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Assignment of a Purchase and Sale Agreement for a New House or Condominium Unit

From: Canada Revenue Agency

Effective May 7, 2022, all assignment sales in respect of newly constructed or substantially renovated residential housing are taxable for GST/HST purposes. This publication will be updated to reflect this legislative change. For more information about the legislative amendment, refer to GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales .

GST/HST Info Sheet GI-120 July 2011

This info sheet explains how the GST/HST applies to the assignment of a purchase and sale agreement for the construction and sale of a new house.

The term "new house" used in this info sheet refers to a newly constructed or substantially renovated house or condominium unit. A house that has been substantially renovated is generally given the same treatment under the GST/HST as a newly constructed house. Extensive modifications must be made to a previously occupied house in order to meet the definition of a "substantial renovation" for GST/HST purposes. For a full explanation of the factors to consider in deciding if a substantial renovation has taken place, refer to GST/HST Technical Information Bulletin B-092, Substantial Renovations and the GST/HST New Housing Rebate .

In this publication, a house includes a single unit house, a semi detached house, a duplex, a rowhouse unit and a residential condominium unit (condo unit), but does not include a mobile home or floating home.

Where a person enters into a purchase and sale agreement with a builder for the construction and sale of a new house, the person may be entitled to assign their rights and obligations under the agreement to another person (an assignee). Generally, the result of the assignment is that the purchase and sale agreement is then between the builder and the assignee.

This publication addresses the situation where

a purchaser (referred to as the first purchaser) enters into a purchase and sale agreement with a builder (Builder A) for the construction and sale of a new house, and
the first purchaser subsequently assigns the agreement to an assignee (referred to as the assignee purchaser) before Builder A transfers possession or ownership of the house to the first purchaser and before any individual has occupied the house as a place of residence or lodging.

Generally, upon entering into an agreement for the construction and sale of a new house, the first purchaser is considered to have acquired an interest in the house. For GST/HST purposes, the assignment of the agreement to the assignee purchaser is normally considered to be a sale of the first purchaser's interest in the new house. The sale of an interest in a new house is generally taxable where the person selling the interest is a builder of the house.

For GST/HST purposes, the term "builder" is specifically defined and is not limited to a person who physically constructs a house. There are several instances in which an individual or other person is a builder for GST/HST purposes. For more information on persons who are included in the definition of "builder", refer to GST/HST Memorandum 19.2, Residential Real Property .

This info sheet addresses only whether a person is a builder as described in the following paragraph.

Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances

A builder includes a person who acquires an interest in a new house before it has been occupied by an individual as a place of residence or lodging for the primary purpose of selling the house or an interest in the house or leasing the house, other than to an individual who is acquiring the house otherwise than in the course of a business or adventure or concern in the nature of trade. When that person is an individual, the individual must acquire the interest in the course of a business or an adventure or concern in the nature of trade in order to be a builder described by this paragraph.

Even if a person is not a builder as described in the preceding paragraph, the person may be a builder based on one of the other definitions of the term as described in GST/HST Memorandum 19.2.

Assignment of a purchase and sale agreement by a person other than an individual

Where a person other than an individual (e.g., a corporation) is a builder as described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances" and the person assigns a purchase and sale agreement for a new house, the person's sale of the interest in the house is subject to the GST/HST whether the sale takes place in the course of a business, an adventure or concern in the nature of trade, or otherwise.

Assignment of a purchase and sale agreement by an individual

If an individual enters into a purchase and sale agreement for one of the primary purposes described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances", the sale of the interest in the house (or the house itself) is normally considered to be made in the course of an adventure or concern in the nature of trade or, depending on all of the surrounding circumstances, in the course of a business. If it is established that an individual is selling an interest in a new house in the course of a business or adventure or concern in the nature of trade, the individual is considered to have entered into the purchase and sale agreement for the primary purpose of selling the house or an interest in the house.

Whether the activity of acquiring an interest in a house, as a result of entering into a purchase and sale agreement, is done in the course of a business or an adventure or concern in the nature of trade is a question of fact. For more information on how to determine whether an activity is done in the course of a business or an adventure or concern in the nature of trade, refer to Appendix C of GST/HST Memorandum 19.5, Land and Associated Real Property .

Factors in determining the primary purpose

All of the relevant factors surrounding entering into a purchase and sale agreement should be considered in determining the primary purpose for a person's acquisition of an interest in a new house.

The following factors may indicate that, for GST/HST purposes, a person entered into a purchase and sale agreement for the primary purpose of selling an interest in the new house or the house itself. The factors are not listed in any particular order and there is no intent to weigh one more heavily than another.

The person offers to sell their interest in the house or takes other actions to attract buyers before, or while, the house is under construction.
The person finances the purchase of the house by a short-term mortgage, or an open mortgage that can be paid off without penalty, rather than by a long-term or closed mortgage.
Financing of the house is beyond the person's means and that person is relying on the increased value and saleability of the house, or an interest in the house, in a rising housing market.
The person is an individual and their stated intention to occupy the house as a place of residence is not supported by the circumstances of the case. For example, an individual has a family of four and enters into a purchase and sale agreement for a one-bedroom condo unit where they are not contemplating any changes in family circumstances.
The person's pattern of activity is such that their occupancy of the house does not have the qualities or characteristics of being permanent. For example, the person purchases more than one house at or around the same time. This factor may be given extra weight where the person has previously entered into a purchase and sale agreement for purposes of selling the house or an interest in the house. There are no outward indicators to support a contrary primary intention (i.e., an intention contrary to an intention of resale). For example, an individual is selling a condo unit, one or more of the above factors are present, there are no physical actions or evidence that the individual's primary intention was to live in the condo unit, use it as a vacation home, or rent it to another individual for use as their place of residence, and no evidence that the sale of the condo unit was triggered by some unforeseen event.

In order for the acquisition of an interest in a new house to be for one of the primary purposes described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances", the intention to sell the house or an interest in it, or to lease the house in the manner described in that section, must have existed at the time of acquiring the interest. Nonetheless, the intention at the time of acquisition may be demonstrated over a period of time.

If an individual acquired an interest in the house for the primary purpose of using it as a place of residence, the person is not considered to be a builder of the type described in this info sheet even if, at a later point in time, the person sells the house or an interest in the house. However, the person may still be a builder if the person meets one of the other definitions of that term as described in GST/HST Memorandum 19.2.

The following examples illustrate when a person may or may not be a builder of a new house.

Sarah, Francine, and Angela are roommates renting a three-bedroom house. They entered into a purchase and sale agreement with a builder in January 2010 for a one-bedroom condo unit in a new condominium complex that was to be built. The purchase price under the agreement was $300,000 and the closing date was July 31, 2013.

In March 2011, the fair market value of the new condo unit had increased by 50%. They entertained several offers for the sale of their interest in the condo unit before assigning it to James. No individual had occupied the condo unit as a place of residence or lodging when they sold their interest in the unit. They split the proceeds, which they each used as a down payment to buy their own homes.

As it would not be practical for the three individuals to live in the condo unit together, they considered several offers for their interest in the unit, and there are no indicators to support a contrary intention, Sarah, Francine and Angela are considered to have acquired their interest in the condo unit for the primary purpose of selling the unit or an interest in it. The sale is considered to be made in the course of a business or adventure or concern in the nature of trade. Accordingly, Sarah, Francine, and Angela are all builders of the condo unit for GST/HST purposes. As they are builders of the unit and the sale of their interest in the unit is not exempt, GST/HST applies to the sale of each of their interests.

Pascal and Chantal own a four-bedroom house where they live with their three children. This is the only home they have ever owned and lived in. They have never purchased any other real property.

