In an assignment sale, tax is applicable based on the assignor’s intent for the unit. If the assignor’s primary purpose is to dispose/ sell their interest on the property then it is taxable. If their intent however was to occupy the unit as a place of residence then it is generally exempt. Therefore, this article will focus on tax implications for assignor’s whose primary purpose is to sell their interest on the property for profit.
Tax is collected twice in an assignment sale. With HST and business income both being applicable to the profit of an assignment sale.
HST 13%
As of May, 7th 2022 the government of Canada has excluded deposit reimbursement from being taxable in an assignment sale. With HST being applied only to the profit from an assignment sale.
For example, if the assignor purchased a unit at $750,000 and submitted $100,000 in deposits and was sold to the assignee for $900,000 with the profit being $150,000, then what is taxable?
Before May, 7th. 2022 HST would be applicable towards both the deposit reimbursement and the profit totaling $250,000, but now it is only applicable to the profit of $150,000. So, in this specific transaction, HST being remitted is $19,500.
Business Income
On top of the HST paid from the sale, the assignor will also be charged business income on their profit. The Ontario basic income tax rate is 11.5%.
Who Pays HST
Typically the HST is included into the purchase price and would be payable by the assignee/ buyer. It would then be remitted by the assignor.
Capital Gains
To qualify for capital gains tax where only 50% of the profit is taxable rather than the full 100%, the taxpayer must have evidence to support their claim that the use was for long-term purposes such as occupying the unit or using it as a rental property. If however, the taxpayer has a long history of flipping properties then they would be viewed as a trader and would not qualify for 50% capital gains.
Primary Residence Exemption
Assignor’s with the intent to move into the unit as a primary residence would believe they qualify for the primary residence tax exemption, but because the rights were sold before occupancy and the unit was never inhabited then this exemption would not apply.
Expenses
The assignor can claim builder assignment fees, legal fees and the commission paid out to the brokerage.