All Assignment Sales & Substantial Renovations Are GST/HST Taxable
All assignment sales of newly constructed or substantially renovated residential housing are taxable for GST/HST purposes.
Generally, all purchases from a “Builder” are subject to HST. Previously, each assignment transaction was subject to a fact-based analysis of the circumstances of the transaction to determine whether the Assignor was a “Builder” for HST purposes. HST loophole existed where the Assignor initially purchased the unit for their own use as a primary place of residence.
As of May 7, 2022, all assignment transactions are considered HST-taxable supplies. This applies in respect of any supply by way of assignment of an agreement of purchase and sale if the assignment agreement was entered into after May 6, 2022.
Before Change
Prior to the change, whether the GST/HST applied to assignment sales depended on the primary purpose of the Agreement of Purchase and Sale (APS) with the Builder. If deemed to apply, GST/HST was applied on the assignment price -- that is, what the assignee paid to the assignor, including the deposit already paid by the assignor to the builder.
After Change With the above-noted change, GST/HST applies to all assignment sales, regardless of the assignor’s primary purpose of the APS with the builder. This means that GST/HST only applies to the profit and does not apply to deposits paid to the builder.
Tax Concerns for Assignors
Does income from an assignment count as business income or capital gain?
If you are an assignor, you should keep in mind that commercial activity implies business income treatment, which means that different tax rates may apply. Be sure to consult with your tax advisor regarding the tax treatment of income from assignments.
Who is responsible for remitting?
There has been no change in this regard. The assignor remains responsible for collecting the GST/HST and remitting the tax to the CRA. If the assignor is a non-resident of Canada, the assignee is required to self-assess and pay the GST/HST directly to the CRA.
Author:
Firoozeh Rose Bahrami B.Sc. LL.B.
Senior Partner