In June 2009, they entered into a purchase and sale agreement with a builder for a 1-bedroom condo unit in a new high-rise condominium complex that was to be built. The purchase price under the agreement was $275,000 and the closing date was June 30, 2010. In May 2010, they sold their interest in the new condo unit for $400,000 before it had been occupied by any individual as a place of residence or lodging. They used the sale proceeds to build an addition to their current home.

Although Pascal and Chantal have no history of buying and selling real property, it would not be practical for their family of five to occupy the condo unit as their place of residence. Lacking evidence to support a contrary intention, their primary purpose in acquiring the interest in the condo unit is considered to be for the purpose of selling the condo unit or an interest in it in the course of a business or an adventure or concern in the nature of trade. Accordingly, they are builders of the new condo unit for GST/HST purposes. As the sale of their interest in the unit is not exempt, GST/HST applies to the sale of their interest.

Eric and Gina owned a 3-bedroom house where they lived with their 3 children. They entered into a purchase and sale agreement with a builder in October 2010 to purchase a new 4-bedroom house that was to be built. They intended to use the new house as their primary place of residence as it was located much closer to the children's school and to Eric and Gina's workplaces and had more space. The closing date is July 31, 2011.

Eric and Gina sold their current home in January 2011 and moved into a rented home they planned to live in until their new house was ready. However, in June 2011, Gina's mother became ill and moved in with them as she was no longer able to live on her own.

Eric and Gina decided that the new house would no longer be large enough and that they would now need a house with a granny suite. They sold their interest in the new 4-bedroom house so that they could buy a bigger home that would suit their changed needs.

Eric and Gina's sale of their original home and temporary move to a rented house during the construction of the new home and their choice to purchase a home located closer to school and work support that their intention in acquiring the interest in the new house was to use the house as their primary place of residence. Given this, and the fact that their only reason for selling the interest was due to a change in personal circumstance (i.e., the new house would no longer accommodate their family's needs), they are not considered to have acquired the interest in the house for the primary purpose of selling it. Accordingly, they are not builders of the new house for GST/HST purposes and the sale of their interest in the house is exempt.

Cindy entered into a purchase and sale agreement with a builder in November 2010 for a new house that was to be built. She intended to use the house as her primary place of residence. Her new home would be located within walking distance from her workplace and would be closer to her family than the apartment she is currently renting. The closing date for the purchase is September 30, 2011.

In July 2011, Cindy's employer announced that it was relocating to another city located three hours away. To keep her current job, Cindy had to move to that city. She sold her interest in the house to John.

Since Cindy had intended to use the house as her primary place of residence and her only reason for selling her interest in the house was due to work relocation, she did not acquire the interest in the house for the primary purpose of selling it. Therefore she is not a builder of the house for GST/HST purposes and the sale of her interest in the house is exempt.

Assignment fees

The consideration charged for the sale of an interest in a house generally includes amounts that a person paid to a builder (e.g., a deposit) and that the person wants to recover when assigning their interest in the house. The sale price for the interest may also include a profit, i.e., an amount over and above amounts the person had paid to the builder. If a person's sale of their interest to an assignee purchaser is taxable, the total amount payable for the sale of the interest is subject to GST/HST, including any amount the person paid as a deposit to the builder, whether or not such an amount is separately identified.

A first purchaser enters into a purchase and sale agreement for a new house with a builder (Builder A) and pays a deposit of $10,000 at that time. The first purchaser does not make any further payments to Builder A. The first purchaser subsequently assigns the agreement to an assignee purchaser for $15,000. If the sale of the interest in the house from the first purchaser to the assignee purchaser is subject to GST/HST, tax applies to the full $15,000. This is the case even if the assignment agreement identifies that the $10,000 is a recovery of the deposit that the first purchaser paid to Builder A.

The assignment of a purchase and sale agreement for a new house may be subject to the approval of the builder with whom the first purchaser originally entered into the agreement to construct and sell the new house. The agreement may list conditions related to the first purchaser's right to assign the agreement to an assignee purchaser and, in many cases, the builder charges a fee to the first purchaser for the assignment of the agreement to another person.

The fee charged by the builder in such circumstances is generally subject to the GST/HST.

Eligibility for a GST/HST new housing rebate and provincial new housing rebate (where applicable) where a purchase and sale agreement is assigned

The GST/HST new housing rebate, and where applicable, a provincial new housing rebate, may be available for a new house purchased from a builder and for owner-built new housing. Guide RC4028, GST/HST New Housing Rebate , sets out the eligibility criteria for both types of GST/HST new housing rebates and provincial new housing rebates.

If the first purchaser (the assignor) makes a taxable sale of an interest in a house, i.e., the first purchaser is a builder and assigns the purchase and sale agreement to an assignee purchaser, the first purchaser would not be eligible for either a GST/HST new housing rebate or provincial new housing rebate as they did not acquire the house for use as their primary place of residence. Even if the sale of the interest in the house by the first purchaser is not subject to GST/HST (i.e., in situations where the first purchaser is not a builder of the house), the first purchaser would generally not be eligible for either a GST/HST new housing rebate or a provincial new housing rebate as the conditions for claiming the rebates are not met (e.g., ownership of the house would not transfer to the first purchaser, but to the assignee purchaser).

The assignee purchaser, if an individual, may be eligible for a GST/HST new housing rebate, and where applicable a provincial new housing rebate, where the assignee purchaser receives an assignment of a purchase and sale agreement for a new house. The assignee purchaser would have to meet the eligibility conditions for the rebates as set out in Guide RC4028.

Where a purchase and sale agreement for a new house is assigned, there may be two builders of the house – the original builder (Builder A) and the first purchaser (the assignor). If that is the case, an assignee purchaser would generally have to pay the GST/HST to Builder A for the purchase of the new house and to the first purchaser for the purchase of the interest in the new house.

Claiming a GST/HST new housing rebate when there is more than one builder

In some cases, the builder of a new house pays or credits the amount of the GST/HST new housing rebate, and where applicable, a provincial new housing rebate, to the purchaser of the house. In this case, the builder credits the amount of the new housing rebates to the purchaser by reducing the total amount payable for the purchase of the house by the amount of the expected rebates.

Where this happens, the purchaser and the builder have to sign Form GST190, GST/HST New Housing Rebate Application for Houses Purchased from a Builder , and the builder has to send the form to the Canada Revenue Agency (CRA). As the purchaser receives the amount of the rebate from the builder, the builder may claim the amount as a credit against its net tax when it files its GST/HST return.

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 through the first purchaser (the assignor), or directly to the CRA, for the tax paid to the first purchaser 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.

This info sheet does not replace the law found in the Excise Tax Act (the Act) and its regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate regulation, or contact any CRA GST/HST rulings office for additional information. A ruling should be requested for certainty in respect of any particular GST/HST matter. Pamphlet RC4405, GST/HST Rulings – Experts in GST/HST Legislation explains how to obtain a ruling and lists the GST/HST rulings offices. If you wish to make a technical enquiry on the GST/HST by telephone, please call 1-800-959-8287.

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, New Brunswick and Newfoundland and Labrador, 15% in Nova Scotia, and 12% in British Columbia. 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, you may 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 .

If you are located in Quebec and wish to make a technical enquiry or request a ruling related to the GST/HST, please contact Revenu Québec at 1-800-567-4692. You may also visit the Revenu Québec Web site to obtain general information.

All technical publications related to GST/HST are available on the CRA Web site at www.cra.gc.ca/gsthsttech .

