legally engaging in business activities in the course of buying and selling his or her real estate property interest. Such determination will involve holistically looking at all the relevant facts surrounding the transaction. The nature of an assignment sale itself does not determine whether the profit from such sales should be reported as taxable income or taxable capital gains.

As CRA has been going after assignment transactions aggressively and will likely to continue doing so in the foreseeable future, it is important for Canadian taxpayers to be aware of his or her rights to objection under the Income Tax Act in order to make sure his or her right to file a notice of objection is preserved upon being audited by the CRA .

If you have been contacted by the CRA regarding your past assignment transactions or you have questions regarding a specific assignment transaction that you are contemplating and whether (or not) it constitutes a business transaction, please contact our office to speaking with one of our experienced Canadian tax lawyers.

Disclaimer:.

"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

About the Author

David j. rotfleisch.

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

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New Tax Rules for Real Estate Assignments and Flipping

Written by Sukhman Sandhu

Blog | real estate law, june 6, 2022.

To combat the sharp rise in real estate prices, the Canadian government has proposed new GST/HST rules in relation to Assignments (effective May 7, 2022) and Income Tax rules in relation to flipping real estate in general (effective January 1, 2023).

GST/HST to Apply for all Assignment Sales

As of May 7, 2022, where an individual sells an assignment of a new build or substantially renovated residential property, the transaction will be subject to HST, regardless of original intentions, as per the Canadian Excise Tax Act (“ETA”). Every individual assignor of residential real estate will now have to collect GST/HST on their assignment profit and remit it to the CRA.

Previously, if the original intention of entering the pre-construction Agreement of Purchase and Sale (APS) was for personal use, GST/HST did not apply to the assignment agreement. GST/HST previously only applied if the original intention was to sell for profit or flip the property. Effective May 7, 2022, whatever your intention, GST/HST will apply on the assignment profit.

Accompanied with some good news, the new rules do clarify that HST is no longer charged on recovered deposits. Prior to May 7, 2022, despite the court ruling against the CRA in a previous case dealing with this issue, the CRA continued to represent to tax payers that if the assignment is subject to GST/HST, the amount provided from the assignee (new buyer) to the assignor (original buyer) which reimburses the assignor for the assignor’s deposit to the builder is also subject to GST/HST. This created double taxation as the deposit that the assignor paid to the seller/builder is already subject to GST/HST.

For illustration purposes, envision Carrol purchased a new construction residential property for $1,200,000 and paid the builder’s lawyer a deposit of $200,000. Subsequently, Carrol entered into an assignment agreement for the assignment sale price of $1,500,000. Carrol in this situation is known as the ‘assignor’ and the individual who purchased from her is known as the ‘assignee’. The assignee must pay $500,000 to Carrol ($300,000 for the difference between assignment sale price of $1,500,000 and original purchase price of $1,200,000 + $200,000 to reimburse the assignor for assignor’s previous deposit to builder/builder’s lawyer) and $1,000,000 to the builder to complete the purchase (not including any closing/miscellaneous fees).

Prior to May 7, 2022, if Carrol’s original intention was to purchase for personal use, she would not be responsible to pay any HST/GST in relation to the assignment sale.

Prior to May 7, 2022, If Carrol’s original intention was not for personal use (i.e. investment property), then she would be liable to pay GST/HST on $500,000 (both the profit and deposit) which at the rate of 13% would have equaled $65,000. It is important to note that Carrol, on advise of her accountant, could have only paid GST/HST on $300,000 (avoiding any tax on deposit) by only remitting $39,000 and citing previous case ruling against double taxation on recovered deposit to the CRA.

As of May 7, 2022, regardless of Carrol’s original intention, she is liable to pay GST/HST on $300,000 which at the rate of 13% would equal $39,000.

Business Income instead of Capital Gains for Residential Property Flipping

Effective January 1, 2023, a new residential property flipping rule will classify the appreciation amount of all residential properties that are owned for less than 12 months to be business income under the Canadian Income Tax Act (“ITA”). This new legislation change will be subject to limited “life events” exceptions, such as the growth of a household, separation, a disability or illness, an employment change, insolvency, or an involuntary disposition.

Prior to January 1, 2023, investment properties (i.e. rentals) sold within or after 12 months of ownership are subject to capital gains tax which is 50% of business income tax and principal residence properties (owner-occupied) sold within or after 12 months of ownership are entirely exempt from tax.

Growing commentators believe that this proposed Residential Property Flipping Rule may also result in assignment sales treated as business income as opposed to capital gains. This would result in the assignor not only paying GST/HST on the portion of their assignment profit but also adding 100% of the assignment profit amount (minus remitted GST/HST) onto their annual personal income amount. We look forward to receiving further clarification in the near future.

If you are buying or selling investment properties, or have questions or concerns about residential or commercial real estate law in general, contact us at Sukh Law .

Sukh Law publishes articles for information purposes only and is not intended to constitute legal advice.

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Tax on Assignment Sales: What You Need to Know

Real estate assignment sales and flipping pre-construction condos have become popular strategies for investors looking to make a quick return. And CRA has noticed. In this blog, I will explain two ways CRA is cracking down on pre-construction investors and what you can do to minimize your tax paid on assignment sales.

#1 – CRA May Tax Assignment Sales as Business Income

Similar to selling a resale home, you are required to report an assignment sale on your tax return and pay the necessary tax. Many real estate investors are quick to assume that the profit from an assignment sale is a capital gain.

However, CRA may tax assignment sales in two ways:

Capital gain – where only 50% of the profit is taxable
Business income – where 100% of the profit is taxable

To make its determination, CRA will consider factors such as:

What was your motive or intention in buying the property?
How long did you hold the property before selling?
Do you have a history of similar transactions?
What is your reason for selling?

Based on past court cases, we know that CRA will generally consider the profit from assignment sales to be business income unless you have a compelling explanation.

With the potential to double its tax collection, you can bet that CRA is watching this closely!

#2 – CRA May Assess GST/HST on Assignment Sales

This is probably one of the most overlooked tax implications when it comes to assignment sales.

While resale homes are generally exempt from GST/HST, you may be surprised to learn that this may not be the case with assignments.

Similar to income tax, CRA will look at your intentions in buying the property to determine whether GST/HST applies to you.

