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Proposed GST/HST Treatment of Assignment Sales: Canada

 

Proposed GST/HST Treatment of Assignment Sales: Canada

Proposed GST/HST Treatment of Assignment Sales for Residential: Canada

Pre-construction flipping, also known as assignment sales, involves purchasing a condo before it is completed with the intension of reselling it to a buyer for a profit.

Assigner will start making money on their pre-construction condo investment the moment they sign the contract with the builder, and in a hot real estate market like Toronto, that money might add up and assigner begin accumulating equity. 

For investors, any profits from the sale of assets are taxed at a reduced rate (often 50%) since they are considered capital gains. Profits from trading are seen as company income and so the whole sum must be taxed. (100%)

If you want to purchase a brand-new house in Toronto, Ontario, you need set up at least $450,000. For residences that cost $450,000 or more, the maximum HST new home return is $24,000.

The proposed amendment would apply to all assignment agreements entered into after May 6, 2022.

Proposed GST/HST Treatment of Assignment Sales


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.

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.

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.


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.

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:
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

If you have been considering buying, selling, or renting your home or have avoided the notion due to a negative experience, let Arsh Syed, Real Estate Agent in Toronto, manage the deal.

His experience and understanding have been indispensable. He desires for Toronto's housing crisis to improve. He wants to establish relationships and spread the word about his exceptional service, increasing the likelihood that renters and property owners would place their faith in him.

Arsh wants property owners to know that by hiring him, they are drastically reducing risks, saving time and saving money.

For further information about his services, please visit www.arshsyed.ca/
or contact (416) 844-2217.


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