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2022 Changes to GST/HST on Assignments

Post author By Edward Tse
Post date 11 May 2022
4 Comments on 2022 Changes to GST/HST on Assignments

The 2022 Federal budget included a few changes to the way some real estate transactions are taxed. The two mains changes are the new residential property flipping rule and changes to the way GST/HST on assignments is taxed for individual. In this post I will be discussing the latter.

Summary of the changes to GST/HST on assignments effective May 7th 2022:

The new change makes it so that there is GST/HST on assignments regardless of original intentions. Previously, if the original intention of entering the pre-construction contract/Agreement of Purchase and Sale (APS) was for personal use, GST/HST on assignments did not apply. But if the intention was to sell for profit or flip the property, GST/HST applied.
The legislation officially recognizes that GST/HST is not payable on the portion of the consideration exchanged that represents the deposit that the assignor paid to the seller/builder.

I have seen people talk about these changes as if it will slow down the housing market because they seem to incorrectly assume that GST/HST on assignments is double levied or increased. The changes actually add certainty to the way GST/HST on assignments are taxed.

Let’s do an example of pre- and post- May 7th 2022 changes. Here is the assignment details (closely maps on to OREA Form 145/150 Schedule B):

Purchase Price on the original APS = $1,000,000
Payment by Assignee to Assignor for this Assignment Agreement = $100,000*
Total Purchase Price including the Original APS and this Assignment Agreement: $1,100,000
Deposit paid by the Assignor to the seller under the original APS to be paid by the Assignee to the Assignor: $200,000

**For the sake of simplicity, this excludes GST/HST but in practice, most assignment agreements will stipulate that GST/HST is included

Under the pre-May 7th 2022 rules according to the CRA*, GST/HST would have been payable on the whole amount that the assignee pays to the assignor, $300,000, which results in HST payable of $39,000 in Ontario (13%*300,000).

*Note that it was the CRA’s view that GST/HST is levied on the deposit. In reality this was challenged successfully in a 2013 Tax Court case and a taxpayer can file their GST/HST return without including the amount attributable to the deposit. But the CRA continued to levy GST/HST on the deposit amount in audits and reassessments so taxpayers unaware of the Tax Court ruling would end up paying additional GST/HST.

Under the post-May 7th 2022 rules, GST/HST on assignments is officially only payable on the payment by the assignee to the assignor, $100,000, which results in HST payable of $13,000 in Ontario. This will force the CRA to update their practice guidelines and hopefully they will no longer expect GST/HST on deposits in audits and reassessments.

The Nitty-Gritty

Lately, I have seen a lot of incorrect information shared by investors, agents, accountants, and lawyers regarding the new GST/HST changes so I hope that this post can put to rest any uncertainty on this issue by giving concrete examples and referring to the budget documents (the link goes to the Supplementary Information attached to the Federal Budget).

Many people are confused about the new changes to GST/HST on assignments and I think it largely stems from the imprecise use of language when talking about assignment agreements.

Before we begin, let’s start with some general definitions I will use in this post and are relevant in assignments:

APS = Agreement of Purchase of Sale = Pre-Construction Contract
Buyer = Assignor. The buyer is the individual who signed APS to buy the property. They will also be the assignor in the assignment agreement by assigning the APS to the assignee.
Seller = Builder. The seller is the builder who signed the APS to sell the property. Note that most pre-construction agreements have a clause that give the seller some rights in an assignment of the contract (ie. seek seller permission and/or an assignment fee).
Assignee = first occupant. The assignee is the person who will be assigned the APS and wants to eventually close on the property and live in it therefore, in most cases, they will be the first occupant.
Taxable Supply – means a supply that is made in the course of a commercial activity (from the Excise Tax Act (the “ ETA “) S123(1))
Budget Day – April 7th 2022.

There are two main paragraphs most relevant to the new changes and I will explain what both of them mean. The first:

Budget 2022 proposes to amend the Excise Tax Act to make all assignment sales in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. As a result, the GST/HST would apply to the total amount paid for a new home by its first occupant and there would be greater certainty regarding the GST/HST treatment of assignment sales. Supplementary Information for the 2022 Federal Budget (https://budget.gc.ca/2022/report-rapport/tm-mf-en.html#a5_2)

I believe some people have misinterpreted this paragraph, specifically the underlined section. The total amount paid by the first occupant is the purchase price on the APS (net of GST/HST as it is usually included in the price) plus the amount the first occupant/assignee paid for the assignment contract (also net of GST/HST).

The legislators have reframed the GST/HST on assignment sales from a taxable supply provided by the assignor, to the GST/HST owed because that is the “true purchase price” that the first occupant paid for the property. There is no double taxation. The amount of GST/HST on assignments is just being levied on the original APS price plus the additional amount the assignee paid to the assignor.

Which leads to the next paragraph:

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. Since the deposit would already be subject to GST/HST when applied by the builder to the purchase price on closing, Budget 2022 proposes that the amount attributable to the deposit be excluded from the consideration for a taxable assignment sale. Supplementary Information for the 2022 Federal Budget (https://budget.gc.ca/2022/report-rapport/tm-mf-en.html#a5_2)

The GST/HST on the deposit never made sense because the assignee was essentially returning the deposit that the assignor already paid to the builder which was already subject to GST/HST in the APS. This new reframing of the assignment sale solves that quirk because the deposit is already accounted for in the assignee’s “true purchase price”.

The Nittier-Gritt ier

So this is where going to law school comes in handy. If the above has not convinced you, please read on but otherwise, this might be a bit dense as I convert each part of the change to the ETA in everyday language that even a non-tax lawyer can understand (hopefully).

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 […]

Translation/simplification: If a taxable supply by way of an APS is entered into …

[…]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 for the purposes of this Part:

Translation/simplification: …and if there is another supply (profit from the assignment) by way of the assignment of the APS, then the following rules apply:

(a) 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; and

They key phrase here is “other supply” because it does not refer to the original taxable supply which would have been the entire purchase price of the property in the APS. Instead, the “other supply” refers to the profit the assignor made in assigning the APS to the assignee.

Translation/simplification: (a) the profit from the assignment agreement is deemed to be a taxable supply.

(b) the consideration for the other supply is deemed to be equal to the amount determined by the formula A-B where

Translation/simplification: (b) the profit from the assignment agreement is determined by the following formula A-B where

A is the consideration for the other supply as otherwise determined for the purposes of this Part, and

Translation/simplification: A is the total amount the assignor received before HST, and

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, as otherwise determined for the purposes of this Part, that is solely attributable to the reimbursement of the deposit paid under the purchase agreement, and (ii) in any other case, zero.

Translation/simplification: B is a reimbursement from the assignee to the assignor for the deposit paid in the APS if applicable

And putting it all together:

If a taxable supply by way of an APS is entered into and if there is another supply (profit from the assignment) by way of the assignment of the APS, then the following rules apply

(a) the profit from the assignment agreement is deemed to be a taxable supply.

(b) the profit from the assignment agreement is determined by the following formula A-B where

A is the total amount the assignor received before HST, and
B is a reimbursement from the assignee to the assignor for the deposit paid in the preconstruction agreement if applicable

This new change introduces more certainty and logic into the tax code which is good for society overall.

Realistically, this only disadvantages those who have a change in circumstance and are “forced” to assign their property before closing. For example, this could be due to interest rate hikes that prevent a taxpayer from obtaining a mortgage or getting a new job elsewhere and no longer needing the property.

But it does create a positive incentive for real estate flippers to follow the law as it closes off one of the avenues for avoiding GST/HST on assignments (though income tax is a whole other issue). I don’t think it will have any meaningful effect on house prices, unless people believe in the incorrect information.

4 replies on “2022 Changes to GST/HST on Assignments”

First, I love the article. I called CRA. The gentlemen there said he is not aware of any changes from May 7th and says HST is still chargeable on the deposit. This makes no sense that the deposit should have ever been considered to be taxed.