For example, you are likely considered a “builder” and will have to charge GST/HST if you assign a pre-construction unit that you bought for the purpose of flipping to make a quick profit.

And it gets worse:

Not only do you have to charge GST/HST on your profit, you also have to charge GST/HST on the deposit you recoup from the buyer!

Since most real estate contracts embed GST/HST into the sales price, this cost will likely be borne by the assignor.

Let’s look at an example:

Scenario Luca purchased a pre-construction condo unit for $450,000 a couple of years ago. He paid a deposit of $90,000 to the builder. The unit is currently worth $575,000. Luca had always planned to buy this unit as an investment and assign it for a profit. He has a personal tax rate of 50%.

On the surface, it looks like Luca stands to make a great profit. But, let’s see how that holds up:

What Can You Do to Save Tax on Assignment Sales?

Firstly, if you are unsure whether you have a capital gain or business income, you should reach out to a tax professional for advice.

Secondly, if the profit on your assignment sale is in fact business income because of the factors discussed above, then you should consider incorporating.

The benefit here is that business income is usually taxed at low rates inside a corporation (about 12.2% in Ontario and 11% in British Columbia). This is much lower than the the top tax rate of 53% paid by individuals.

Now be warned:

Setting up a corporation for real estate investing is not for everyone. Be sure to consult with a tax professional before implementing this strategy.

Lastly, it is important to work with an experienced real estate lawyer to discuss your GST/HST options. In my experience, it may be possible to restructure an assignment sale to reduce the GST/HST you pay as an assignor.

In Luca’s case, with the right professionals on his team, he was able to restructure the deal to reduce his taxes by about 38% (50% less 12.2%), pay less GST/HST and put this money into his next real estate project.

Have qu estions about flipping pre-construction real estate? Contact us for a consultation.

The content of this blog is intended to provide a general guide to the subject matter. Professional advice should be sought about your specific circumstances.

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What Is an Assignment Sale? Understanding the Ins and Outs of This Real Estate Process

An assignment sale occurs when the original buyer of a property (the assignor) transfers their rights and obligations of the property contract to another buyer (the assignee) before the official closing of the sale.

This process allows the assignee to step into the original purchaser's shoes, taking on the commitments of the property purchase, which could be a pre-construction condo, house, or any other form of real estate.

Now, let's delve deeper into understanding how assignment sales work, their intricacies, and what they mean for buyers and sellers in the real estate market.

Demystifying the Elements of an Assignment Sale

Embarking on a real estate journey often introduces many terms and processes that may seem complex at first glance, with 'assignment sales' leading the pack in complexity and confusion.

Whether you're the original buyer looking to navigate away from closing costs or a savvy purchaser hunting for a valuable investment, understanding the nuts and bolts of assignment sales is an invaluable asset in the dynamic landscape of real estate.

How Assignment Sales Work

Assignment sales introduce a unique dynamic in real estate transactions, particularly in bustling markets like Vancouver Island and the Sunshine Coast .

When you buy a pre-construction unit, the property is yours, albeit not immediately ready for occupation. Life changes or financial circumstances sometimes evolve between the original purchase agreement and the final closing, necessitating a shift in plan.

Here's where assignment sales come into play. The original buyer can sell their interest in the property before the final sale, sidestepping typical hurdles like mortgage payments or land transfer taxes that come with a regular sale. This method provides a strategic avenue for purchasers to hand over their contractual obligations to another party without waiting for the property's completion.

The Assignment Clause: A Vital Cog in the Wheel

The assignment clause in the original contract is central to these types of transactions. This clause allows the transfer of the buyer's rights and responsibilities to another person.

It's crucial to understand that not all pre-construction sales agreements have an assignment clause, and most builders or developers might impose restrictions or require consent before any assignment deal can proceed.

Understanding the Financials: Costs and Fees

Engaging in assignment sales tends to involve several costs that both the buyer and seller must anticipate.

These include the assignment fee charged by the developer, legal fees for contract transfer, and possibly higher legal fees due to the complexity compared to a resale property. There could also be tax implications depending on the nature of the transaction and the parties involved.

Navigating Through the Interim Occupancy Period

A common scenario in assignment sales, especially in pre-construction condos, is dealing with the interim occupancy period.

This period arises when the assignee can take possession (though not ownership) of the unit while the property is not officially registered. During this phase, the assignee pays occupancy fees, akin to rent, which don't go towards mortgage payments.

Understanding this period helps both parties make an informed decision and prepare for the financial responsibilities it entails.

The Pros and Cons of Assignment Sales

Navigating assignment sales requires a balanced understanding of its advantages and drawbacks. While these transactions open avenues for lucrative deals and flexible arrangements, they also carry inherent risks and complexities that can impact buyers and sellers.

This exploration will provide clear insights, aiding your decision-making in the vibrant real estate market.

The Bright Side: Benefits of Assignment Sales

Less Competition, More Opportunities: One advantage that makes assignment sales attractive, particularly in areas prone to bidding wars like Vancouver Island , is less competition. Fewer buyers are willing or informed about engaging in this kind of sales transaction, reducing the frenzy often seen in hot real estate markets. This situation can present a more favourable buying environment for those ready and willing to proceed with an assignment purchase.
Potential for a Better Deal: For buyers, assignment sales sometimes offer the opportunity to get into a brand-new unit at a potentially lower cost. Since the assignee is stepping into an existing agreement, they might benefit from the original purchase price, which could be lower than current market rates, especially in fast-growing communities.
Flexibility for the Original Buyer: For the original buyer, an assignment sale offers a way out, potentially recouping the deposit paid and avoiding financial penalties that might come with breaking a purchase agreement. This strategy can be particularly advantageous if the purchaser's circumstances change and needs to free up cash or avoid taking on a mortgage.

The Flip Side: Challenges and Risks of Assignment Sales

Complexity and Higher Legal Fees: Assignment sales are not your straightforward real estate transaction. They require additional steps, such as securing the developer's consent, and the legal process is more complex than purchasing resale properties. As a result, both parties might incur higher legal fees to facilitate the transaction.
Financial Overheads and Closing Costs: For the assignee, the initial cost outlay can be substantial for the assignee. They must reimburse the original buyer's deposit, pay the assignment fee, cover land transfer taxes, and prepare for other closing costs. These expenses require careful consideration and financial planning.
Uncertainties and Marketing Restrictions: In some cases, developers impose marketing restrictions, making it challenging to advertise the assignment sale. Additionally, the assignee, now the new buyer, takes on certain risks like development charges or changes in market conditions, which could affect the property's value upon final closing.