Thank you! Yes, the CRA phone reps aren’t really held accountable for the information they give out so if there is ever any conflicting information I would triple check it. As I mention in the post as well, the CRA continued to audit and reassess HST on the whole deposit. I guess the CRA auditors rely on their practice guidance which, as far as I can tell, is from 2011 and wasn’t updated even after the 2013 case against their interpretation. Hopefully they will be issued new practice guidance soon but it might take awhile for it to trickle down to the CRA phone reps.

Awesome article Ed. 👏

Thanks, glad it was helpful!

Is the assignment of an APS a taxable supply

The assignment of an APS will constitute a taxable supply, unless it qualifies for an exemption. This is because “real property” is defined to include an interest in real property, and the making of a supply of real property (other than an exempt supply) is deemed to be made in the course of a “commercial activity.” The sale of an interest in a residential complex by a person that is not a “builder” is generally exempt; however, the sale of an interest in a new home or condominium is generally subject to GST/HST when the assignor is a “builder.”

A “builder” is defined in a manner which can potentially include someone that is merely entering into an APS with a builder. For example, subject to a specific exclusion that only applies to individuals, someone that acquires an interest in a home before it is occupied (or a condominium before it is registered) can be a builder if their primary purpose was to either:

sell the home to any person
lease the home to someone other than an individual for their personal use

Individuals are excluded from being a builder if they did not acquire their interest in the course of a business or an adventure or concern in the nature of trade, which is determined by considering the following factors:

nature of the property sold
length of period of ownership
frequency or number of other similar transactions by the taxpayer
work expended on or in connection with the property realized
circumstances that were responsible for the sale of the property
taxpayer’s motive or intention

To the extent that the assignor is a “builder,” GST/HST will be payable on the value of consideration that is paid by the assignee and the assignor will be required to collect GST/HST unless the assignee is registered for GST/HST.

The Canada Revenue Agency (CRA) considers an amount paid by an assignee on account of the assignor’s deposit to be part of the consideration paid for the assignment of an APS, and is therefore subject to GST/HST if the assignor is a builder. Accordingly, unless the assignment is restructured to result in the builder refunding the deposit to the assignor and receiving a replacement deposit from the assignee, the assignee may pay double tax on the deposit. It is also important to note that the Tax Court of Canada’s decision in Casa Blanca Homes Ltd. v. The Queen, 2013 TCC 338 contradicts the CRA’s view. In Casa Blanca Homes Ltd., the Tax Court of Canada held that the amount paid to the assignor relating to the deposit constituted an exempt supply of a financial service and would therefore not be subject to GST/HST.

Can the assignee claim the GST/HST new housing rebate

The assignment of an APS may also impact the assignee’s eligibility to claim the new housing rebate, as evidenced by the Tax Court of Canada’s recent decision in Chen Sun. The federal new housing rebate is equal to 36% of the federal component of GST/HST paid, up to a maximum of $6,300 (for homes valued at $350,000), with the rebate being gradually reduced and phased out when the value of the home reaches $450,000. For properties in Ontario, the provincial new housing rebate is equal to 75% of the provincial component of GST/HST paid, up to a maximum of $24,000 (for homes valued at $400,000 or higher).

For a purchaser to be eligible for the new housing rebate, the following conditions must be met:

the purchaser must be an individual that is acquiring the home from a builder, as opposed to an assignor who may not be a builder
at the time the individual becomes liable or assumes liability, they must acquire the home as their primary place of residence or that of a relation
ownership of the property must be transferred to the individual after construction is substantially completed
the first person to occupy the home must be the individual or a relation
all persons named on the APS must meet the aforementioned conditions

When the purchaser qualifies for the new housing rebate, the builder is generally entitled to pay or credit the rebate amount to the purchaser pursuant to subsection 254(4) of the Excise Tax Act.

In situations where a third party is acquiring ownership of a home or condominium and they receive title directly from the builder, it does not necessarily mean that the APS has been assigned to the third party and that the builder has sold the condominium to the assignee. As argued by the Crown in Chen Sun, if the builder has not accepted the assignment, then the assignee may not be the person that is acquiring the condominium from the builder. Fortunately, in Chen Sun, the court ultimately held that the APS was in fact assigned on the basis that the builder, by its conduct, accepted the assignment and therefore the builder did sell the condominium directly to the assignee. Accordingly, the assignee was eligible to claim the new housing rebate (and the builder was entitled to credit the assignee with the rebate) because the assignee acquired the condominium from the builder and the other conditions to claim the rebate were satisfied.

How should builders deal with assignments

As the builder and purchaser are jointly and severally liable for housing rebates that have been claimed in error, it is important for builders to make sure that purchasers qualify for the rebate before they pay or credit the purchaser with the rebate. The CRA heavily scrutinizes rebate claims and, to the extent each and every condition to claim the rebate is not satisfied, the CRA will deny the rebate claim. In situations where an APS has been assigned, builders should consider whether:

they should credit the assignee with the housing rebate or advise the assignee to file the rebate claim directly with the CRA
it is easier to “tear” up the original APS and enter into a new APS with the assignee
the assignment has been clearly documented so that there is no dispute that the assignee has become the purchaser under the APS, which may not be the case when only the title is transferred to the assignee at the assignor’s direction

The takeaway

All parties to a transaction in which an APS is being assigned and a housing rebate is being claimed should consider the GST/HST implications of the assignment. Failure to structure these assignments in an appropriate manner can significantly increase GST/HST costs for the respective parties, including:

builders being assessed penalties for erroneously crediting the housing rebate to assignees
assignors being assessed penalties for failing to collect tax on the assignments
assignees paying GST/HST on the replacement deposits

PwC can help structure these assignments in a tax-efficient manner.

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GST on Assignments and Resales

Whether you’re buying or selling a home, you’ve probably wondered about GST. Although GST only applies to brand new or substantially renovated homes, there are some caveats when it comes to assignments and resales.

What is an assignment?

An assignment occurs when the purchaser transfers their rights in the purchase contract to someone else before the completion date. Assignments are most commonly found in presale condo and townhome communities where a buyer will enter a contract with the developer prior to construction of the home being completed. For many new home buyers, presales are an ever-attractive option, allowing them to only pay the deposit upfront.

What are the tax implications on assignments?

When purchasing a presale home, the buyer is also responsible for both the PST and GST on the cost of the home, and GST on the assignment amount (which is often already included). That being said, some buyers may qualify for a GST/HST new housing rebate if the property will be their primary residence and if the purchase amount is under $450,000.

Head’s up! If you’re looking to learn more about how GST can be applied in various assignment scenarios, Canadian Real Estate Wealth Magazine has a great blog post with some real-life examples.

What are the tax implications on resales?

When it comes to resales, on the other hand, the seller’s intent determines whether GST is applicable. For example, if the seller originally purchased the home as their primary residence, then GST wouldn’t apply. If, however, the seller purchased the home with the intent to renovate and resell, then they are legally considered the ‘builder’, and GST would be applied.

If you’re purchasing a resale home, it’s important to know whether the seller can also be considered the builder. Ensuring that your contract clearly states the seller’s intent can be crucial in determining whether or not you’re on the hook for GST.

Ultimately, when it comes to real estate, taxes can be quite complex. For this reason, it’s important to discuss potential tax scenarios with your realtor and/or lawyer prior to entering a contract to buy or sell a home.

Navigating the real estate market doesn’t need to be a daunting task. We’re here to help make things easier! Let’s chat .

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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 .

If you enjoyed this article, please do not forget to s ubscribe to our blog and our social media for important updates.

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Para. (d) of the ETA definition of “builder” generally has the effect of exempting an assignment of an agreement to purchase a home from the builder where the assignor was acquiring the home for personal use, and para. (f) effectively provides a further exemption regarding such an assignment where the assignor is an individual who is not engaged in an adventure in the nature of trade or a business – whereas ETA draft s. 192.1 will eliminate this exemption. Comments of CRA on the effects of this new rule include:

Under the new rule, where the (post-May 22, 2022) assignment agreement indicates that a part of the consideration is attributable to the reimbursement of a deposit paid by the assignor to the builder under the subject purchase and sale agreement, that deposit amount is excluded from the taxable amount of the assignment – whereas under the old regime, if the assignment was taxable, the total consideration for the assignment - including any portion referable to the assignment of the deposit - was taxable.
Given that the amount of the new housing rebate is based on the total consideration for the taxable supply of the house, including any consideration paid by an assignee for a taxable assignment sale of an agreement to purchase the house from the builder (but excluding the amount attributable to a deposit assignment), the new rule will affect the Ontario or federal new housing rebate amounts.
As only one new housing rebate application can be made for each new house, and the builder (“Builder A”) does not receive the consideration for the assignment of the purchase contract to the assignee:

[T]he 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.

Neal Armstrong. Summaries of GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales, May 2022 under ETA s. 123(1) – builder – (d) , s. 254(1) - single unit residential complex , s. 254(2)(i) , s. 254(4) , s. 256.2(3) and s. 192.1 .

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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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.

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Sales Tax Issues in Real-Property Transactions

Real-property transactions in BC are complex, and they’re becoming increasingly valuable. Sales tax rules add complexity to a wide variety of real estate sales and leasehold arrangements. Adding to this complexity is the fact BC’s unique real estate rules—such as those related to stratified leasehold interests and assignments of lease—seldom align neatly with the federal Excise Tax Act (ETA), which means that each must be carefully reviewed in the context of sales tax treatment.

This article covers GST basics, available GST rebates, some special cases, and the documentation requirements with respect to real-property transactions.

Unless it is specifically listed as exempt in schedule V of the ETA, the sale of real property is taxable. Exemptions are quite limited, but include:

Used residential complexes (unless substantially renovated);
Personal-use residences or land (unless the land is subdivided into three or more parcels); and
Residential land, such as a residential land lease or trailer park.

With respect to bare land, the GST circumstances vary as follows:

If sold by a corporation or partnership, bare land is always subject to GST;
If sold by a non-profit entity, the land is usually GST-exempt; and
If personal-use land is sold by an individual or trust, it is generally GST-exempt.

For GST purposes, bare land also includes any “excess land” associated with a residence, which is defined as any land not reasonably necessary for the enjoyment of the residence. The Canada Revenue Agency (CRA) administratively limits the necessary land to one-half of a hectare, subject to the minimum lot size possible in the area.

It is important to note that, generally, the GST registration status of the seller does not affect a taxable sale. Whereas sales of tangible goods and capital property by an unregistered vendor are generally not taxable, the nature and use of real property usually dictates whether a sale is subject to GST.

There are scenarios wherein a vendor who is not registered may still make a GST-taxable sale of real property. To prevent cascading tax on such properties, unregistered vendors may claim a rebate for the GST on the cost of the property using GST form 189—“General Application for Rebate of GST/HST.” The GST rebate will be the lesser of the actual tax embedded in the cost of the property or the amount of tax collectible on the current sale.

Available GST rebates

The following rebates are available for any property valued up to $450,000. The rebate is equal to 36% of the GST paid on a property up to $350,000, and diminishes to 0% at a property valued at $450,000 or above. All new housing rebate applications must be filed within two years after the end of the month in which the tax first becomes payable.

Builder-built

A constructed home that is sold to an individual who intends to occupy it as a primary place of residence is eligible for a new housing rebate. This rebate can be assigned to the builder/developer at the closing of the sale, which will permit them to collect GST as low as 3.2% on the selling price (for example, 5% - {36% x 5%}). Otherwise, the purchaser will have to pay the full GST and file a separate rebate claim.

Owner-built

Where a home is constructed by contractors on the homeowner’s land, a new housing rebate is also available; however, this rebate must be claimed directly by the homeowner—it cannot be assigned to the contractor.

Rental property

The “New Residential Rental Property Rebate” provides a rebate to long-term residential rental properties where the property is used as an individual (tenant)’s primary place of residence.

Note: For a residential rental property with multiple units, the landlord’s rebate is determined by reference to each qualifying residential unit in the complex.

Some special cases

Listed below are some of the less common transactions for real property in BC:

Mixed-use buildings – residential/commercial

A mixed-use building that contains both commercial and residential units is treated as two separate properties for GST purposes.

If the residential portion of the building is comprised of stratified or condominium units, the GST treatment of each individual residential condominium unit is determined separately. If the residential portion of the building is a multi-unit complex, it is treated as one multiple-unit residential complex.

Resort properties and vacation homes

Resort properties and vacation homes, including those involving fractional ownership, timeshare facilities, and/or memberships, are not specifically dealt with in the ETA. Rather, each transaction has to be considered carefully in light of the current GST rules, which are limited in effect to residential, personal-use, or commercial real-property developments.

Moreover, the application of the GST rules is more difficult where a proration is required based on a split for personal and investment/short-term rental purposes.

Used residential properties – change in taxable status

Where a GST registrant buys a used house GST-exempt, tears it down, and then sells the bare land, the resale of this land may be taxable. In such cases, the registrant will be able to claim input tax credits on the cost of demolishing the house; however, where the purchaser is intending the land for personal use, this will create an unfavorable tax outcome, forcing them to pay unrecoverable GST.

To avoid this scenario, the seller is best advised to resell the property with the used house on it, potentially with a contract in place for the removal of the structure. The sale of the whole property would then be GST-exempt, and only the demolition contract would be taxable.

Purchase of a house for removal and relocation

If a house is being sold without the land (for removal and relocation), the sale is not considered to be the sale of a residential complex. Further, the house is not considered to be real property, unless it is being relocated within the same legal description (lot) in which it was previously situated. The sale of a house for relocation to a new lot is generally subject to GST and PST.

Assignment of purchase and sale contract

Historically, CRA has been known to assess GST on assignment fees received following the resale of presale units prior to the completion of construction; however, GST does not apply to these assignment fees in most cases. Where the original purchaser was not a “builder” of the underlying residential complex and the purchase agreement was entered into for strictly a personal-use purpose, the assignment of the agreement is GST-exempt.

The sale of farmland is generally subject to GST, and if the land is being purchased for personal use, a non-recoverable GST payment can add significantly to its cost.

Documentation requirements

As with all GST reporting, documentation is key. There are numerous special clauses that should be included in purchase and sale agreements, such as a certification of exempt sale or the assignment of a new housing rebate. Some other examples:

GST registration – certificate by purchaser

Generally, if a taxable sale is being made to a GST registrant, a vendor is not required to collect GST. To support the position, however, a vendor must obtain the purchaser’s GST registration number and ensure that the number is valid.

Incorrect statement of GST exemption

Vendors often rely on the “used residential housing” or “personal use property” exemptions. Where a vendor provides a purchaser with a certificate indicating that their transaction is not subject to GST, but this status is later determined to be false or incorrect, section 194 of the ETA provides the purchaser with some protection.

GST-included vs. GST-extra pricing

Unless explicitly noted, a GST-taxable sale price is considered “GST-extra” pricing, which means that GST must be added to the agreed purchase price.

Each transaction is unique

This overview does not provide an exhaustive list of possibilities. Each real-property transaction involves a distinct set of facts, which can necessitate significantly different sales tax treatments. If you have any doubts or questions about the taxability of a specific transaction, it is best to contact your sales tax adviser.