Making the Move: Deciding If an Assignment Sale Is Right for You

Deciding to engage in an assignment sale is a pivotal moment, requiring a blend of financial foresight and market understanding.

As we delve into this decision-making process, we'll consider critical personal and economic factors that ensure you're making a choice that aligns with your real estate ambitions and lifestyle aspirations.

Conduct Due Diligence: Know What You're Getting Into

Involving real estate agents experienced in assignment sales is a prudent step for guidance through the intricacies of these transactions.

Also, consulting with a real estate lawyer ensures you understand the legalities, your rights, and any potential liabilities you might be assuming.

Consider Your Financial Standing and Long-Term Goals

Reflect on your current financial health and future plans.

For original buyers, if life changes dictate a change in your real estate investments, an assignment sale could be a viable exit. For potential assignees, consider whether this buying pathway aligns with your investment strategy and if you're comfortable with the associated risks.

Stay Informed About Market Conditions

Market dynamics greatly influence real estate valuations. A clear picture of current trends, especially in your buying area (like Fort St John or cities in the Okanagan ), helps make an informed decision.

Understanding these trends could offer insights into whether you're setting yourself up for a profitable investment or a potential financial misstep.

Bringing It All Home with LoyalHomes.ca

Navigating the world of assignment sales can be a complex journey, laden with opportunities and pitfalls. Whether you're considering selling your contractual rights or stepping into an existing purchase agreement, the route is layered with legal, financial, and market considerations.

At Loyal Homes, we understand that your real estate journey is more than just a transaction; it's a pivotal chapter in your life story. We're here to guide you through each step, ensuring you're equipped with the local, accurate, and relevant information to make decisions confidently. Our team is committed to providing a service that stands a notch above the rest, focusing on relationships and community at its core.

Ready to take the next step in your real estate adventure in British Columbia? Whether it's finding the perfect neighbourhood, exploring investment opportunities, or seeking your dream home, we're here to assist.

For a personalized experience tailored to your unique needs, consider our Personalized Home Search . If you're on the selling side and need to understand your property's current market standing, request a Free Home Valuation . Or, for any other inquiries or guidance, feel free to contact us . Your journey to a successful real estate experience in British Columbia starts with LoyalHomes.ca, where your peace of mind is our highest priority.

Frequently Asked Questions

Is it good to buy an assignment sale.

Buying an assignment sale can be advantageous, offering lower purchase prices compared to current market rates for similar properties, especially in hot real estate markets. However, this venture also requires thorough due diligence to ensure that the agreement terms, property details, and financial implications align with your investment goals.

Can You Make Money on an Assignment Sale?

Yes, there is a potential to make money on an assignment sale, particularly if the property's value has increased since the original purchase date. This profit occurs due to appreciation over the period, especially in high-demand areas, but it's crucial to factor in any assignment fees, legal costs, and tax implications to understand the net gainfully.

What Are the Risks of Buying an Assignment Sale?

The risks include a lack of guarantees on the final product as specifications might change, potential delays in construction, and complexities in financing, often requiring a more substantial initial deposit. These elements underscore the importance of legal counsel to navigate contract specifics and to prepare for any contingencies or additional costs.

How Do I Sell My Pre-Construction Assignment?

Selling a pre-construction assignment involves marketing to potential buyers, typically requiring the developer's consent and possibly entailing a fee. Engaging with a real estate professional who understands the local market nuances and legalities of assignment sales is essential to ensure a smooth, compliant transaction.

Do I Pay Tax on Assignment Sale?

Tax implications on assignment sales can be multifaceted, potentially involving income tax on profits and GST/HST on the purchase, depending on factors like the property type and the seller's tax status. It's advisable to consult with a tax professional to accurately determine specific obligations and strategize for tax efficiency based on your circumstances.

What Is the Difference Between a Transfer and an Assignment?

A transfer and an assignment differ significantly; a transfer involves changing property ownership after a project's completion, whereas an assignment sells one's interest in a property before it's finished. Understanding this distinction is crucial as it affects the contractual obligations, rights transferred to the new buyer, and the legal and financial processes involved in the transaction.

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Proposed GST/HST Treatment of Assignment Sales

GST/HST Notices - Notice 323 May 2022

On April 7, 2022, the Minister of Finance Canada tabled Budget 2022 which proposed an amendment to Part IX of the Excise Tax Act. The proposed amendment would make all assignment sales in respect of a newly constructed or substantially renovated single unit residential complex or residential condominium unit taxable.

This publication provides questions and answers regarding the proposed amendment. Any commentary in this publication should not be taken as a statement by the Canada Revenue Agency that the proposed amendment will become law in its current form.

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Tax Act (ETA). The information in this publication does not replace the law found in the ETA and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the ETA or relevant regulation, or call GST/HST Rulings at 1‑800‑959‑8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service , explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1‑800‑567‑4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1‑855‑666‑5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in the participating provinces at the following rates: 13% in Ontario and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province .

Proposed amendment, definitions, questions and answers.

An assignment sale in respect of residential housing is a transaction in which a purchaser (an assignor) that has entered into an agreement of purchase and sale with a builder of a new house sells (assigns) their rights and obligations under the agreement of purchase and sale to another person (an assignee). The agreement that details the terms of the assignment of an agreement of purchase and sale (the assignment sale) is generally referred to as the assignment agreement.

For purposes of this notice, a house includes a detached or semi-detached house, a duplex, a condominium unit, a townhouse, a unit in a co-operative housing corporation, a mobile home (including a modular home) and a floating home.

Under the current GST/HST rules, an assignment sale made by a person that is not an individual in respect of newly constructed or substantially renovated residential housing is generally taxable, whereas an assignment sale made by an individual may be either taxable or exempt. An assignment sale made by an individual is generally taxable if the individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of selling their interest in the real property. If, on the other hand, the individual had originally entered into the agreement of purchase and sale for another primary purpose (for example, to occupy the house as a place of residence), the assignment sale is generally exempt. Any amount an assignor paid as a deposit to a builder is included in the consideration for a taxable assignment sale. For more information on the current GST/HST rules, refer to GST/HST Info Sheet GI-120, Assignment of a Purchase and Sale Agreement for a New House or Condominium Unit .

The proposed amendment to the ETA would make all assignment sales, including those made by individuals, in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. Furthermore, the proposed amendment would exclude any amount attributable to a deposit paid by an assignor to a builder from the consideration for a taxable assignment sale, when certain conditions are met. The proposed amendment would apply to all assignment agreements entered into after May 6, 2022.

The proposed amendment adds section 192.1 to the ETA. Proposed section 192.1 states that if a taxable supply by way of sale of a single unit residential complex (as defined in subsection 254(1)) or of a residential condominium unit is made in Canada under an agreement of purchase and sale (in this section, referred to as the purchase agreement) entered into with a builder of the single unit residential complex or of the residential condominium unit and if another supply by way of assignment of the purchase agreement is made by a person (other than the builder) under another agreement, then the following rules apply:

the other supply is deemed to be a taxable supply, by way of sale, of real property that is an interest in the single unit residential complex or residential condominium unit
the consideration for the other supply is deemed to be equal to the amount determined by the formula:

A – B
Where
A	is the consideration for the other supply as otherwise determined for GST/HST purposes
B	is: (i) if the other agreement indicates in writing that a part of the consideration for the other supply is attributable to the reimbursement of a deposit paid under the purchase agreement, the part of the consideration for the other supply that is solely attributable to the reimbursement of the deposit paid under the purchase agreement (ii) in any other case, zero

Proposed section 192.1 applies in respect of any supply by way of assignment of an agreement of purchase and sale if the supply is made after May 6, 2022.

Proposed section 192.1 applies to a single unit residential complex or a residential condominium unit.

Single unit residential complex means a residential complex that does not contain more than one residential unit, but does not include a residential condominium unit.

For the purposes of the proposed amendment, a single unit residential complex also includes:

a multiple unit residential complex that does not contain more than two residential units (for example, a duplex)
any other multiple unit residential complex if it is described by paragraph (c) of the definition of residential complex in subsection 123(1) and contains one or more residential units that are for supply as rooms in a hotel, motel, inn, boarding house, lodging house or similar premises and that would be excluded from being part of the residential complex if the complex were a residential complex not described by that paragraph (for example, a bed and breakfast establishment)

Residential condominium unit means a residential complex that is, or is intended to be, a bounded space in a building designated or described as a separate unit on a registered condominium or strata lot plan or description, or a similar plan or description registered under the laws of a province, and includes any interest in land pertaining to ownership of the unit.

1. I am an individual who entered into an assignment agreement before May 7, 2022. Is the assignment sale taxable?

If an assignment agreement is entered into before May 7, 2022, the current GST/HST rules apply. This means that the assignment sale may be either taxable or exempt. An assignment sale made by an individual is generally taxable if the individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of selling their interest in the real property. If, on the other hand, the individual had originally entered into the agreement of purchase and sale for another primary purpose (for example, to occupy the property as a place of residence), the assignment sale is generally exempt.

Under the current GST/HST rules, if an assignor’s sale of their interest in the real property to an assignee is taxable, the total amount payable for the sale of the interest is subject to the GST/HST, including any amount the assignor paid as a deposit to the builder, whether or not such an amount is separately identified.

For more information, refer to GST/HST Info Sheet GI-120 .

2. The assignor already paid a deposit under the purchase and sale agreement. Is the portion of the assignment sale that is attributable to the deposit taxable?

Typically, the consideration for an assignment sale includes an amount attributable to a deposit that had previously been paid to the builder by the assignor. The application of the GST/HST to the amount attributable to the deposit in the context of the assignment sale depends on the date the assignment agreement was entered into and not on the date the deposit was paid to the builder.

Where an assignment agreement is entered into before May 7, 2022, and the assignment sale is taxable, the total amount payable for the sale of the assignor’s interest to the assignee is subject to the GST/HST, including any amount the assignor paid as a deposit to the builder, whether or not such an amount is separately identified.

Where an assignment agreement is entered into on or after May 7, 2022, and the assignment agreement indicates in writing that a part of the consideration is attributable to the reimbursement of a deposit paid by the assignor to the builder under the purchase and sale agreement, the proposed amendment excludes the amount attributable to the deposit from the consideration for a taxable assignment sale.

3. Who is responsible for remitting the tax on the assignment sale under the proposed amendment?

The proposed amendment does not change who is responsible for remitting the tax on the assignment sale. The assignor in respect of a taxable assignment sale would generally continue to be responsible for collecting the GST/HST and remitting the tax to the Canada Revenue Agency (CRA). Where the assignor is a non-resident of Canada, the assignee would continue to be required to self-assess and pay the GST/HST directly to the CRA.

For more information, refer to Guide RC4022, General Information for GST/HST Registrants .

4. Will the proposed amendment affect the new housing rebate?

The amount of a new housing rebate under the GST/HST legislation is determined based, in part, on the total tax paid and the total consideration for a taxable supply of a house, which includes any other taxable supply of an interest in the house (for example, the tax and consideration paid by an assignee for a taxable assignment sale). As a result of the proposed amendment, where an assignment agreement is entered into after May 6, 2022, the GST/HST applies to assignment sales that were not otherwise taxable, and the amount attributable to a deposit is excluded from the consideration for all taxable assignment sales. Consequently, the proposed amendment may have an impact on both the total tax paid and the total consideration for the taxable supply of a new house, which may affect the amount of a GST/HST new housing rebate in respect of the GST or the federal part of the HST, or of a new housing rebate in respect of the provincial part of the HST, that may be available in respect of a new house.

Only one new housing rebate application can be made for each new house. Therefore, an assignee purchaser cannot submit a rebate application through a builder (Builder A) for the tax paid to Builder A on the purchase of the house and submit a second rebate application for the tax paid to the assignor on the purchase of the interest in the house. In such cases, the assignee purchaser may want to file their new housing rebate application directly with the CRA rather than through Builder A. In this way, the assignee purchaser can include in the new housing rebate application the tax paid to Builder A and the tax paid to the assignor in determining the amount of their GST/HST new housing rebate and, where applicable, a provincial new housing rebate.

For more information, refer to Guide RC4028, GST/HST New Housing Rebate .