Matt Beck is a manager with Grant Thornton LLP in Vancouver. He specializes in sales and indirect tax planning and compliance services, with a focus on the real estate, health care, education, and not-for-profit sectors.

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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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Assignment of Contract and Purchase and Sale BC

What you need to know about assigning properties.

Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group If you’re looking for a realtor to help you assign a property, call me today !

There have been a number of pre-sale condos popping up in the Lower Mainland, and rezoning is happening in a number of places to allow for new residential buildings.

This blog will teach you what an assignment of contract of purchase and sale is and how it works.

With so many presale developments popping up, it’s important that you know your options with your presale and how to handle them safely.

To make this as easy as possible, we’ve written this blog in a question answer format for understanding an assignment of contract in real estate.

Assignment of Contract and Purchase of Sale BC: What is an assignment?

An assignment of contract in real estate is a transaction of a home in which the buyer of the property “assigns” or transfers their rights and obligations of the Agreement of Purchase and Sale previously agreed to another buyer before the original buyer closes on the property. In this case, because completion has not occurred, they are not the legal owner for the property yet, thus they require consent from either the seller or the developer(often times the developer).

This can occur in both resale and presale homes; however, assignments are most commonly found in presales where there is a longer closing, often 5 years away.

When can I assign a home? Are there any restrictions?

You will have to refer back to the original contract of purchase and sale to determine whether or not you are able to assign the home. Some terms you may encounter, specifically for presales, are:

The developer or seller’s approval
Resale profits must be split with the seller unless otherwise agreed to in the contract
Marketing can be very tricky. MLS (multiple listing service) restrictions for online marketing may be prohibited, many developers do not allow the advertising and sale of assignments until the building is sold out.
A time frame when you cannot assign the contract
An assignment fee to be paid to the developer in the presale scenario, usually 2-5% of the sale price.

Why do assignments occur?

Assignments often occur when a presale has appreciated significantly in value prior to completion. The current buyer would like to take the appreciation (often called a “lift”) while it’s up, and assign it to another buyer.

Are assignments legal?

Yes. Real estate contracts are assignable under the law unless the contract expressly forbids it.

In the past – “Shadow Flipping”:

It used to be the case where buyers could “shadow flip” in residential sales, and did not require the sellers approval in order to assign the property prior to completion. This was a huge issue in residential real estate sales in 2015 particularly, and was subject to scrutiny by the public and news broadcasters.

The Real Estate Council of BC has since required that an assignment needs to be approved by the seller and profit be split equally between the current buyer and the seller once assigned. The contract of purchase and sale for resale residential properties has also been updated to avoid “shadow flipping” and assignments without the sellers knowledge. The restriction of assigning properties for profit only applies to resale, and presale can still be assigned at the discretion of the developer.

Assignments now occur in residential resale real estate more-so in some kind of emergency from the buyer, where they are unable to complete for whatever reason like a loss of employment, death, or critical illness. In resale, assignment of contract for profit is less common now than it used to be.

What are the advantages of an assignment for the current buyer assigning the contract?

The assignor (current buyer) can most likely avoid the builder’s closing costs and property transfer tax associated with the subject property;
The assignor may not have to pay the additional taxes (i.e GST) rebate back to the Builder if they intended to occupy the property.
The seller/assignor avoids the carrying costs (mortgage, maintenance fees, taxes, etc.) for the time between listing the property and selling a property that is already completed.

What are the advantages of an assignment for the new buyer?

The assignee (new buyer) may receive a better price than other current properties on the market. This will also depend on the current buyer’s motivation to sell;
The assignee will receive a brand-new home and may also have the opportunity to make finishing selections, such as the kitchen or bathroom colour scheme, depending on when the assignment takes place;
The assignee may be able to avoid Property Transfer Tax if the original Agreement of Purchase and Sale is under $750,000;
The assignee may be able to take advantage of the deposits of the original buyer and be able to put less of a down payment on a property than he would otherwise have been able to.

Are there any restrictions involved with assignments when selling?

Yes, there are a number of restrictions that the developer can put in to the contract that make assigning a home more difficult. The most common restrictions are:

Marketing/MLS restrictions – Your realtor may not be able to advertise on the MLS, so it’s important that you hire someone with a history in presales and a great network
Sales restrictions – The developer will often put restrictions on the number of units that can be assigned at a time, as well as restrictions such as not being able to assign until the building is 100% sold. Refer to the contract for details on restrictions.

Fees associated with an assignment?

If this is a resale home that you are assigning, you will most likely have to split the profits of the assignment with the seller unless otherwise agreed to. Typically there are extra legal fees and there is an assignment fee to the builder if it is a presale assignment.

As previously mentioned, most assignments have the new buyer taking full responsibility for the contract; however, it may be the case where the new buyer and the original buyer have agreed to split some adjustment costs.

You’ll be listing the property, so you will also have to take in to account realtor commissions when assessing your net profits on an assignment.

Are there tax implications on assignments?

If you are unsure about the tax implications, it is always best to speak to an accountant to determine an estimate on what you may incur.

In general though, any profit from the assignment of a property that goes to the current buyer, after having been split out to the seller if previously agreed upon, is subject to tax as part of your income. With regards to property transfer tax, and any goods and services tax on the property, this is typically paid by the new buyer as they are responsible for taking over the contract of purchase and sale in its entirety, unless otherwise agreed upon.

Are there risks involved?

It is very important to make sure that the new buyer is willing and able to take on the assignment as well as all terms and conditions of the contract of purchase and sale. If the assignee, the new buyer, does not follow through with the completion on the sale, the responsibility to close usually defaults back to the original buyer, the assignor.

——

If you are thinking about assigning a property, make sure to talk to a realtor first to determine whether or not you will make a profit. They’ll need to take a look at your original contract, and also assess the current market to determine an estimate of the market value of the subject property.

There is no guarantee that there will be profit associated, in fact there may be a loss in a declining market. Your realtor will have to factor in all costs associated, such as fees and commissions, in order for you to make the best decision.

If you’re thinking about assigning your contract, give us a call today to see what’s right for you: 604-765-0376 . Prefer text? 604-319-0200 or email [email protected] to start a conversation.

Make the home buying process straight-forward from the start. Talk to one of our realtors today.

Get in touch with a realtor.

Want to talk right now? Give us a call 604-765-0376 or text 604-319-0200 .

Do you want to assign a home ?

With Bridgewell’s buyer systems and plans we’re determined to find the right home for you efficiently & effectively all while providing you the guidance and education that you need. Whether it’s presale or resale, investment or to live in, we’ve got you covered.

8 Reasons to Hire a Realtor When Purchasing a Presale
Pre Construction Condo Payment Schedule
GST on New Homes in BC

GST on assignment of receivables: Wrong path to the right destination

Team Vinod Kothari Consultants P. Ltd

There has been a lot of uncertainty on the issue of exigibility of direct assignments and securitisation transactions to goods and services tax (GST). While on one hand, there have been opinions that assignments of secured debts may be taxable being covered by the circuitous definition of “actionable claims”, there are other views holding such assignments of debts (secured or unsecured) to be non-taxable since an obligation to pay money is nothing but money, and hence, not “goods” under the GST law [1] . The uncertainty was costing the market heavily [2] .

In order to put diverging views to rest, the GST Council came out with a set of Frequently Asked Questions on Financial Services Sector [3] , trying to clarify the position of some arguable issues pertaining to transactions undertaken in the financial sector. These FAQs include three separate (and interestingly, mutually unclear) questions on – (a) assignment or sale of secured or secured debts [Q.40], (b) whether assignment of secured debts constitutes a transaction in money [Q.41], and (c) securitisation transactions undertaken by banks [Q.65].