5. Will the proposed amendment affect the new residential rental property rebate?

The amount of a new residential rental property rebate (NRRPR) under the GST/HST legislation is determined based, in part, on the total tax payable in respect of a residential complex and the fair market value of the qualifying residential unit that forms part of the complex at the time the GST/HST becomes payable on the purchase of the complex. As a result of the proposed amendment, where an assignment agreement is entered into after May 6, 2022, the GST/HST applies to assignment sales that were not otherwise taxable, and the amount attributable to a deposit is excluded from the consideration for all taxable assignment sales. Consequently, the proposed amendment may have an impact on the total tax payable in respect of the complex, which may affect the amount of a GST/HST NRRPR in respect of the GST or the federal part of the HST, or of an NRRPR in respect of the provincial part of the HST.

For more information, refer to Guide RC4231, GST/HST New Residential Rental Property Rebate .

Further information

All GST/HST technical publications are available at GST/HST technical information .

To make a GST/HST enquiry by telephone :

for GST/HST general enquiries, call Business Enquiries at 1‑800‑959‑5525
for GST/HST technical enquiries, call GST/HST Rulings at 1‑800‑959‑8287

If you are located in Quebec , call Revenu Québec at 1‑800‑567‑4692 or visit their website at revenuquebec.ca .

If you are a selected listed financial institution (whether or not you are located in Quebec) and require information on the GST/HST or the QST , go to GST/HST and QST - Financial institutions, including selected listed financial institutions or:

for general GST/HST or QST enquiries , call Business Enquiries at 1‑800‑959‑5525
for technical GST/HST or QST enquiries , call GST/HST Rulings SLFI at 1‑855‑666‑5166

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ADVO TAX LAW

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May 11, 2022

Tax Implications of a Real Estate Assignment: a Tax Exposure Calculator

This article provides an overview of GST/HST and Income Tax rules (current and proposed by the Federal Budget 2022) as they apply to real estate assignments sales.

In order to illustrate the points we discuss in the article, we have created a fun and interactive Assignment Tax Exposure Calculator for real estate assignments in Ontario (HST rate 13%) that result in business income for Income Tax purposes . If your assignment sale results in capital gain for Income Tax purposes, this calculator won't work for you (we might create one for our readers, if there is enough interest). Talk to your tax advisor to determine whether your assignment sale would result in business income or in capital gain.

We hope that our readers enjoy testing their business strategies with our Tax Exposure Calculator as they plan their assignment sales, but we caution them not to rely on the calculator in lieu of professional tax, legal or accounting advice.

Federal Budget 2022

A typical purchase agreement for a pre-construction residential property has a closing date scheduled months, often years in advance. As purchasers wait for the construction to complete/the transaction to close, some choose to assign their rights under the purchase agreement for the property for a fee. Federal Budget 2022 proposes new tax rules that will affect both such assignors and assignees.

Take, for example, Rebecca who purchased a pre-construction condominium in Downtown Toronto in 2017 for $300,000 (including HST) with a November 2022 tentative closing date. She provided a deposit of $60,000 to the builder. At the time of purchase, Rebecca’s intention was to live in the condo. As years went by, Rebecca changed her mind about living in Downtown; she decided to live in the suburbs instead. Lucky for Rebecca, the market value of her pre-construction condo surged to $500,000. In June 2022, Rebecca assigns her rights under the purchase agreement for the condo to a new purchaser who is willing to pay $260,000 ($60,000 to reimburse her for the deposit she made + $200,000 on account of the increase in price). Rebecca thinks she made an impressive profit of $200,000 but she did not consider taxes.

If you are like Rebecca, Federal Budget 2022 has some good news and some bad news for you (but mostly bad).

GST/HST to Apply on All Assignment Sales

The bad news is that effective May 7, 2022, under the Excise Tax Act (Canada) (“ETA”) every individual assignor of residential real estate would have to collect GST/HST on their assignment profit and remit it to the CRA. The rule will apply even to those who believe they are unrelated to the business of real estate and did not have a GST/HST number. Where an assignor is a non-resident, the assignee would be required to self-assess and pay the GST/HST to the CRA. In my example, Rebecca would have to remit 13% HST included in the $200,000 assignment profit ($23,008) directly to the CRA.

Before the Budget proposal, Rebecca’s HST liability depended on whether or not she purchased and assigned a condo in the course of a commercial activity. If Rebecca’s true intentions were to live in the condo, she would have been exempt from HST.

Income from Assignment: Business Income or Capital Gain?

Another element of bad news does not directly follow from the proposals, but raises concerns. Some commentators believe that, as an indirect effect of the Budget, we may see more assignment sales treated as business income (taxed at full rates) as opposed to capital gain (taxed at half rates) under the Income Tax Act (Canada) (“ITA”).

First, if all assignments are “taxable supplies” subject to GST/HST under the ETA, it generally implies the existence of a “commercial activity.” In its turn, a commercial activity generally implies business income treatment under the ITA. Granted, if an activity is deemed to be a “taxable supply” under the ETA, the deeming rule should not extend to a different Act, the ITA, but tax practitioners are watching carefully.

Second, Budget 2022 includes a new “anti-flipping” rule, which deems sales of residential properties owned for less than 12 months to generate business income under the ITA, subject to limited “life events” exceptions, such as a divorce or a job relocation. It is unclear whether the proposed “anti-flipping” rule would apply to assignments when taxpayers technically do not “own” the properties. Stay tuned.

In any event, the new “acceptable” list of life events replaces the current capital vs. income legal test entirely. Instead of determining whether the condo was Rebecca’s capital property or inventory, the focus shifts to merely checking whether her reason to sell/assign was on the list of the “acceptable” ones.

If Rebecca’s assignment profit is treated as business income for income tax purposes, her highest marginal tax rate would be 53.53% in Ontario. In very rough terms, Rebecca should budget well over 50% of her assignment profits for HST remittances and income tax. Depending on her marginal tax rate, she may be able to only keep about $88,000 of her original $200,000 assignment profit.

Before the Budget proposal, Rebecca’s intentions for the property (business or personal) would have been a question of fact. If she could prove that she intended to live in the condo, she would pay no HST and pay tax on capital gain. Her total tax liability would have been approximately $50,000 (25% of the $200,000 assignment profit).

No HST On Deposit Portion of Assignment Price

But there is also good news: the Budget proposes to exclude deposits from consideration for taxable supplies by assignment for GST/HST purposes. This means that GST/HST will only apply on the profit portion of the assignment price (in Rebecca’s case, $200,000), and not on the entire assignment price, which includes the deposit ($260,000). This is a welcome change that eliminates double taxation and is consistent with current caselaw ( Casa Blanca Homes Ltd. v. The Queen , 2013 TCC 338).

To generally estimate Income Tax and HST (Ontario) implications of an assignment that results in a business income, check out the Assignment Tax Exposure Calculator on our website .

IMPORTANT: Always speak to your tax professional to estimate or determine tax consequences applicable to your specific situation. DO NOT rely on our calculator for an accurate estimation of your tax liability. Nothing in this article constitutes legal advice and no solicitor-client relationship is created. If you require legal advice pertaining to your specific situation, please contact our tax lawyer .

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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

— We take our content seriously. This article was written by a real person at BREL.

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract. The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

Get your deposit back and lock in your profit sooner
Avoid paying land transfer taxes
Avoid paying HST
Maximize your return if prices are declining and you expect them to continue to decline
Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
Marketing restrictions are annoying and reduce the chances of finding a Buyer
Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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New Assignment Sale Tax Discussion

I’ve been reading up on the new assignment sales tax and this is my understanding of how it will work.

Say you bought pre construction for $1M (inclusive of HST). You put $20% down on it or $200K.

Now let’s say you sell it for $1.5M (inclusive of HST). Your taxes on the sale will be:

~40% investment income tax rate x $500k profit = $200K

13% HST on the initial deposits of $200K = $26K

13% HST on profits of $500k = $65K

Total taxes = 200 + 26 + 65 = $291K.

Previously, some people were getting out of paying the HST by claiming they intended to live in the place. Now, regardless of their intention, they have to pay the HST.

This reduces the amount of money people can make speculating on pre construction homes.

Let me know if I’m getting this right!

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Posted on 15 January 2024

Everything you need to know about Preconstruction Assignment Sales

Have you sold pre-construction homes before closing on assignments?

Have you wondered about what are the tax implications on selling pre-construction homes before closing?

We often advise our clients to not to sell their pre-construction homes before closing if possible. It can trigger a series of tax implications – HST and income tax implications.

Before the announcement of Budget 2022, CRA had adopted the policies that HST would be applicable on not just the assignment fees, but also the deposit.

This could be a huge tax cost that most investors weren’t aware of.

Now, let’s use an example to explain .

Say you agree to purchase a pre-construction home for $700,000. You sign the agreement of purchase and sale and pay a deposit of $100,000 to the builder.

The new home is expected to be completed a few years later.

You decided to sell the property on assignment before it’s ready for closing for an additional $50,000.

Scenario 1: When you signed the agreement of purchase and sale, you intended to move into the property and use it as your primary residence.

Life circumstances change. You now decided to sell the property before closing. You sold it on assignment before May 6, 2022 .

HST: As your intention was to move into the property as your primary residence, you had no HST liability obligation.

Again, intention is subjective. If you’re questioned in court, you would have to provide evidence to prove your own intention.

Most clients thought that the CRA would have to prove that they were wrong. The truth however is that the taxpayers are the one who have the responsibility to prove to CRA their own filing position.

Make sure your have documentation proving your initial intention.

Income Tax: Assuming you have strong documentation proving that you did intend to purchase this pre-construction home as your primary residence, the $50,000 assignment fees could be reported as capital gain.

Scenario 2: When you signed the agreement of purchase and sale, you intended to move into the property and use it as your primary residence.

Life circumstances change. You now decided to sell the property before closing. You sold it on assignment after May 6, 2022 .

Budget 2022 changed the rule. For all assignment sales happened after May 6, 2022, regardless of your intention, you’re required to pay HST on the assignment sales.

HST implication:

This means that the $50,000 collected is no longer all yours. This $50,000 collected, if you don’t charge HST on top, is inclusive of HST.

You must remit the HST to CRA on sale on assignment. In this case, it would have been $5.8K.

Presumably, you would also be able to claim Input Tax Credit, which is the HST you paid on services that you used to allow you to sell the property. This includes the HST you paid on your legal cost and HST you paid on brokerage fees.

The net amount can be remitted to CRA.

Income Tax Implication:

Budget 2022 also made some rule changes when it comes down to sale of property. The sale of a property within one year of ownership is considered on income account, meaning 100% of the profit you make is taxable, with some exceptions allowed, effective Jan 1, 2023.

When you apply this new rule to this scenario, it is unknown as to whether an assignment sale is considered a flipped property. It’s difficult to say whether this rule is applicable to assignment sale at this point.

Regardless, you still would need to keep proper and relevant documentation supporting your intention that you were trying to move into the property as your primary residence. With proper documentation, you could still report the net income from assignment sale on capital account, meaning only 50% of the profit you make is taxable.

In our example, assuming client didn’t incur other cost of selling, the client would be reporting $44K of capital gain, 50% of which would be taxable.

Scenario 3: When you signed the agreement of purchase and sale, you intended to rent out your property.

Interest rate changed. You now decided to sell the property before closing. You sold it on assignment before May 6, 2022 .

Your intent was never to move into the property as your primary residence or have any of your family members moving in, as a result HST is applicable on assignment sale.

Assignment fees are subject to HST. $50,000 assignment fees you collected are subjected to HST.

CRA also adopted the position that the deposits $100K are also subject to HST as well. Ouch!

You thought you made $50,000 – but after considering the HST on assignment fees $5.8K and HST on deposits $11.5K, you really only net $33K.

This calculation hasn’t considered the brokerage fees as well as the lawyer fees yet. Yikes!

Income Tax implication:

The net amount profit of $33K (assuming there’s no brokerage fees or lawyer fees, if you have, the net profit is lower) would likely have to be reported as income, 100% of it is taxable.

If you own the property in your personal name, the entire amount is added to your job income or whatever income you have in your personal name. You’re taxed at the respective marginal tax rates, which can be as high as 53.5% in Ontario.

Triple Yikes!

If you own the property in the corporation, the profit is taxed as regular business income, most likely at 12.2% for qualified small businesses.

Scenario 4: When you signed the agreement of purchase and sale, you intended to rent out your property.

Interest rate changed. You now decided to sell the property before closing. You sold it on assignment AFTER May 12, 2022 .