The end-result arising out of these questions is that there will be no GST on securitisation transactions. However, the GST Council has relied on some very intriguing arguments to come to this conclusion – seemingly lost between the meaning of “derivatives”, “securities”, and “actionable claims”. If one does not care about why we reached here, the conclusion is most welcome. However, the FAQs also reflect the serious lack of understanding of financial instruments with the Council, which may potentially create issues in the long run.

In this note [4] we intend to discuss the outcome of the FAQs, but before that let us first understand what the situation of the issue was before this clarification.

Situation before the clarification

GST is chargeable on supply of goods or services or both. Goods have been defined in section 2(52) of the CGST Act in the following manner:

“(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”

Services have been defined in section 2(102) of the CGST Act oin in the following manner:

““services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;”

Money, is therefore, excludible from the scope of “goods” as well as “services”.

Section 7 details the scope of the expression “supply”. According to the section, “supply” includes “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.” However, activities as specified in Schedule III of the said Act shall not be considered as “supply”.

It may be noted here that “Actionable claims, other than lottery, betting and gambling” are enlisted in entry 6 of Schedule III of the said Act; therefore are not exigible to GST.

There is no doubt that a “receivable” is a movable property. “Receivable” denotes something which one is entitled to receive . Receivable is therefore, a mirror image for “debt”. If a sum of money is receivable for A, the same sum of money must be a debt for B. A debt is an obligation to pay, a receivable is the corresponding right to receive.

Coming to the definition of “money”, it has been defined under section 2(75) as follows –

““money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.”

The definition above enlists all such instruments which have a “value-in-exchange”, so as to represent money. A debt also represents a sum of money and the form in which it can be paid can be any of these forms as enlisted above.

So, in effect, a receivable is also a sum of “money”. As such, receivables shall not be considered as “goods” or “services” for the purpose of GST law.

As mentioned earlier, “actionable claims” have been included in the definition of “goods” under the CGST Act, however, any transfer (i.e. supply) of actionable claim is explicitly excluded from being treated as a supply of either goods or services for the purpose of levy of GST.

Section 2(1) of the CGST Act defines “actionable claim” so as to assign it the same meaning as in section 3 of the Transfer of Property Act, 1882, which in turn, defines “actionable claim” as –

“actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;”

It may be noted that the inclusion of “actionable claim” is still subject to the exclusion of “money” from the definition of “goods”. The definition of actionable claim travels beyond “claim to a debt” and covers “claim to any beneficial interest in movable property”. Therefore, an actionable claim is definitely more than a “receivable”. Hence, if the actionable claim represents property that is money, it can be held that such form of the actionable claim shall be excluded from the ambit of “goods”.

There were views in the industry which, on the basis of the definition above, distinguish between — (a) a debt secured by mortgage of immovable property, and a debt secured by hypothecation/pledge of movable property on one hand (which are excluded from the definition of actionable claim); and (b) an unsecured debt on the other hand. However, others opined that a debt, whether secured or unsecured, is after all a “debt”, i.e. a property in money; and thus can never be classified as “goods”. Therefore, the entire exercise of making a distinction between secured and unsecured debt may not be relevant at all.

In case it is argued that a receivable which is secured (i.e. a secured debt) shall come within the definition of “goods”, it must be noted that a security granted against a debt is merely a back-up, a collateral against default in repayment of debt.

In one of the background materials on GST published by the Institute of Chartered Accountants of India [5] , it has been emphasised that a transaction where a person merely slips into the shoes of another person, the same cannot be termed as supply. As such, unrestricted expansion of the expression “supply” should not be encouraged:

“. . . supply is not a boundless word of uncertain meaning. The inclusive part of the opening words in this clause may be understood to include everything that supply is generally understood to be PLUS the ones that are enlisted. It must be admitted that the general understanding of the world supply is but an amalgam of these 8 forms of supply. Any attempt at expanding this list of 8 forms of supply must be attempted with great caution. Attempting to find other forms of supply has not yielded results however, transactions that do not want to supply have been discovered. Transactions of assignment where one person steps into the shoes of another appears to slip away from the scope of supply as well as transactions where goods are destroyed without a transfer of any kind taking place.”

Also, as already stated, where the object is neither goods nor services, there is no question of being a supply thereof.

Therefore, there was one school of thought which treated as assignment of secured receivables as a supply under the GST regime and another school of thought promoted a view which was contrary to the other one. To clarify the position, representations were made by some of the leading bankers and the Indian Securitisation Foundation.

Situation after the clarification

The GST Council has discussed the issue of assignment and securitisation of receivables through different question, extracts have been reproduced below:
Whether assignment or sale of secured or unsecured debts is liable to GST?

Section 2(52) of the CGST Act, 2017 defines ‘goods’ to mean every kind of movable property other than money and securities but includes actionable claim. Schedule III of the CGST Act, 2017 lists activities or transactions which shall be treated neither as a supply of goods nor a supply of services and actionable claims other than lottery, betting and gambling are included in the said Schedule. Thus, only actionable claims in respect of lottery, betting and gambling would be taxable under GST. Further, where sale, transfer or assignment of debts falls within the purview of actionable claims, the same would not be subject to GST.

Further, any charges collected in the course of transfer or assignment of a debt would be chargeable to GST, being in the nature of consideration for supply of services.

Would sale, purchase, acquisition or assignment of a secured debt constitute a transaction in money?

Sale, purchase, acquisition or assignment of a secured debt does not constitute a transaction in money; it is in the nature of a derivative and hence a security.

What is the leviability of GST on securitization transactions undertaken by banks?

Securitized assets are in the nature of securities and hence not liable to GST. However, if some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged, the same would be a consideration for provision of services related to securitization and chargeable to GST.

The fallacy starts with two sequential and separate questions: one dealing with securitisation and the other on assignment transactions. There was absolutely no need for incorporating separate questions for the two, since all securitisation transactions involve an assignment of debt.
Next, the department in Question 40 has clarified that the assignment of actionable claims, other than lottery, betting and gambling forms a part of the list of exclusion under Schedule III of the CGST Act, therefore, are not subject to GST. This was apparent from the reading of law, therefore, there is nothing new in this.

However, the second part of the answer needs further discussion. The second part of the answer states that – any charges collected in the course of transfer or assignment of a debt would be chargeable to GST, being in the nature of consideration for supply of services.

There are multiple charges or fees associated in an assignment or securitisation transaction – such as servicing fees or excess spread. While it is very clear that the GST will be chargeable on servicing fees charged by the servicer, there is still a confusion on whether GST will be charged on the excess spread or not. Typically, transactions are devised to give residuary sweep to the originator after servicing the PTCs. Therefore, there could be a challenge that sweep right is also a component of servicing fees or consideration for acting as a servicing agent. The meaning of consideration [6] under the CGST Act is consideration in any form and the nomenclature supports the intent of the transaction.

Since, the originator gets the excess spread, question may arise, if excess spread is in the nature of interest. This indicates the need for proper structuring of transactions, to ensure that either the sweep right is structured as a security, or the same is structured as a right to interest. One commonly followed international structure is credit-enhancing IO strip. The IO strip has not been tried in Indian transactions, and recommendably this structure may alleviate concerns about GST being applied on the excess spread.

Till now, whatever has been discussed was more or less settled before the clarification, question 41 settles the dispute on the contentious question of whether GST will be charged on assigned of secured debt. The answer to question 41 has compared sale, purchase, acquisition or assignment of secured debt with a derivative. The answer has rejected the view, held by the authors, that any right to a payment in money is money itself. The GST Council holds the view that the receivables are in the nature of derivatives, the transaction qualifies to be a security and therefore, exempt from the purview of supply of goods or supply of services.