The Government also recognized that charging HST on deposits were not right. Budget 2022 specified that HST would no longer be charged on deposits .

Assignment fees are subject to HST but deposits are not subject to HST anymore to avoid double taxation.

Assignment fees are reported as income 100% taxable.

So continuing with the same example, HST is applicable on the $50,000 assignment fees, meaning that you would incur HST liability of $5.8K as calculated above.

Again, you could offset the HST liability with the HST you pay on realtor commission as well as lawyer fees on closing.

The net amount would have to be paid to CRA.

The net profit of $44K (assuming there’s no brokerage fees or lawyer fees, if you have, the net profit is lower) would likely have to be reported as income, 100% of it is taxable.

Similar to Scenario 3, if you own the property in your personal name, the entire amount is added to your job income or whatever income you have in your personal name. You’re taxed at the respective marginal tax rates, which can be as high as 53.5% in Ontario.

Now that we’ve gone through the assignment sales tax implication in details – Are you still planning to sell your properties on assignment?

Let us know below.

Lastly, our team has been working tirelessly to prepare for the upcoming Wealth Hacker Conference on preparing everyone for the upcoming recession. We have experts such as Dalia sharing her insights on how to protect your portfolio and grow from this recession. If you are lost, join us at the upcoming Wealth Hacker Conference.

Visit WealthHacker.ca now to get your tickets.

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

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HST Now Applies To All Assignments Of New Home / New Condominium Contracts (i.e. flipping)

Posted May 9, 2022 by LAWPRO

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The 2022 Federal Budget introduced two important changes governing the HST on the Assignment of a New Home and New Condominium Agreement of Purchase and Sale entered into with a builder (“New Home Contract”).

1) All Assignments Of New Home Contracts Are Now Subject To HST, Without Exception

This represents an important change, as in the past the question of whether the assignment of a New Home Contract attracted HST depended on the intention of the original buyer / assignor when the New Home Contract was signed. The result: some assignments were subject to HST, while others were HST-exempt.

With this change, all assignments of New Home Contracts are deemed to be a taxable supply subject to HST, regardless of the intention of the original buyer / assignor when the New Home Contract was signed.

This new provision of the Excise Tax Ac t (Section 192.1) applies to assignment agreements entered into on or after May 7, 2022.

2) Original Deposits May Be Exempt From HST Under Proper Conditions

For many years, it was unclear whether the original deposit paid in a New Home Contract was subject to HST when that contract is assigned (assuming the assignment itself was subject to HST). For example: assume the purchase price in a New Home Contract was $500,000. The deposits paid by the original buyer to the builder was $50,000. The original contract is assigned for an “assignment price” of $800,000. That price included the reimbursement of the original deposits ($50,000), and a “profit” of $300,000.

The federal government’s position, as stated in HST Info Sheet GI-120 is that the $50,000 deposits transferred to the assignee were subject to HST if the assignment was a taxable supply. However, according to a Tax Court of Canada case called Casa Blanca Homes, if the assignment was subject to HST, the $50,000 in transferred deposits would not have been subject to HST.

With the second change, HST will only be charged to the extent the assignment price exceeds the deposits paid by the original buyer / assignor to the builder in the New Home Contract. HST will not be charged on the original deposits paid ($50,000), provided the condition described below is met.

What does this mean for real estate lawyers acting for assignors and assignees?

a) An important condition must be satisfied to keep the original deposit HST-exempt. The Assignment Agreement must state, in writing, that part of the “assignment price” “is attributable to the reimbursement of a deposit paid under the purchase agreement” [i.e. the New Home Contract]. This means relief from exposing the transferred deposits to HST will not be automatic. The fact that the assignment price ($800,000) includes the transferred deposits ($50,000) must be clearly indicated in writing. Real estate lawyers acting for assignors must ensure that specific wording appears in the Assignment Agreement regarding the reimbursement of the original deposits, to ensure they remain HST-free.

b) Extreme caution is needed when dealing with the HST clause in the OREA Assignment of Agreement of Purchase and Sale form (Forms 145 and 150). The clause states:

The wording is very similar to the HST clause appearing in the standard Agreement of Purchase and Sale (resale home and resale condo).

In resale residential transactions, the words “included in” are typically inserted above the line, as most of those transactions are HST-exempt.

With these changes to the HST, all Assignments of a New Home / New Condominium Agreement of Purchase and Sale with a builder will be subject to HST. Therefore, in Assignment Agreements:

i) assignors must not certify that the assignment is HST-exempt. (By doing so, assignors may be deemed to have collected 13/113 of the purchase price as HST under the Excise Tax Act.)

ii) assignees must be certain the words “ included in ” are inserted above the line, to ensure the assignor pays the HST on the assignment price (as typically is the case). If the words “in addition to” appear (making the assignment price exclusive of the HST payable), the assignee (and not the assignor) will be responsible for paying the HST on the assignment price which would be an unhappy surprise for the assignee.

This new provision of the Excise Tax Act also took effect on May 7, 2022.

The bottom line : as all assignments of new home contracts are now taxable, parties and their lawyers should carefully reconsider how prior practices on assignments, especially HST-included vs HST-extra, are negotiated. By Simon Thang, Barrister and Solicitor; and Alan G. Silverstein, Barrister and Solicitor

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HST on Assignments

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An assignment is a sales transaction that is carried out between the owner (assignor) and the buyer (assignee). The original owner sells the property to the buyer before the original buyer closes on the property. In short, the buyer sells the property to gain any interest or profit on the house by selling the property before they close on the property.

HST on Assignment Sale

The assignor pays the HST on the assignment sale along with the original price. The assignment agreement is prepared, clearly stating the profit on a transaction. It is advisable to hire a Real Estate lawyer to prepare the agreement with all the necessary information.

Important Changes in the HST on Assignment Sales

In the 2022 Federal Budget, two important changes were introduced in the HST on assignments. The changes that will govern the New Home Contract are as follows:

HST on Assignments is Applicable on all New Home Contracts

The government announced that all Assignment agreements for New Homes entered in on or after May 7 th, 2022 are now subject to HST. In the past, the HST on assignments was decided based on the intention of the original buyer, who often paid no HST on assignments. In short, the government has now removed all exemptions, and every New Home Assignment is subject to HST now.

The intention of the original owner is no longer taken into consideration, and all New Home Assignments are now deemed to be a taxable supply to HST.