While the intent of the GST Council is coming out very clear, but this view is lacking supporting logic. Neither the question discusses why assignments of secured receivables are not transactions in money, nor does it state why it is being treated as derivative.

Our humble submission in this regard is that assignment of secured receivables may not be treated as derivatives. The meaning of the term “derivatives” have been drawn from section 2(ac) of the Securities Contracts (Regulation) Act, 1956, which includes the following –

(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;

(B) a contract which derives its value from the prices, or index of prices, of underlying securities.

In the present case, assignment of receivables do not represent any security nor does it derive its value from anything else. The receivables themselves have an inherent value, which get assigned, the fact that it is backed a collateral security does not make any difference as the value of the receivables also factor the value of the underlying.

Even though the logic is not coming out clear, the intent of the Council is coming out clearly and the efforts made by the Council to clear out the ambiguities is really commendable.

[1] Refer: GST on Securitisation Transactions , by Nidhi Bothra, and Sikha Bansal, at http://vinodkothari.com/blog/gst-on-securitisation-transactions-2/ ; pg. last visited on 06.06.2018

[2] At the recently concluded Seventh Securitisation Summit on 25 th May, 2018, one leading originator confirmed that his company had kept transactions on hold in view of the GST uncertainty. It was widely believed that the dip in volumes in FY 2017-18 was primarily due to GST uncertainty.

[3] http://www.cbic.gov.in/resources//htdocs-cbec/gst/FAQs_on_Financial_Services_Sector.pdf

[4] Portions of this note have been adopted from the article – GST on Securitisation Transactions, by Nidhi Bothra and Sikha Bansal.

[5] http://idtc-icai.s3.amazonaws.com/download/pdf18/Volume-I(BGM-idtc).pdf ; pg. last visited on 19.05.2018

[6] (31) “consideration” in relation to the supply of goods or services or both includes––

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

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COMMENTS

Assignment of a Purchase and Sale Agreement for a New House or
For more information about the legislative amendment, refer to GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales. GST/HST Info Sheet GI-120 July 2011 This info sheet explains how the GST/HST applies to the assignment of a purchase and sale agreement for the construction and sale of a new house.
Tax Implications on Assignment of a Purchase Contract
The assignment will be GST/HST-exempt. But if the CRA determines the assignor's intent was to flip the property, then the assignor could be required to collect and remit tax on the transaction, either on the assignment fee or on total price paid by the assignee for the home, depending on the terms of the assignment agreement.
2022 Changes to GST/HST on Assignments
Summary of the changes to GST/HST on assignments effective May 7th 2022: The new change makes it so that there is GST/HST on assignments regardless of original intentions. Previously, if the original intention of entering the pre-construction contract/Agreement of Purchase and Sale (APS) was for personal use, GST/HST on assignments did not apply.
Real Estate & Construction
To bring some clarity to the tax implications on the assignment of a purchase contract, we will discuss the key income tax, GST/HST, and CRA audit considerations for both contracting parties. Before we get started, let's review the role of the three parties involved in this type of transaction: the assignor, the assignee, and the builder.
Tax Insights: GST/HST issues relating to the assignment of ...
The assignment of an APS to a third party will be a taxable supply, unless it qualifies for an exemption. The assignee may be eligible to claim the new housing rebate, but the builder may be required to credit the rebate against the purchase price. Learn more about the GST/HST implications and the Tax Court of Canada's decision in Chen Sun v. The Queen.
Federal Budget 2022: Taxation of Property Flipping, GST and Assignment
Section 5.18 of the BCREA Assignment of Contract of Purchase and Sale New Development standard form states that "The Assignment Amount is inclusive of any GST payable with respect to the Assignment Agreement and the Assignor shall remit any GST payable.
GST on Assignments and Resales
When purchasing a presale home, the buyer is also responsible for both the PST and GST on the cost of the home, and GST on the assignment amount (which is often already included). That being said, some buyers may qualify for a GST/HST new housing rebate if the property will be their primary residence and if the purchase amount is under $450,000 ...
Tax Implications of a Real Estate Assignment: a Tax Exposure Calculator
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.
CRA explains the implications of the new GST/HST treatment of home
As only one new housing rebate application can be made for each new house, and the builder ("Builder A") does not receive the consideration for the assignment of the purchase contract to the assignee: [T]he assignee purchaser may want to file their new housing rebate application directly with the CRA rather than through Builder A.
GST/HST on Assignment of New Housing Agreements
Whether or not GST/HST applies on the assignment of a purchase and sale agreement depends on whether the person selling the interest is considered a "builder" for GST/HST purposes. ... if the purchaser previously made a $50,000 deposit to the original builder and agrees to sell the contract for $100,000, the GST/HST applies only to the ...
Tax on Assignment Sales: What You Need to Know
#2 - CRA May Assess GST/HST on Assignment Sales. ... 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.
Real Estate Assignment Sales
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.
Sales Tax Issues in Real-Property Transactions
Assignment of purchase and sale contract. Historically, CRA has been known to assess GST on assignment fees received following the resale of presale units prior to the completion of construction; however, GST does not apply to these assignment fees in most cases. Where the original purchaser was not a "builder" of the underlying residential ...
Tax Guidance for Assignors in Real Estate Assignments.
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 ...
Assignment of Contract and Purchase and Sale BC
If you're thinking about assigning your contract, give us a call today to see what's right for you: 604-765-0376. Prefer text? 604-319-0200 or email [email protected] to start a conversation. Make the home buying process straight-forward from the start. Talk to one of our realtors today. TALK TO US!
[The Viewpoint] Unravelling GST issues in works contract agreements
Further, for government contracts, the same rate of GST as applicable on the main contract will be applicable on the sub-contracted work. GST @ 12% is levied on works contract services in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles. Time of supply.
PDF Handbook on
1. Understanding Works Contract 1 2. Rates of GST for Works Contract 3 3. Input Tax Credit for Works Contract Services 7 4. Place of Supply and Time of Supply in respect of Works Contract 9 5. Valuation of Works Contract 14 6. Miscellaneous topics under Works Contract 16 7. Part of Schedules of CGST Acts, 2017 18 8. TDS in relation to Works ...
GST on assignment of receivables: Wrong path to the right destination
There is no doubt that a "receivable" is a movable property. "Receivable" denotes something which one is entitled to receive. Receivable is therefore, a mirror image for "debt". If a sum of money is receivable for A, the same sum of money must be a debt for B. A debt is an obligation to pay, a receivable is the corresponding right ...
PDF CBIC releases FAQs document on the financial services sector
from GST. 19. Income earned from commercial paper/ certificate of deposit is not liable to GST. 20. Where assignment or sale of secured or unsecured debts falls within the purview of actionable claims, GST will not be not attracted. Only charges collected in the course of transfer or assignment of a debt would be chargeable to GST.
PDF Practical Implications of Works Contract Under Gst Law
CONTRACT UNDER GST LAW SATYA S MAHASUAR DM Finance, NALCO Introduction: ST rollout w.e.f 01st July 2017 was a planned event for ministry and department, but all most all business entity was expecting a delay and hence preparation was really half-hearted. But, the dream of getting a delayed rollout notification was ...
Relief Provisions Respecting Timely Allocation of GST Exemption and
The amount of GST exemption that may be allocated to a transfer as the result of relief granted under this section in no event may exceed the amount of the transferor's unused GST exemption under section 2631(c) of the Code as of the date of the transfer. Thus, if, by the time of the making of the allocation or election pursuant to relief ...