Deposits are Exempt from HST under Conditions

The government has removed another confusion that often clouded the judgment of whether or not HST is to be paid on the deposit. To exempt the deposit from HST, the Assignment Agreement must include that part of the assignment price is the reimbursement of the deposit paid by the original buyer under the purchase agreement. In short, the writing must clearly state that the assignment price already includes the deposit, so the HST can be exempt.

As stated in the HST Info Sheet GI-120, the HST is only charged to the extent the assignment price exceeds the deposits paid by the assignor in the New Home Contract. The HST does not apply to the original deposit paid by the assignor. However, the above condition must be met. The HST is only payable on any other amount paid to Assignor over and above the deposit.

Nanda & Associate Lawyers Professional Corporation assists Canadian residents and businesses with their HST needs. Get in touch with us today for more details.

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Rashid Notash, Broker

416-500-5360 | [email protected]

The Condo Assignment Process: Everything You Should Know

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September 15, 2018 | Selling

Condo assignment sales are different from typical pre-construction transactions. Whether you’re on the buyer or seller side, the condo assignment process is unique—which is why you should take the time to learn about the costs, timelines, and other specifics involved.

If you’re thinking about buying or selling a condo on assignment, here’s what you should know…

What is a condo assignment sale.

An assignment sale occurs when a pre-construction condo buyer decides to sell before closing. Since they don’t technically own their unit (which may not be completed yet), what they’re really selling is their purchase agreement with the builder.

The concept sounds simple. However, there are some ins and outs that both sellers and buyers should know to ensure that their transaction is legally above board—and in their best interests.

Seller FAQs

Thinking of selling your pre-construction condo on assignment? Here are some answers to the most commonly asked questions sellers have about the process.

Should I sell my condo on assignment?

Pre-construction buyers often sell condos on assignment as part of an investment strategy. That said, there are other instances where going this route makes sense.

Maybe your lifestyle has changed, and the unit you were excited about a year ago is no longer ideal. Perhaps you’re facing some financial challenges, and you need some cash in the short term. Whatever your circumstances, a real estate agent with condo expertise can help you decide if selling on assignment is right for you.

What are the tax implications of selling on assignment?

While there’s nothing wrong with assignment sales, some Canadian investors have gotten themselves in hot water for making them without paying taxes on their profits. Regulators have been cracking down on these transactions, which is why knowing your taxation responsibilities is crucial.

The bottom line? If you’re making an assignment sale, it’s best to speak with a financial expert before moving forward.

Does the builder need to be involved?

Your Agreement of Purchase and Sale will specify whether selling your condo on assignment is permitted. Either way, you should obtain consent beforehand. There’s a very good chance that builder approval of an assignment sale is a condition in your contract—so read it carefully.

How much will it cost to sell on assignment?

If the builder signs off on your sale, you’ll probably still have to pay a fee. This sum could range from a few hundred dollars to several thousand, and in some instances it is waived by the developer. You should also be aware that, along with the regular costs associated with selling, your legal fees may be higher than they would be for a simpler transaction.

Will I get my deposit back?

A purchaser who is buying on assignment (also known as an “assignee”) usually pays the assignor their full deposit. As part of a typical deal, you should receive the amount you’ve paid to date, sometimes along with your profit, on closing day.

How can I find a buyer?

Be aware that there are marketing restrictions placed on most assignment sales. While it depends on the terms of your agreement with the builder, you probably won’t be able to post on the MLS or online.

If you market your assignment in violation of your contract, the builder may be able to cancel your agreement—and hold onto your deposit. For this reason, working with an agent who knows the local condo market is your best bet for finding a buyer.

Are you thinking of purchasing a pre-construction condo on assignment? Read answers to some of the most common questions buyers have first.

When is buying a condo on assignment a good idea?

If you’re excited about a particular condo development that has no remaining inventory, buying on assignment could be your way into the building. In many cases, the price for a unit is lower when it’s sold this way than it would be if it were on the market as a resale unit.

On the flip side, assignment sales tend to be more complicated than traditional condo transactions. They often entail costs, risks, and legal minutiae that aren’t part of conventional resale and pre-construction purchases.

An agent with condo market expertise can help you weigh the pros and cons of including assignment sales in your condo search.

Can I renegotiate the terms of the agreement in place?

No. When you buy a condo on assignment, you’ll be expected to fulfill the terms and conditions that the original buyer agreed to (and take on any potential risks associated with them). For this reason, it’s very important that you protect your interests by working with an experienced real estate lawyer.

Fortunately, you may be able to negotiate with the seller (or “assignor”) regarding the specifics of your purchase with them. Assignors are often in the midst of a life transition, and they may be eager to make a deal and move on.

Which costs will I pay?

Along with the sum you’ve agreed to, you will almost certainly be expected to pay the assignor the amount they’ve put towards their deposit to date. Unless your contract specifies otherwise, you will be responsible for final closing costs including (but not limited to) land transfer taxes, development fees, Tarion fees, and HST if applicable.

As part of the assignor’s original agreement, development charges may be capped. If this is the case, you could wind up spending significantly less money—so it’s worth looking into.

How will closing work?

Closing on an assignment sale can be complicated for the assignee. You’ll have to go through the process twice: once when your deal is finalized with the assignor, and again when you close with the builder. During the first closing, you’ll pay the assignor their deposit and sometimes the profit. The profit portion could be renegotiated and paid on the second closing. During the second, you’ll pay the developer the remainder of what’s owed.

Don’t forget about the occupancy period! Once your unit is fit to be occupied, you will pay a sum that’s approximately equal to your monthly mortgage payments and condo fees until the building is registered.

What else should I know?

In addition to understanding the assignment process, you should be aware of the pros and cons that go along with buying a pre-construction condo. Your purchase will come with certain risks that the original buyer was willing to take on—such as delays to closing. On the flip side, there’s nothing quite like moving into a beautiful, brand new condo.

When handled correctly, condo assignment sales can be beneficial to buyers, sellers, and developers. Just remember that understanding the process is the key to success—which is why working with the right real estate and legal professionals is so important!

Interested in buying or selling a pre-construction condo? Let’s discuss it! Call or shoot me a text at 416-500-5360, or email me at [email protected].

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3839 71st St N , SAINT PETERSBURG , FL 33709

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